1. Services
by or to Government authority
1.1. Definitions
1.1.1. Local authority
As per section 2(31) of act, "local authority" means-
) a Panchayat as referred to in clause (d) of article 243 of the Constitution ;
b) aMunicipality as referred to in clause (e) of article 243P of the Constitution ;
c) a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund ;
d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006
(e) a regional council or a district council constituted under the Sixth Schedule to the Constitution
f) a development board constituted under article 371 of the Constitution; or
g) a regional council constituted under article 371A of the Constitution:;
The definition of ‘local authority’ is very specific as explained above and only those bodies which fall in the definition comprise ‘local authorities’. It would not include other bodies which are merely described as a local body by virtue of a local law. However, it may be noted that services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are specifically exempt under the mega exemption. Thus some of these local bodies may comprise governmental authorities. However, other statutory body, corporation or an authority created by the Parliament or a State Legislature is neither ‘Government’ nor a ‘local authority’.
Further as per guidance note on service tax issued by CBEC on 20th June, 2012, CBEC has clarified that the phrase ‘Government’ has not been defined in the Act. As per clause (23) of section 3 of the General Clauses Act, 1897 ‘Government’ includes both Central Government and any State Government. As per clause (8) of section 3 of the said Act ‘Central Government’, in relation to anything done or to be done after the commencement of the Constitution, mean the President. As per article 53 of the Constitution the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, in terms of article 77 of the Constitution all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.
Similarly as per clause (60) of section 3 of the General Clauses Act,1897 ‘State Government’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor, and in Union Territory the Central Government. Further as per article 154 of the Constitution the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, as per article 166 of the Constitution all executive actions of the Government of State shall be expressed to be taken in the name of Governor. Therefore, State Government means the Governor or the officers subordinate to him who exercise the executive power of the State vested in the Governor and in the name of the Governor.
(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
(iii) transport of goods or passengers; or
For the support services provided by the Government, other than where such support services are by way of renting of immovable property, to business entities, service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism. (para 4.1.6)
1.3. Exemption under the Mega Exemption Notification
1.3.1. As per entry 12 of mega exemption notification no. 25/2012-ST, dated 20th June, 2012, following services would be exempt from service tax provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
(b) repair or maintenance of a vessel[1];
Vide notification no. 3/2013-ST, dated 1st March, 2013, in entry no. 25 of notification, services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft would be omitted and the same would not be exempt from service tax.
1.3.3. As per entry no. 34 of exemption notification, if Services received from a provider of service located in a non- taxable territory by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession would be exempt from service tax.
Functions entrusted to a municipality under article 243W of the Constitution:
‘Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow—
a. the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to—
i. the preparation of plans for economic development and social justice;
ii. the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;
(i) Urban planning including town planning.
(ii) Regulation of land-use and construction of buildings.
(iii) Planning for economic and social development.
(iv) Roads and bridges.
(v) Water supply for domestic, industrial and commercial purposes.
(vi) Public health, sanitation conservancy and solid waste management.
(vii) Fire services.
(viii) Urban forestry, protection of the environment and promotion of ecological aspects.
(ix) Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
(x) Slum improvement and upgradation.
(xi) Urban poverty alleviation.
(xii) Provision of urban amenities and facilities such as parks, gardens, playgrounds.
(xiii) Promotion of cultural, educational and aesthetic aspects.
(xiv) Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. (para 7.3.2)
A statutory body, corporation or an authority created by the Parliament or a State legislature is neither ‘Government’ nor a ‘local authority’ as would be evident from the meaning of these terms explained in point nos. 2.4.7 and 2.4.8 above respectively. Such statutory body, corporation or an authority are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution respectively. It is a settled position of law of Government (Agarwal Vs. Hindustan Steel AIR 1970 Supreme Court 1150) that the manpower of such statutory authorities or bodies do not become officers subordinate to the President under article 53(1) of the Constitution and similarly to the Governer under article 154(1). Such a statutory body, corporation or an authority as a juristic entity is separate from the state and cannot be regarded as Central or State Government and also do not fall in the definition of ‘local authority’.
