Service Tax and CENVAT Credit Rules become more complicated as service by Government becomes taxable

By Vijay Kumar

THE Law is getting murkier and murkier as the Government shouts hoarse about ease of doing business. The services provided by Government have become taxable with effect from 1.4.2016 and several consequential amendments are required. Just before going on that long weekend of four days, the CBEC issued several notifications on 13th April 2016.

CBEC has 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 immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service in return (i.e., as a quid pro quo for the service received), it has to be regarded as a consideration for that service and taxable irrespective of by what name such payment is called. It is also clarified that Service Tax is leviable on any payment, in lieu of any permission or license granted by the Government or a local authority .

MOT for export supervision - Service Tax Exempted:

The Customs and Central Excise Department charges a fee from assessees called ‘Merchant Over Time' (MOT) for certain services rendered by it like supervision of export consignments. Ten years ago in DDT 393 27 06 2006, I asked a question - MOT for export supervision - Is the Central Excise department liable to pay Service Tax?

The Government has now issued a notification exempting 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).

Now what is import export cargo?

Government has also exempted Services provided by Government or a local authority to another Government or a local authority; Services by way of grant of passport, visa, driving license, birth or death certificates ; Services by way of allocation of natural resources to an individual farmer for the purposes of agriculture; Fines and liquidated damages payable to Government or a local authority for non-performance of contract entered into with Government or local authority; Services provided by Government or a local authority where the gross amount charged for such services does not exceed Rs. 5000/-

Is the fee paid to the CESTAT and ITAT liable to Service Tax?

An advocate asked us this question. As per Section 65B(44)(c) of the Finance Act, 1994, “service” does not include fees taken in any Court or tribunal established under any law for the time being in force.

Service Tax on the interest charged by Government: Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 has been amended vide Notification No. 23/2016 -ST dated 13.4.2016 so as to provide that interest chargeable on deferred payment in case of 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, shall be included in the value of the taxable service.

Point of Taxation: Point of Taxation Rules, 2011 has been amended vide Notification No. 24/2016 -ST dated 13.4.2016 to provide that in case of services provided by Government or a local authority to any business entity, the point of taxation shall be the earlier of the dates on which:

(a) any payment, part or full, in respect of such service becomes due, as indicated in the invoice, bill, challan, or any other document issued by Government or a local authority demanding such payment; or
(b) such payment is made.

Evasion by Government? It is heard that the Ministry of Finance is already investigating the Ministry of Railways for alleged evasion of Service Tax.

CENVAT Credit Rules Amended :

1. CENVAT Credit of the Service Tax on one time charges (whether paid upfront or in installments) paid in a year, may be allowed to be taken evenly over a period of 3 (three) years.
2. CENVAT credit allowed to be taken on the basis of the documents specified in sub-rule (1) of rule 9 of CENVAT Credit Rules, 2004 even after the period of 1 year from the date of issue of such a document in case of services provided by the Government or a local authority or any other person by way of assignment of right to use any natural resource .
3. CENVAT Credit may be availed on the basis of challan evidencing payment of Service Tax by the Service recipient in respect of services provided by Government or a local authority.

The notifications have been issued on 13th April 2016, but the tax on government service was effective from 1.4.2016. What about the period from 1.4.2016 to 12.4.2016? Was MOT charges for Customs supervision liable to Service Tax for the first 12 days of the month?

Notification No. , Dated: April 13, 2016

CBEC Circular No. 192/02/2016-Service Tax, Dated-April 13, 2016