You are on page 1of 6

CAclubindia News : Taxability of Government Services Under Reverse C...

1 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

Taxability of Government Services Under Reverse


Charge Mechanism
W.e.f. 01st April 2016 all the government services provided to the business entity are taxable in the hands of
service receiver. Prior to 01st April 2016 only support services were taxable in the hands of service recipient.
After introduction these provision much confusion & misinterpretations arrived. I hope following commentary
will end the mystery about the provision
1) Taxability of Government services:- As per Section 66B Service tax shall be levied at the rate of 14%
[Plus 0.5% SBC and 0.5% KKC w.e.f. 01st June 2016] on all services except on those services specified in
the negative list, provided or agreed to be provided in taxable territory by one person to another person. The
service also defined under Section 65 B(44) of the Act as an activity carried out by one person for another
person for a consideration and includes declared services but excludes certain activities.
To make Indian taxation acquaint with global taxation negative list approach was accepted by government of
India in service tax by inserting Section 66D to the Finance Act 1994. Negative list includes those services
which are out of the ambit of service tax. Currently 17 services are covered under this list. Apart from 17
negative services, all other services are taxable subject to various exemptions.
Government service is one of the service which is covered under Negative List. As per section 66D (a)
services by government or a local authority are not subject to payment of service tax but excludes the
following
i. services by the Department of Posts by way of speed post, express parcel post, life insurance agency,
and agency services provided to a person other than Government
ii. Services in relation to an aircraft or vessel, includes or outside the precinct of a port or an air port
iii. Transport of goods and passenger;
iv. support services, other than services covered under clauses (i) to (iii) above, provided to business
entities;
In the budget of 2015-16 the word support service was substituted with the word any service. This makes all
the government services taxable, if provided to business entity. Though the amendment was made in the
budget 15-16 but was not made effective till 01st April 2016. To reduce the burden of service tax on
recipient of the service many government services are still exempted.
2) What is government:- prior to finance act 2015 there was no definition for the term Government and
was inserted under clause 26A to the Section 65B w.e.f 14th May 2015. The definition reads as
Government means the Department of the Central Government, a state government and its departments
and a union territory and its department but shall not include an entity which is not required to maintain the
accounts as per article 150 of the Constitution of India.
This exclusion category would include entities and body corporate such as
Banks / financial constitutions
Housing Boards
Central or State Public Sector Undertakings (PSUs)
Autonomous bodies
State Financial Corporations

08-Jul-16 11:48 AM

CAclubindia News : Taxability of Government Services Under Reverse C...

2 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

Development authorities
Institutes such as ICAI, ICSI, ICMAI etc
3) Liability of payment of tax on Government services:- Normally service provider is liable for the
payment of service tax in terms of section 68 (1). However government may collect service tax from service
recipient (under reverse charge mechanism) under section 68(2). Government has notified a list of services
covered under reverse charge mechanism vide notification no. 30/2012 dated on 20th June 2012. Service
provided by government or local authority to body corporate is covered under section 68(2). Hence body
corporate is responsible for the payment of Service tax under reverse charge mechanism.
4) Value of Service on which service tax is payable:- The value of service shall be determined in terms of
provisions of Section 67 of an Act. According to section 67 value of service shall be the gross amount charged
by the service provider. Therefore for all government services, bill/challan value which is actually paid to the
government shall be the value for the purpose of calculation and payment of service tax.
Time & rate at which service tax is payable:- Consequent to amendment of Section 67A the rate of duty is
now decided as per the provision of Point of taxation rules 2011. Point of taxation is the point in terms of
time when Service tax shall be payable to the government. As per Rule 7 of Point of taxation rules 2011 for
the government service, tax shall be payable to the government at the rate prevailing & earlier on the dates
on which a. amount is payable to the government (Due date of payment) or
b. date of actual payment
c. Exemption on various Government Service:- Recipient of the service is exempted from the payment of
service tax in following cases
1. General Exemption:- Services provided by Government or a local authority (other than specified in
sub-clauses (i), (ii) and (iii) of clause (a) of section 66D) where the gross amount charged for such services
does not exceed Rs. 5000/- is exempted from the payment of the service tax.
2. Specific Exemption:- Following specific exemption are given under Notification 25/2012 as amended by
Notification No 22/2016 dated on 13th April 2016.
Services by a government or a local authority by way of any activity in relation to any function entrusted to a
municipality under article 243 W of the Constitution.
Following activities are notified under article 243W of constitution of India
a. Urban planning including town planning.
b. Regulation of land-use and construction of buildings.
c. Planning for economic and social development.
d. Roads and bridges.
e. Water supply for domestic, industrial and commercial purposes.
f. Public health, sanitation conservancy and solid waste management.
g. Fire services.
h. Urban forestry, protection of the environment and promotion of ecological aspects.
i. Safeguarding the interests of weaker sections of society, including the handicapped and mentally
retarded.
j. Slum improvement and upgradation.
k. Urban poverty alleviation.
l. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

08-Jul-16 11:48 AM

CAclubindia News : Taxability of Government Services Under Reverse C...