1.1. Definitions
1.1.1. Local authority
As per section 2(31) of act, "local authority" means-
) a Panchayat as referred to in clause (d) of article 243 of the Constitution ;
b) aMunicipality as referred to in clause (e) of article 243P of the Constitution ;
c) a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund ;
d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006
(e) a regional council or a district council constituted under the Sixth Schedule to the Constitution
f) a development board constituted under article 371 of the Constitution; or
g) a regional council constituted under article 371A of the Constitution:;
The definition of ‘local authority’ is very specific as explained above and only those bodies which fall in the definition comprise ‘local authorities’. It would not include other bodies which are merely described as a local body by virtue of a local law. However, it may be noted that services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are specifically exempt under the mega exemption. Thus some of these local bodies may comprise governmental authorities. However, other statutory body, corporation or an authority created by the Parliament or a State Legislature is neither ‘Government’ nor a ‘local authority’.
1.1.2.
Governmental authority:
As
per mega exemption notification, “governmental authority’’ means a board, or an
authority or any other body established with 90% or more participation by way
of equity or control by Government and set up by an Act of the Parliament or a
State Legislature to carry out any function entrusted to a municipality under
article 243W of the Constitution; Further as per guidance note on service tax issued by CBEC on 20th June, 2012, CBEC has clarified that the phrase ‘Government’ has not been defined in the Act. As per clause (23) of section 3 of the General Clauses Act, 1897 ‘Government’ includes both Central Government and any State Government. As per clause (8) of section 3 of the said Act ‘Central Government’, in relation to anything done or to be done after the commencement of the Constitution, mean the President. As per article 53 of the Constitution the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, in terms of article 77 of the Constitution all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.
Similarly as per clause (60) of section 3 of the General Clauses Act,1897 ‘State Government’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor, and in Union Territory the Central Government. Further as per article 154 of the Constitution the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, as per article 166 of the Constitution all executive actions of the Government of State shall be expressed to be taken in the name of Governor. Therefore, State Government means the Governor or the officers subordinate to him who exercise the executive power of the State vested in the Governor and in the name of the Governor.
1.1.3.
Support
services:
As per section 2(49) of the act, "support services" means infrastructural,
operational, administrative, logistic, marketing or any other support of any
kind comprising functions that entities carry out in ordinary course of operations
themselves but may obtain as services by outsourcing from others for any reason
whatsoever and shall include advertisement and promotion, construction or works
contract, renting of immovable property, security, testing and analysis;
1.2. Negative
List of Services – 66D
As per section 66D(a) of act, services provided by
Government or a local authority would be exempt form service tax excluding the
following services to the extent they are not covered elsewhere- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
(iii) transport of goods or passengers; or
(iv) support services, other than
services covered under clauses (i)
to (iii) above, provided to
business entities;
With respect to above entry CBEC has clarified following in Guidance
notes on service tax issued by CBEC on 20th June, 2012:
(a)
Support service from GovernmentFor the support services provided by the Government, other than where such support services are by way of renting of immovable property, to business entities, service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism. (para 4.1.6)
- Support
services which are provided by government in terms of their sovereign
right to business entities, and which are not substitutable in any manner
by any private entity, are not support services. (para 4.1.7)
- Services
provided by government security agencies are support service as similar
services can be provided by private entities. However the tax will be
actually payable on reverse charge by the recipient. (para 4.1.8)
1.3. Exemption under the Mega Exemption Notification
1.3.1. As per entry 12 of mega exemption notification no. 25/2012-ST, dated 20th June, 2012, following services would be exempt from service tax provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
1.3.2. As per entry no 25 of mega exemption notification, services provided to
Government, a local authority or a governmental authority by way of -
(a) carrying out any
activity in relation to any function ordinarily entrusted to a municipality in
relation to water supply, public health, sanitation conservancy, solid waste
management or slum improvement and upgradation; or(b) repair or maintenance of a vessel[1];
Vide notification no. 3/2013-ST, dated 1st March, 2013, in entry no. 25 of notification, services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft would be omitted and the same would not be exempt from service tax.
