F.No. 334/8/2016-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit)

Transcription

1 To, F.No. 334/8/2016-TRU Government India Ministry Finance Department Revenue ( Research Unit) Circular No. 192/02/2016- Principal Chief Commissioners Customs and Central Excise (All) Principal Chief Commissioners Central Excise & (All) Principal Director Generals Goods and /System/CEI Director General Audit/ Payer s Principal Commissioners/ Commissioners Customs and Central Excise (All) Principal Commissioners/Commissioners Central Excise and (All) Principal Commissioners/Commissioners (All) Principal Commissioners/Commissioners LTU/Central Excise/ (Audit) Dated- April 13, 2016 Subject: - Clarification on issues regarding levy 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 1 st April Post Budget 2016, representations have been received from several quarters including business and industry associations in respect various aspects pertaining to the taxation such services. Accordingly, the following clarifications are issued:- Sl. Issue No. 1. s provided by Government or a local authority to another Government or a local authority. Clarification Such services have been exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 54 refers]. However, the said exemption does not cover services specified in sub-clauses (i), (ii) and (iii) clause (a) section 66D the Finance Act, Page 1 13

2 2. s provided by Government or a local authority to an individual who may be carrying out a pression or business. 1. s by way grant passport, visa, driving license, birth or death certificates have been exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 55 refers]. 2. Further, for services provided upto a taxable value Rs 5000/-, Sl. No. 5 below may please be seen. 3. on taxes, cesses or duties. es, cesses or duties levied are not consideration for any particular service as such and hence not leviable to. These taxes, cesses or duties include excise duty, customs duty,, State VAT, CST, income tax, wealth tax, stamp duty, taxes on pressions, trades, callings or employment, octroi, entertainment tax, luxury tax and property tax. 4. on fines and penalties. 1. It is clarified that fines and penalty chargeable by Government or a local authority imposed for violation a statute, bye-laws, rules or regulations are not leviable to. 2. Fines and liquidated damages payable to Government or a local authority for non-performance contract entered into with Government or local authority have been exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 57 refers]. 5. s provided in lieu fee charged by Government or a local authority. It is clarified that any activity undertaken by Government or a local authority against a consideration constitutes a service and Page 2 13

3 Page 3 13 the amount charged for performing such activities is liable to. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective whether the amount charged for such service is laid down in a statute or not. As long as the 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 by what name such is called. It is also clarified that is leviable on any, in lieu 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 : (i) registration required under the law; (ii) testing, calibration, safety check or certification relating to protection or safety workers, consumers or public at large, required under the law, have been exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [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 as amended by Notification No. 22/2016 ST dated [Entry 56 refers]. However, the said exemption does not cover services

4 6. s in the nature allocation natural resources by Government or a local authority to individual farmers. 7. s in the nature change land use, commercial building approval, utility services provided by Government or a local authority. 8. s provided by Government, a local authority or a governmental specified in sub-clauses (i), (ii) and (iii) clause (a) section 66D the Finance Act, Further, in case 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- dated & and Reference Code / in Circular No. 96/7/2007-ST dated issued in the pre-negative list regime are no longer applicable. s by way allocation natural resources to an individual farmer for the purposes agriculture have been exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 59 refers]. Such allocations/auctions to categories persons other than individual farmers would be leviable to. Regulation land-use, construction buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W the Constitution, when provided by governmental authority are already exempt under Notification No. 25/2012 ST dated The said services when provided by Government or a local authority have also been exempted from vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 39 refers]. Such services have been exempted vide Notification No. 25/2012 ST dated Page 4 13

5 authority by way any activity in relation to any function entrusted to a Panchayat under Article 243G the Constitution. 9. Whether is payable on yearly installments due after in respect assigned before When does the to pay arise upon right to use natural resource where the auction price is made in 10 (or any number ) yearly (or periodic) instalments under deferred option for rights assigned after as amended by Notification No. 22/2016 ST dated [Entry 60 refers]. is payable on such installments in view rule 7 Point ation Rules, 2011 as amended by vide Notification No. 24/2016 ST dated However, the same have been specifically exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 61 refers]. The exemption shall apply only to payable on one time charge, payable in full upfront or in installments, for right to use any natural resource and not to any periodic required to be made by the assignee, such as Spectrum User Charges, license fee in respect, or monthly s with respect to the coal extracted from the coal mine or royalty payable on extracted coal which shall be taxable. Rule 7 the Point ation Rules, 2011 has been amended vide Notification No. 24/2016 ST dated to provide that in case services provided by Government or a local authority to any business entity, the point taxation shall be the earlier the dates on which: (a) any, part or full, in respect such service becomes due, as indicated in the invoice, bill, challan, or any other document issued by Government or a local authority demanding such ; or (b) such is made. Page 5 13

