Services by Government or Local Authority to a Business Entity - All Services taxable
CLAUSE (a) of Section 66D of the Finance Act, 1994 (Negative list) states:
(a) services by Government or a local authority 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;
Thus, the services listed in the sub-clauses (i) to (iv) are in positive list and are therefore taxable even if provided by the Government or Local authority.
Vide Section 109 of the Finance Act, 2015 an important amendment has been made to Section 66D of the Finance Act, 1994. This Section reads,
In section 66D of the 1994 Act, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint,-
(1) in clause (a), in sub-clause (iv), for the words "support services", the words "any service" shall be substituted;
Now, the effective date has been notified as 1st April, 2016. So, effective from this date, all the Services provided by Government or Local Authority to a business entity become taxable.
Also, an exemption has been provided for Business entities, whose turnover is up to rupees ten lakhs in the preceding financial year.
But, how will a Service Provider (Government or Local Authority) ascertain the turnover of the Business Entity who is receiving the Service? This may not be necessary as the Service Tax on these services is under reverse charge and the recipient is liable to pay Service Tax. Since it is the recipient who is liable to pay tax, he can decide based on this turnover whether he is liable to pay tax or not.
The amendment is likely to yield significant revenue to the Government, as the royalty paid to the Government for various resources like Spectrum or Coal blocks may now attract Service Tax.
Government has to amend Notification No. 30/2012 -ST, dated 20.06.2012. Perhaps, they will do it later. Or something is proposed in the budget.
Notification No. , Dated: February 18, 2016
Notification No. , Dated: February 18, 2016