Circular No. 192/02/2016-Service Tax
F.No. 334/8/2016-TRU
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
Dated- April 13, 2016
To,
Principal Chief Commissioners of Customs and Central Excise (All)
Principal Chief Commissioners of Central Excise & Service Tax (All)
Principal Director Generals of Goods and Service Tax/System/CEI
Director General of Audit/Tax Payer Services
Principal Commissioners/ Commissioners of Customs and Central Excise (All)
Principal Commissioners/Commissioners of Central Excise and Service Tax (All)
Principal Commissioners/Commissioners of Service Tax (All)
Principal Commissioners/Commissioners LTU/Central Excise/Service Tax (Audit)
Subject: - Clarification on issues regarding levy of Service Tax on the services provided by
Government or a local authority to business entities - reg.
Madam/Sir,
Any service provided by Government or a local authority to a business entity has been
made taxable w.e.f 1st April 2016. Post Budget 2016, representations have been received from
several quarters including business and industry associations in respect of various aspects
pertaining to the taxation of such services. Accordingly, the following clarifications are issued:-
Sl. Issue Clarification
No.
1. Services provided by Government or Such services have been exempted vide
a local authority to another Notification No. 25/2012 ST dated
Government or a local authority. 20.6.2012 as amended by Notification No.
22/2016 ST dated 13.4.2016 [Entry 54
refers]. However, the said exemption does
not cover services specified in sub-clauses
(i), (ii) and (iii) of clause (a) of section
66D of the Finance Act, 1994.
Page 1 of 13
2. Services provided by Government or 1. Services by way of grant of passport,
a local authority to an individual who visa, driving license, birth or death
may be carrying out a profession or certificates have been exempted vide
business. Notification No. 25/2012 ST dated
20.6.2012 as amended by Notification
No. 22/2016 ST dated 13.4.2016 [Entry
55 refers].
2. Further, for services provided upto a
taxable value of Rs 5000/-, Sl. No. 5
below may please be seen.
3. Service Tax on taxes, cesses or duties. Taxes, cesses or duties levied are not
consideration for any particular service as
such and hence not leviable to Service
Tax. These taxes, cesses or duties include
excise duty, customs duty, Service Tax,
State VAT, CST, income tax, wealth tax,
stamp duty, taxes on professions, trades,
callings or employment, octroi,
entertainment tax, luxury tax and property
tax.
4. Service Tax on fines and penalties. 1. It is clarified that fines and penalty
chargeable by Government or a local
authority imposed for violation of a
statute, bye-laws, rules or regulations are
not leviable to Service Tax.
2. Fines and liquidated damages payable
to Government or a local authority for
non-performance of contract entered into
with Government or local authority have
been exempted vide Notification No.
25/2012 ST dated 20.6.2012 as amended
by Notification No. 22/2016 ST dated
13.4.2016 [Entry 57 refers].
5. Services provided in lieu of fee It is clarified that any activity undertaken
charged by Government or a local by Government or a local authority against
authority. a consideration constitutes a service and
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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.
2. However, services provided by the
Government or a local authority by way
of:
(i) registration required under the law;
(ii) testing, calibration, safety check or
certification relating to protection or
safety of workers, consumers or
public at large, required under the
law,
have been exempted vide Notification No.
25/2012 ST dated 20.6.2012 as amended
by Notification No. 22/2016 ST dated
13.4.2016 [Entry 58 refers].
3. Further, services provided by
Government or a local authority where the
gross amount charged for such service
does not exceed Rs 5000/- have been
exempted vide Notification No. 25/2012
ST dated 20.6.2012 as amended by
Notification No. 22/2016 ST dated
13.4.2016 [Entry 56 refers]. However, the
said exemption does not cover services
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specified in sub-clauses (i), (ii) and (iii) of
clause (a) of section 66D of the Finance
Act, 1994. Further, in case of continuous
service, the exemption shall be applicable
where the gross amount charged for such
service does not exceed Rs. 5000/- in a
financial year.
4. It is also clarified that Circular No.
89/7/2006-Service Tax dated 18-12-2006
& and Reference Code 999.01/23.8.07 in
Circular No. 96/7/2007-ST dated
23.8.2007 issued in the pre-negative list
regime are no longer applicable.
