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New rule applies on service tax
April, 25th 2016

From the beginning of this month, services provided by a government or local authority to a business entity became liable to service tax, with some exemptions. Till enactment of the Finance Act, 2015, these services provided by a government or a local authority (with specific exclusion) were covered by a 'negative list'. Service tax applied only on the 'support service' provided by the government or local authority to a business entity. In the 2015 Act, an enabling provision was made to exclude any services provided by a government or local authority to a business entity from the negative list. This amendment was given effect from April 1 this year, through a notification issued on March 1.

Clarifying the effect, the Central Board of Excise and Customs (CBEC) has said any activity undertaken by a government or local authority for any consideration (amount) constitutes a service. The amount charged for this is liable for service tax. It does not matter if such activities are a mandatory requirement under the law and whether the amount charged for such a service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service, it has to be regarded as a consideration for that service and taxable, irrespective of the name for such a payment. It is also clarified that service tax is leviable on any payment in lieu of any permission or licence granted by a government or a local authority.

Fines, liquidated damages and taxes payable to a government or a local authority will not attract service tax, it adds.

Exporters and importers should note that services provided by a 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 are exempted. Services provided by a government or local authority by way of registration required under any law for the time being in force or for testing, calibration, safety check or certification relating to protection or safety of workers, consumers or the public at large, required under any law for the time being in force are also exempted. Also, any services where the gross amount charged for these does not exceed Rs 5,000.

Consequent to these recent changes, any fee in excess of Rs 5,000 for obtaining an import or export licence or authorisation will attract service tax. The composition fee for grant of extension of the export obligation period for advance authorisations and Export Promotion Capital Goods, settlement amounts paid by order of the Settlement Commission and fees for compounding of offences will also attract service tax. The Directorate General of Foreign Trade is yet to issue instructions in this regard.

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