3 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

m. Promotion of cultural, educational and aesthetic aspects.


n. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.
o. Cattle pounds; prevention of cruelty to animals.
p. Vital statistics including registration of births and deaths.
q. Public amenities including street lighting, parking lots, bus stops and public conveniences.
r. Regulation of slaughter houses and tanneries.
3. Services provided by Government or a local authority by way of issuance of passport, visa, driving license,
birth certificate or death certificate;
4. 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;
5. Services provided by Government or a local authority by way ofa. registration required under any law for the time being in force;
b. 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;

6. Services 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;. Following activities are
notified under article 243W of constitution of India
Agriculture, including agricultural extension.
Land improvement, implementation of land reforms, land consolidation and soil conservation.
Minor irrigation, water management and watershed development.
Animal husbandry, dairying and poultry.
Fisheries.
Social forestry and farm forestry.
Minor forest produce.
Small scale industries, including food processing industries.
Khadi, village and cottage industries.
Rural housing.
Drinking water.
Fuel and fodder.
Roads, culverts, bridges, ferries, waterways and other means of communication.
Rural electrification, including distribution of electricity.

08-Jul-16 11:48 AM

CAclubindia News : Taxability of Government Services Under Reverse C...

4 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

Non-conventional energy sources.


Poverty alleviation programme.
Education, including primary and secondary schools.
Technical training and vocational education.
Adult and non-formal education.
Libraries.
Cultural activities.
Markets and fairs.
Health and sanitation, including hospitals, primary health centres and dispensaries.
Family welfare.
Women and child development.
Social welfare, including welfare of the handicapped and mentally retarded.
Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.
Public distribution system.
Maintenance of community assets.
7) 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).
All services other than specified above are subject to payment of service tax under reverse charge
mechanism.
Whether Cenvat Credit is available on payment of service tax on reverse charge mechanism? :- yes
Cenvat credit is available on the basis of GAR 7 challan
List of Government services received by the business entity and its taxability
Sr No Nature of Service

Taxability

Duties like Central Excise,


1. Service tax, Vat, Income tax Not Taxable
etc.

2.

Registration
statutes

under

3. Penalties or Fines

4. Interest Paid if any

various

Not Taxable

Not Taxable

Remark
Collection of taxes is the
sovereignty powers of the Central
Govt., State Govt. & Local
Authorities under the law and It is
not consideration against the
provision of any service. Hence not
taxable
Exempted through entry no 58 of
25/2012 as amended on 20th June
2016
Penalty charged on violation of any
law is exempted vide entry no 57 of
25/2012 as amended on 20th June
2016
In case of onetime payment:- Non
taxable

In Case of deferred payment


Taxable as well as
System:- Taxable :- When service
non-taxable
is provided by the government to
business entity and where payment
of such service is allowed to be

08-Jul-16 11:48 AM

CAclubindia News : Taxability of Government Services Under Reverse C...

5 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

made in installment system on


payment of interest shall be included
in the value of the service

Fees / Charges for licensing


5. or
permission
or
for Taxable
authorization.

6. Court or Stamp Fees

Not taxable

Services by way of grant of


7. passport, visa, driving license, Not taxable
birth or death certificates

Fees paid to various ministry


8. like Ministry of Corporate Taxable
affairs

9.

Agricultural Tax collected by


Non Taxable
Talathi /Tahasildar

10.

Fees of 7/12 Extract / City


Survey Extract

11.

PF Administration Fees &


Annuity Charges

12.

13.

MOT Charges

Non Taxable

Building Plan Approval Fees,


charges for change of land Non taxable
use and other utilities

[Note:- Interest Charged on any tax


shall not be taxable ]
It is clarified that any activity
undertaken by Government or a
local
authority
against
a
consideration constitutes a service
and the amount charged for
performing such activities is liable to
Service Tax
Court fees is basically excluded
from the definition of service Hence
it is not taxable. Stamp fees is sort of
duty and hence not taxable
Exempted through entry no 55 of
25/2012 as amended on 20th June
2016
It is clarified that any activity
undertaken by Government or a
local
authority
against
a
consideration constitutes a service
and the amount charged for
performing such activities is liable to
Service Tax
Activities of panchyat are exempted
under entry no 60 of 25/2012 as
amended on 20th June 2016
It is clarified that any activity
undertaken by Government or a
local
authority
against
a
consideration constitutes a service
and the amount charged for
performing such activities is liable to
Service Tax
It is clarified that any activity
undertaken by Government or a
local
authority
against
a
consideration constitutes a service
and the amount charged for
performing such activities is liable to
Service Tax
Exempted through entry no 63 of
25/2012 as amended on 20th June
2016
Exempted through entry no 39 of
25/2012 as amended on 20th June
2016

08-Jul-16 11:48 AM

CAclubindia News : Taxability of Government Services Under Reverse C...

6 of 6

http://www.caclubindia.com/articles/print_this_page.asp?article_id=27268

approval
Disclaimer:- All the views expressed in this article are based on the provisions of Finance Act 1994 and
related notifications. Readers are advised to consult the professionals for understanding applicability of the
newsletter. Due care has been taken while preparing this document, however existence of error or omission is
not ruled out. No part of this document may be produced or reproduced in any manner without the permission
of Author
Author is practicing Cost Accountant in the area of Central Excise and Service tax and can also be
reached at cmadipakjoshi@gmail.com

Source : -

08-Jul-16 11:48 AM