6. Services in the nature of allocation of Services by way of allocation of natural
natural resources by Government or a resources to an individual farmer for the
local authority to individual farmers. purposes of agriculture have been
exempted vide Notification No. 25/2012
ST dated 20.6.2012 as amended by
Notification No. 22/2016 ST dated
13.4.2016 [Entry 59 refers]. Such
allocations/auctions to categories of
persons other than individual farmers
would be leviable to Service Tax.
7. Services in the nature of change of Regulation of land-use, construction of
land use, commercial building buildings and other services listed in the
approval, utility services provided by Twelfth Schedule to the Constitution
Government or a local authority. which have been entrusted to
Municipalities under Article 243W of the
Constitution, when provided by
governmental authority are already exempt
under Notification No. 25/2012 ST dated
20.6.2012. The said services when
provided by Government or a local
authority have also been exempted from
Service Tax vide Notification No. 25/2012
ST dated 20.6.2012 as amended by
Notification No. 22/2016 ST dated
13.4.2016 [Entry 39 refers].
8. Services provided by Government, a Such services have been exempted vide
local authority or a governmental Notification No. 25/2012 ST dated
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authority by way of any activity in 20.6.2012 as amended by Notification No.
relation to any function entrusted to a 22/2016 ST dated 13.4.2016 [Entry 60
Panchayat under Article 243G of the refers].
Constitution.
9. Whether Service Tax is payable on Service Tax is payable on such
yearly installments due after 1.4.2016 installments in view of rule 7 of Point of
in respect of spectrum assigned before Taxation Rules, 2011 as amended by vide
1.4.2016. Notification No. 24/2016 ST dated
13.4.2016. However, the same have been
specifically exempted vide Notification
No. 25/2012 ST dated 20.6.2012 as
amended by Notification No. 22/2016
ST dated 13.4.2016 [Entry 61 refers]. The
exemption shall apply only to Service Tax
payable on one time charge, payable in
full upfront or in installments, for
assignment of right to use any natural
resource and not to any periodic payment
required to be made by the assignee, such
as Spectrum User Charges, license fee in
respect of spectrum, or monthly payments
with respect to the coal extracted from the
coal mine or royalty payable on extracted
coal which shall be taxable.
10. When does the liability to pay Service Rule 7 of the Point of Taxation Rules,
Tax arise upon assignment of right to 2011 has been amended vide Notification
use natural resource where the No. 24/2016 ST dated 13.4.2016 to
payment of auction price is made in provide that in case of services provided
10 (or any number of) yearly (or by Government or a local authority to any
periodic) instalments under deferred business entity, the point of taxation shall
payment option for rights assigned be the earlier of the dates on which:
after 1.4.2016. (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.
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Thus, the point of taxation in case of the
services of the assignment of right to use
natural resources by the Government to a
business entity shall be the date on which
any payment, including deferred
payments, in respect of such assignment
becomes due or when such payment is
made, whichever is earlier. Therefore, if
the assignee/allottee opts for full upfront
payment then Service Tax would be
payable on the full value upfront.
However, if the assignee opts for part
upfront and remainder under deferred
payment option, then Service Tax would
be payable as and when the payments are
due or made, whichever is earlier.
11. How to determine the date on which The date on which such payment becomes
payment in respect of any service due shall be determined on the basis of
provided by Government or a local invoice, bill, challan, or any other
authority becomes due for document issued by the Government or a
determination of point of taxation (Sl. local authority demanding such payment
No. 10 refers)? [Point of Taxation Rules, 2011 as
amended by Notification No. 24/2016
ST dated 13.4.2016 refers]. For instance,
Notice Inviting Applications (NIA) dated
January 9, 2015 issued vide File No.
1000/16/2014-W.F./Auction for auction of
right to use spectrum and letter dated
March 29, 2015 issued vide File No. 1000
/23 / 2014 -W.F. /Auction by Department
of Telecommunications to successful
bidders of spectrum indicate the dates on
which the payments in respect thereof
become due. These may be accessed at
http://www.dot.gov.in/sites/default/files/u
8/NIA_January_2015.pdf and
http://www.dot.gov.in/sites/default/files/u
8/PaymentMethodologyAndPaymentDetai
ls.pdf respectively.
