Treatment of government services skewed in service tax law
July, 30th 2012
Defining government is not such an easy task as it may appear on the face of it. There are so many types of definitions that we should try to devise here at best, a "working definition" as it is called .The definition of Government has not been given in the Negative List of Services which is an integral part of this comprehensive tax regime effective from 1st July 2012. This treatise aims at examining what working definition of Government could be the best in the present context.
In a taxing statute if there is no statutory definition, the judicial decisions hold, we should go according to the understanding in the common parlance .
However, the understanding of "Government" in common parlance is not very clear since there are so many manifestations of government in different ways in a complex political system now .The classical concept of government has now undergone metamorphosis many times over , public-private participation (PPP), being the latest one . Next we come to the technical definition as an alternative. The Law Lexicon has observed that the application of the concept of government in particular cases has occasioned half of the mischiefs arising out of misguided political zeal. The Lexicon has not given any absolute meaning of government as such, but has explained the meaning in different context such as government land, government order, government pleader, government regulations, government security, etc. It has also depended on the definition in the General Clauses Act, 1897. The definition of Government in Section 2 (23) of this Act is that Government or "the Government" shall include both the Central Government and any State Government".
This definition has been accepted by Revenue in the so called Guidance Paper. Here I want to make a point that just because a definition occurs in the General Clauses Act, it does not merit acceptance in a specific Act. India has been defined in Section 2 (28)(c) in the General Clauses Act as "all territories for the time being comprised in the territory of India". However, this definition does not apply for Customs Act which has a separate definition incorporated in itself. India has also been separately defined in other Acts relating to oil drilling and exploration on the high sea .
From the above the conclusion is clear that the definition occurring in the General Clauses Act does not always serve the purpose of a working definition in a specific Act. It can be accepted only it is in tune with the purpose of service tax. Here it does not serve the purpose. It is only an inclusive definition because it says that Government includes both Central Government working under the President and State Government working under the Governor.
But there are institutions like the Parliament and State Legislatures, Judiciary which include High Courts and Supreme Court, CAG and UPSC which are Constitutional Bodies which would certainly come under the concept of Government. They have been separately defined as "not service" under Section 65B (44) ( c) and Explanation (B).It is a disparate way of defining and categorising different manifestations of government. Part of the government falls under Section 65B (44) and part of it falls under 66D(a). It is like saying that Legislature and Judiciary are not service and Executive is service but not taxable. It is totally against logic and against clear thinking. Moreover there many be some other entities of government which many not come under the above two.
Conclusion In the interest of clear thinking, services by government should either be placed under the definition of service under 65B(44) and called "not service". Or they should all come under Negative List under 66D(a). In either case an exhaustive definition of government should be given. The definition can be artificial depending on the intention of the law makers at present since government itself is an artificial concept.
Definition of government given in the Guidance Paper accepting the definition in the General Clauses Act has not even been issued as a binding circular which is possible under the Service Tax Law. So long as the law is not amended, a binding circular should be issued.