Service Tax Updates Exemptions to services provided by Government or a local authority. April 16, Khandhar Mehta & Shah Chartered Accountants

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1 Service Tax Updates Exemptions to services provided by Government or a local authority April 16, 2016 Khandhar Mehta & Shah Chartered Accountants

2 Notification No. 22/2016- ST dated Mega Exemption Notification w.e.f , any services provided by Government or Local Authority to business entities is liable to service tax under reverse charge where service recipient is liable to pay service tax as a recipient of service. CBEC has issued Notification No. 22/2016- ST dated amending Mega Exemption Notification 25/2012-ST dated wherein various services provided by Government or Local authority has been exempted from the levy of service tax. Amendment in Entry 39 of Mega Exemption Notification Entry 39 of the mega exemption notification is amended wherein services provided by Government, local authority or a Government Authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution is made exempted. Earlier the said exemption was only for services provided by Government authority. New Exemptions New Exemption Entry 54 is inserted to provide exemption to services provided by Government or a local authority to another Government or local authority. However, said exemption will not be available to services which are enlisted in negative list in sub-clauses (i),(ii) and (iii) of Section 66D(a) of the Finance Act.

3 Notification No. 22/2016- ST dated New Exemption Entry 55 is inserted which provides exemption to services provided by Government or a local authority to an individual who may be carrying out a profession or business by way of issuance of passport, visa, driving license, birth certificate or death certificate. New Exemption Entry 56 provides exemption to services provided by Government or a local authority where the gross amount charged for services does not exceed Rs. 5000/-. The said exemption will not be available to services which are enlisted in negative list in subclauses (i),(ii) and (iii) of Section 66D(a) of the Finance Act. Further, in case of continuous supply of service, the exemption shall apply only where the GROSS amount charged for such service does not exceed Rs. 5000/- in a financial year. New Exemption Entry 57 is inserted to provide exemption to services provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract. Further to it, TRU Circular no. 192/02/2016-Service Tax dated has clarified that fines and penalties chargeable by government or a local authority imposed for violation of a statute, bye-laws, rules or regulation are not leviable to service tax.

4 Notification No. 22/2016- ST dated New Exemption Entry 58 is inserted to provided exemption to services provided by Government or a local authority by way of registration, testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large required under any law for the time being in force. New Exemption Entry 59 provides exemption to services provided by Government or a local authority by way of assignment of right to use natural resources to an individual farmer for the purposes of agriculture. New Exemption Entry 60 is inserted to provide exemption to services provided by Government, a local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution. New Exemption Entry 61 provides exemption to services provided by Government or a local authority by way of assignment of right to use any natural resource where such right was assigned prior to Meaning thereby, any such assignments post will be subject to Service Tax. The said exemption shall apply only to one time charge payable, either in full upfront or in installments and not to any periodic payments required to be made by the assignee i.e. monthly payment with respect to coal extracted from the coal mine, royalty payable on extracted coal, etc..

5 Notification No. 22/2016- ST dated New exemption Entry 62 is inserted to provide exemption to services provided by Government or a local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum during the financial year on payment of license fee or spectrum user charges, as the case may be. New exemption Entry 63 is inserted to provide exemption to services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime charges (MOT). TRU Circular no. 192/02/2016-Service Tax dated has clarified that taxes, cesses or duties levied are not consideration for any particular service as such and hence not leviable to service tax. These taxes, cesses or duties include excise duty, customs duty, service tax, VAT, CST, income tax, wealth tax, octroi, luxury tax, property tax, etc.

6 Notification No. 23/2016- ST dated Service Tax Valuation Rules As per Rule 6(2)(iv) of Service Tax Valuation Rules, 2006, value of taxable service shall not include interest on delayed payment of any consideration for the provision of services or sale of property, whether movable or immovable. CBEC has issued Notification No. 23/2016- ST dated wherein in Rule 6(2)(iv) the following proviso is inserted :- Provided that this clause shall not apply to any service provided by Government or a local authority to a business entity where payment for such service is allowed to be deferred on payment of interest or any other consideration. As a result, interest chargeable on deferred payment in case of any service provided by Government or a local authority to a business entity, where payment of such service is allowed to be deferred on payment of interest, interest amount shall be included in value of taxable service.

7 Notification No. 24/2016- ST dated Point of Taxation Rules Rule 7 of Point of Taxation Rules, 2011 will be applicable as service recipient is the person liable to pay service under reverse charge in case of any services provided by government or a local authority. CBEC has issued Notification No. 24/2016- ST dated where in Rule 7, after third proviso, the following proviso shall be inserted :- Provided also that in case of services provided by Government or a local authority to a business entity, the Point of taxation of shall be the earlier of the dates on which ; a) Any payment, part or full, in respect of such service becomes due, as specified in the invoice, bill, challan or any other document issued by the Government or local authority demanding such payment; or b) Payment for such services is made. Thus, the Point of Taxation (PoT) in case of services provided by Government or a local authority will be : PoT - Earlier of Amount due as per invoice, bill, etc. Payment made

8 Notification No. 24/ CE (N.T.) dated CENVAT Credit Rules CENVAT Credit of service tax paid under reverse charge on one-time charges (whether full upfront or in installments) paid in a year for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of three years. However, service tax paid on spectrum user charges, license fee, transfer fee charged by the Government on trading of spectrum would be available in the year in which the tax is paid. Also periodic amount of royalty paid in respect of natural resources shall be available as credit in the year in which the tax is paid. Further, the rule 4(7) of CENVAT Credit Rules, 2004 barring availment of CENVAT Credit after 1 year from the date of issue of invoice will not be applicable to service tax paid under reverse charge on one-time charges payable in full upfront or in installments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person

9 Kandahar Mehta & Shah Chartered Accountants 3rd Floor, Depth Complex, B/h Lal Bunglow, Off C G Road, Ahmedabad Tel: /52/53 Disclaimer: KMS Updates is meant for information purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. KMS updates is prepared based on the understanding of the provisions as stood applicable as on date. KMS is not responsible for any error or omission in this update or for any action taken based on its contents.