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12. Whether Service Tax is leviable on Service Tax is payable on such payments
spectrum user charges and license fee in view of rule 7 of Point of Taxation
payable after 1.4.2016 for the year Rules, 2011 as amended by Notification
2015-16. No. 24/2016 ST dated 13.4.2016.
However, the same have been specifically
exempted vide Notification No. 25/2012
ST dated 20.6.2012 as amended by
Notification No. 22/2016 ST dated
13.4.2016 [Entry 62 refers].
13. Whether Service Tax is payable on Rule 6(2)(iv) of the Service Tax
the interest charged by Government or (Determination of Value) Rules, 2006 has
a local authority where the payment been amended vide Notification No.
for assignment of natural resources is 23/2016 ST dated 13.4.2016 so as to
allowed to be made under deferred provide that interest chargeable on
payment option. 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.
14. When and how will the allottee of the The CENVAT Credit Rules, 2004 have
right to use natural resource be been amended vide Notification No.
entitled to take CENVAT Credit of 24/2016 C.E. (N.T.) dated 13.4.2016.
Service Tax paid for such assignment Consequently, the CENVAT Credit of the
of right. 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. [Rule 4(7)
of CENVAT Credit Rules, 2004 as
amended refers]. Detailed illustrations
explaining how the CENVAT Credit is to
be availed, are given in para 2 below.
However, the Service Tax paid on
spectrum user charges, license fee, transfer
fee charged by the Government on trading
of spectrum would be available in the year
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in which the same is paid. Likewise,
Service Tax paid on royalty in respect of
natural resources and any periodic
payments shall be available as credit in the
year in which the same is paid. The
existing eighth proviso in sub-rule (7) of
rule 4 of CENVAT Credit Rules, 2004 is
being omitted because the same is
superfluous.
Amendments have also been made in
CENVAT Credit Rules, 2004 so as to
allow CENVAT credit 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 [Fifth Proviso
to sub-rule (7) of Rule 4 of CENVAT
Credit Rules, 2004].
15. On basis of which documents can CENVAT Credit may be availed on the
CENVAT Credit be availed in respect basis of challan evidencing payment of
of services provided by Government Service Tax by the Service recipient
or a local authority. [Clause (e) of sub-rule (1) of rule 9 of
CENVAT Credit Rules, 2004, refers].
2. Illustration explaining how the CENVAT Credit is to be availed on Service Tax paid
for assignment of right to use natural resources:
Government of India assigns right to use spectrum for a period of 20 years in an auction held
in May 2016. The Notice Inviting Application (NIA) for auction of spectrum specifies that the
successful bidders would have two payment options
Page 8 of 13
(a) Full upfront payment:
to make full upfront payment of full auction price (bid amount) by, let's say, 25.6.2016;
or
(b) Deferred payment:
(i) An upfront payment of 33% of the final bid amount shall be made by 25.6.2016;
(ii) There shall be a moratorium of 2 years for payment of balance amount of one
time charges for the spectrum, which shall be recovered in 10 equal annual
instalments of Rs. 131.94 including interest for deferred payment.
(iii) The 1st instalment of the balance due shall become due on the third anniversary of
the scheduled date of the first payment. Subsequent instalment shall become due
on the same date of each following year.
(iv) The applicable rate of interest under deferred payment option shall be 10%.
CASE 1:
Company ABC becomes the successful bidder. The spectrum is assigned to ABC for a total
consideration of Rs. 1000/-. ABC chooses to make full upfront payment on the due date. The
Service Tax liability and eligibility of the CENVAT Credit in this case would be as follows:
(i) The amount of Rs. 1000/- will become due on 25.6.2016. Thus, according to rule 7 of
the Point of Taxation Rules, 2011 the point of taxation shall be 25.6.2016.
(ii) According to rule 6(1) of the Service Tax Rules, 1994, the liability to pay Service Tax
liability of Rs. 150/- on the consideration of Rs. 1000/- paid or payable would be
required to be discharged by 6.7.2016.
