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No service tax on user charges or licence fee paid in 2015-16
April, 15th 2016

Ahead of the telecom spectrum auctions later this year, the Finance Ministry has said that telecom companies will not have to pay service tax on payments made for licence fee or spectrum user charges during the previous fiscal (2015-16).

“The government has ensured that there is no new tax liability on the telecom service providers in respect of the services provided in the past,” it said on Thursday.

The Central Board of Excise and Customs (CBEC) has, however, clarified that while one time user charges on the assignment of the right to use any natural resource before April 1, 2016, will be exempt from service tax, companies will still have to pay service tax on any periodic payments such as spectrum user charges and license fee for spectrum.

Finance Minister Arun Jaitley had in the Union Budget 2015-16 announced that assignment by the government of the right to use the radio-frequency spectrum and its subsequent transfers as well as assignment of right to use the spectrum would be a service. The spectrum auctions that are likely to take place in June or July are expected to raise at least ?5 lakh crore and telecom players may have to cough up at least ?75,000 crore as service tax.

Similarly, periodic payments and royalty for extraction of coal will also attract service tax, said the CBEC circular. The clarification comes in the wake of the Budget decision to levy service tax on any service provided by the government or a local authority to a business entity. The levy came into effect from April 1 at the rate of 14.5 per cent.

The CBEC has also clarified that the liability to pay service tax on the assignment of the right to use natural resource will be decided on the date on which the invoice for any part of the payment for the service was issued or the payment was made – whichever is earlier.

The government has amended the Cenvat Credit Rules and allowed the credit of service tax paid on one time charges for the auction price, to be taken evenly over a period of three years. The credit of service tax paid on spectrum user charges, licence fee, and transfer fee charged by the government on trading of spectrum would be fully available in the year in which the it is paid.

“The government has de-mystified the issues in service tax of applicability, point of taxation and Cenvat Credit mechanism,” said Anita Rastogi, Partner (Indirect Tax), PwC.

10 services exempted

The CBEC has also clarified that in all 10 services provided by the government will be exempt from service tax. These include services provided by a government or a local authority to another government or local authority, services for issuance of passport, visa, driving licence, birth certificate or death certificate, services where the gross amount charges is less than ?5,000 and legally mandated services for registration, calibration or testing.

Further, services by a local body or government for assignment of right to use natural resources to an individual farmer for the purposes of agriculture, services to a gram panchayat and 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 will also be exempt from service tax.

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