1.3.3. As per entry no. 34 of exemption notification, if Services received from a provider of service located in a non- taxable territory by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession would be exempt from service tax.
1.3.4. As per entry no 39 of mega exemption notification, if Services provided
by a governmental authority by way of any activity in relation to any function
entrusted to a municipality under article 243 W of the Constitution would be
exempt from service tax.
Following clarification
has been provided by CBEC in Guidance note on service tax issued on 20th
June, 2012Functions entrusted to a municipality under article 243W of the Constitution:
‘Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow—
a. the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to—
i. the preparation of plans for economic development and social justice;
ii. the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;
b.
the Committees with such powers and authority as may
be necessary to enable them to carry out the responsibilities conferred upon
them including those in relation to the matters listed in the Twelfth
Schedule.’
Matters listed in twelfth schedule are:(i) Urban planning including town planning.
(ii) Regulation of land-use and construction of buildings.
(iii) Planning for economic and social development.
(iv) Roads and bridges.
(v) Water supply for domestic, industrial and commercial purposes.
(vi) Public health, sanitation conservancy and solid waste management.
(vii) Fire services.
(viii) Urban forestry, protection of the environment and promotion of ecological aspects.
(ix) Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
(x) Slum improvement and upgradation.
(xi) Urban poverty alleviation.
(xii) Provision of urban amenities and facilities such as parks, gardens, playgrounds.
(xiii) Promotion of cultural, educational and aesthetic aspects.
(xiv) Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. (para 7.3.2)
·
Services by a governmental authority by way of any
activity in relation to any function entrusted to a municipality under article
243 W of the Constitution are only exempt and not all service provided by
governmental authority are exempt (para 7.3.3)
1.4. FAQs on services by or to a
government or local authority
1. Would
various entities like a statutory body, corporation or an authority constituted
under an Act passed by the Parliament or any of the State legislatures be ‘Government’ or “local authority”?A statutory body, corporation or an authority created by the Parliament or a State legislature is neither ‘Government’ nor a ‘local authority’ as would be evident from the meaning of these terms explained in point nos. 2.4.7 and 2.4.8 above respectively. Such statutory body, corporation or an authority are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution respectively. It is a settled position of law of Government (Agarwal Vs. Hindustan Steel AIR 1970 Supreme Court 1150) that the manpower of such statutory authorities or bodies do not become officers subordinate to the President under article 53(1) of the Constitution and similarly to the Governer under article 154(1). Such a statutory body, corporation or an authority as a juristic entity is separate from the state and cannot be regarded as Central or State Government and also do not fall in the definition of ‘local authority’.
Thus
regulatory bodies and other autonomous entities which attain their entity under
an act would not comprise either government or local authority.
2. Would services provided by one department of the Government
to another Department of the Government be taxable?
If
services are provided by one department of the Central Government to another
department of the Central Government or by a department of a State Government
to another department of the same State Government then such service would not
be taxable as it would amount to self-service. To be taxable a service has to
be provided to another person.
On
the other hand if a service is provided by a Central Government department to a
State Government department or vice versa or a by a State to another State
Government or by a Government to an autonomous body, the same would be taxable
if such service does not fall in the negative list. It is another matter that
most of the services provided by the Government are in the negative list.
3. Would taxable services provided by Government or local
authorities still be liable to tax if they are covered under any other head of
the negative list or are otherwise exempted?
No.
For example, transport services provided by Government to passengers by way of
a stage carriage would not be taxable as transport of passengers by stage
carriage has separately been specified in the negative list of services. The
specified services provided by the Government or local authorities are taxable
only to the extent they are not covered elsewhere i.e. either in the negative
list or in the exemptions.
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