(iii) According to the sixth proviso to rule 4(7) of the CENVAT Credit Rules, the
CENVAT Credit in respect of the Service Tax paid would be spread over 3 years as
follows:
Financial Amount of CENVAT Credit eligible to
Year be taken
(1/3 of total Service Tax paid)
2016-17 Rs. 50/-
2017-18 Rs. 50/-
2018-19 Rs. 50/-
Page 9 of 13
CASE 2:
In the above example, ABC assigns the right to use the spectrum to Company XYZ on 1.8.2019
(and issues invoice dated 1.8.2019) for a consideration of Rs. 930/-. The Service Tax liability
and eligibility of CENVAT Credit would be as follows:
F.Y. Due date Amount Amount Service Date of Date of CENVAT CENVAT
for payable by charged by Tax Point of payment Credit Credit
payment ABC for ABC for liability Taxation of available to available
assignment further on Service ABC in the to XYZ
of assignment ABC Tax relevant in the
spectrum of @ 15% F.Y. (Rs.) relevant
(Rs.) spectrum (Rs.) F.Y. (Rs.)
to XYZ
(Rs.)
2016-17 25.6.2016 1000 - 150 25.6.2016 6.7.2016 50 -
2017-18 - - - - - - 50 -
2018-19 - - - - - - 50 -
2019-20 930 139.50 1.8.2019 6.9.2019 - 46.5
2020-21 - - - - - - - 46.5
2021-22 - - - - - - - 46.5
TOTAL 289.5 150 139.5
CASE 3:
Company ABC becomes the successful bidder. The spectrum is assigned to ABC for a total
consideration of Rs. 1000/-. ABC chooses the deferred payment option. The payment schedule,
Service Tax liability and eligibility of CENVAT Credit would be as follows:
F.Y. Instalment Due date Amount Service Date of Date of Eligible
for payable Tax Point of payment CENVAT
payment (Rs.) liability Taxation of Credit in
@ 15% Service the
(Rs.) Tax relevant
F.Y. (Rs.)
2016-17 Upfront 25.6.2016 330 49.50 25.6.2016 6.7.2016 16.5
payment
(33%)
2017-18 - - - - - - 16.5
2018-19 - - - - - - 16.5
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F.Y. Instalment Due date Amount Service Date of Date of Eligible
for payable Tax Point of payment CENVAT
payment (Rs.) liability Taxation of Credit in
@ 15% Service the
(Rs.) Tax relevant
F.Y. (Rs.)
2019-20 1st 25.6.2019 131.94 19.80 25.6.2019 6.7.2019 6.60*
nd
2020-21 2 25.6.2020 131.94 19.80 25.6.2020 6.7.2020 6.60 +
6.60*
2021-22 3rd 25.6.2021 131.94 19.80 25.6.2021 6.7.2021 6.60 +
6.60 +
6.60*
2022-23 4th 25.6.2022 131.94 19.80 25.6.2022 6.7.2022 6.60 +
6.60 +
6.60*
2023-24 5th 25.6.2023 131.94 19.80 25.6.2023 6.7.2023 6.60 +
6.60 +
6.60*
2024-25 6th 25.6.2024 131.94 19.80 25.6.2024 6.7.2024 6.60 +
6.60 +
6.60*
2025-26 7th 25.6.2025 131.94 19.80 25.6.2025 6.7.2025 6.60 +
6.60 +
6.60*
2026-27 8th 25.6.2026 131.94 19.80 25.6.2026 6.7.2026 6.60 +
6.60 +
6.60*
2027-28 9th 25.6.2027 131.94 19.80 25.6.2027 6.7.2027 6.60 +
6.60 +
6.60*
2028-29 10th 25.6.2028 131.94 19.80 25.6.2028 6.7.2028 6.60 +
6.60 +
6.60*
2029-30 - - - - - - 6.60 +
6.60
2030-31 - - - - - - 6.60
TOTAL 247.5 247.5
Note: Figures with * indicate the amount of CENVAT credit available against Service Tax paid
during that year.
Page 11 of 13
CASE 4:
In the above example, if ABC further assigns the right to use the spectrum to Company XYZ on
1.8.2020 for a consideration of Rs. 200/-. The Service Tax liability and eligibility of CENVAT
Credit would be as follows:
F.Y. Instalment Due date Amount Amount Amount Service Service Date of Date of Eligible Eligible
for payable to charged by payable to Tax Tax Point of payment CENVAT CENVAT
payment Govt for ABC for Govt for liability liability Taxation of Service Credit in Credit in
assignment further assignment @ 15% @ 15% Tax the the
of assignment of (Rs.) (Rs.) relevant relevant
spectrum of spectrum ABC XYZ F.Y. (Rs.) F.Y. (Rs.)
(Rs.) spectrum (Rs.) ABC XYZ
ABC to XYZ XYZ
(Rs.)
2016-17 Upfront 25.6.2016 330 - - 49.50 - 25.6.2016 6.7.2016 16.5 -
payment
(33%)
2017-18 - - - - - - - - - 16.5 -
2018-19 - - - - - - - - - 16.5 -
2019-20 1st 25.6.2019 131.94 - - 19.80 - 25.6.2019 6.7.2019 6.60* -
2020-21 2nd 25.6.2020 131.94 200 - 19.80 - 25.6.2020 6.7.2020 6.60 + 30/3 =
(on 2nd (in respect (in respect 6.60* + 10*
Instalment) of the 2nd of the 2nd 19.80
+ 30 installment) installment) (being
(for further and and balance
assignment 1.8.2020 6.9.2020 CENVAT
to XYZ) (in respect (in respect Credit)
of further of further
assignment assignment
to XYZ) to XYZ)
2021-22 3rd 25.6.2021 - - 131.94 - 19.80 25.6.2021 6.7.2021 - 10 +
6.60*
2022-23 4th 25.6.2022 - - 131.94 - 19.80 25.6.2022 6.7.2022 - 10 +
6.60 +
6.60*
2023-24 5th 25.6.2023 - - 131.94 - 19.80 25.6.2023 6.7.2023 - 6.60 +
6.60 +
6.60*
2024-25 6th 25.6.2024 - - 131.94 - 19.80 25.6.2024 6.7.2024 - 6.60 +
6.60 +
6.60*
2025-26 7th 25.6.2025 - - 131.94 - 19.80 25.6.2025 6.7.2025 - 6.60 +
6.60 +
6.60*
2026-27 8th 25.6.2026 - - 131.94 - 19.80 25.6.2026 6.7.2026 - 6.60 +
6.60 +
6.60*
Page 12 of 13
F.Y. Instalment Due date Amount Amount Amount Service Service Date of Date of Eligible Eligible
for payable to charged by payable to Tax Tax Point of payment CENVAT CENVAT
payment Govt for ABC for Govt for liability liability Taxation of Service Credit in Credit in
assignment further assignment @ 15% @ 15% Tax the the
of assignment of (Rs.) (Rs.) relevant relevant
spectrum of spectrum ABC XYZ F.Y. (Rs.) F.Y. (Rs.)
(Rs.) spectrum (Rs.) ABC XYZ
ABC to XYZ XYZ
(Rs.)
2027-28 9th 25.6.2027 - - 131.94 19.80 25.6.2027 6.7.2027 - 6.60 +
6.60 +
6.60*
2028-29 10th 25.6.2028 - - 131.94 19.80 25.6.2028 6.7.2028 - 6.60 +
6.60 +
6.60*
2029-30 - - - - - - - - - 6.60 +
6.60
2030-31 - - - - - - - - - 6.60
TOTAL 119.10 158.40 89.10 188.40
Note: Figures with * indicate the amount of CENVAT credit available against Service Tax paid
during that year.
3. All concerned are requested to acknowledge the receipt of this Circular.
4. Wide publicity may be given so that the assessees and public are aware of the above. All the
major Industry and Trade Associations may be informed accordingly. Difficulty if any, in the
implementation of the Circular should be brought to the notice of the Tax Research Unit.
5. Hindi version would follow.
Yours faithfully,
(Abhishek Verma)
Technical Officer (TRU)
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