6 11. How to determine the date on which in respect any service provided by Government or a local authority becomes due for determination point taxation (Sl. No. 10 refers)? Thus, the point taxation in case the services the right to use natural resources by the Government to a business entity shall be the date on which any, including deferred s, in respect such becomes due or when such is made, whichever is earlier. Therefore, if the assignee/allottee opts for full upfront then would be payable on the full value upfront. However, if the assignee opts for part upfront and remainder under deferred option, then would be payable as and when the s are due or made, whichever is earlier. The date on which such becomes due shall be determined on the basis invoice, bill, challan, or any other document issued by the Government or a local authority demanding such [Point ation Rules, 2011 as amended by Notification No. 24/2016 ST dated refers]. For instance, Notice Inviting Applications (NIA) dated January 9, 2015 issued vide File No. 1000/16/2014-W.F./Auction for auction right to use and letter dated March 29, 2015 issued vide File No /23 / W.F. /Auction by Department Telecommunications to successful bidders indicate the dates on which the s in respect there become due. These may be accessed at 8/NIA_January_2015.pdf and 8/PaymentMethodologyAndPaymentDetai ls.pdf respectively. Page 6 13

7 12. Whether is leviable on user charges and license fee payable after for the year Whether is payable on the interest charged by Government or a local authority where the for natural resources is allowed to be made under deferred option. 14. When and how will the allottee the right to use natural resource be entitled to take Credit paid for such right. is payable on such s in view rule 7 Point ation Rules, 2011 as amended by Notification No. 24/2016 ST dated However, the same have been specifically exempted vide Notification No. 25/2012 ST dated as amended by Notification No. 22/2016 ST dated [Entry 62 refers]. Rule 6(2)(iv) the (Determination Value) Rules, 2006 has been amended vide Notification No. 23/2016 ST dated so as to provide that interest chargeable on deferred in case any service provided by Government or a local authority to a business entity, where for such service is allowed to be deferred on interest, shall be included in the value the taxable service. The Credit Rules, 2004 have been amended vide Notification No. 24/2016 C.E. (N.T.) dated Consequently, the Credit the on one time charges (whether paid upfront or in installments) paid in a year, may be allowed to be taken evenly over a period 3 (three) years. [Rule 4(7) Credit Rules, 2004 as amended refers]. Detailed illustrations explaining how the Credit is to be availed, are given in para 2 below. However, the paid on user charges, license fee, transfer fee charged by the Government on trading would be available in the year Page 7 13

8 in which the same is paid. Likewise, paid on royalty in respect natural resources and any periodic s shall be available as credit in the year in which the same is paid. The existing eighth proviso in sub-rule (7) rule 4 Credit Rules, 2004 is being omitted because the same is superfluous. Amendments have also been made in Credit Rules, 2004 so as to allow credit to be taken on the basis the documents specified in subrule (1) rule 9 Credit Rules, 2004 even after the period 1 year from the date issue such a document in case services provided by the Government or a local authority or any other person by way right to use any natural resource [Fifth Proviso to sub-rule (7) Rule 4 Credit Rules, 2004]. 15. On basis which documents can Credit be availed in respect services provided by Government or a local authority. Credit may be availed on the basis challan evidencing by the recipient [Clause (e) sub-rule (1) rule 9 Credit Rules, 2004, refers]. 2. Illustration explaining how the Credit is to be availed on paid for right to use natural resources: Government India assigns right to use for a period 20 years in an auction held in May The Notice Inviting Application (NIA) for auction specifies that the successful bidders would have two options Page 8 13

9 (a) Full upfront : to make full upfront full auction price (bid amount) by, let s say, ; or (b) Deferred : (i) An upfront 33% the final bid amount shall be made by ; (ii) (iii) There shall be a moratorium 2 years for balance amount one time charges for the, which shall be recovered in 10 equal annual instalments Rs including interest for deferred. The 1st instalment the balance due shall become due on the third anniversary the scheduled date the first. Subsequent instalment shall become due on the same date each following year. CASE 1: (iv) The applicable rate interest under deferred option shall be 10%. Company becomes the successful bidder. The is assigned to for a total consideration Rs. 1000/-. chooses to make full upfront on the due date. The and eligibility the Credit in this case would be as follows: (i) (ii) (iii) The amount Rs. 1000/- will become due on Thus, according to rule 7 the Point ation Rules, 2011 the point taxation shall be According to rule 6(1) the Rules, 1994, the to pay Rs. 150/- on the consideration Rs. 1000/- paid or payable would be required to be discharged by According to the sixth proviso to rule 4(7) the Credit Rules, the Credit in respect the paid would be spread over 3 years as follows: Financial Year Credit eligible to be taken (1/3 total paid) Rs. 50/ Rs. 50/ Rs. 50/- Page 9 13

10 CASE 2: In the above example, assigns the right to use the to Company XYZ on (and issues invoice dated ) for a consideration Rs. 930/-. The and eligibility Credit would be as follows: F.Y. Due date for payable by for charged by for further to XYZ on Date Point ation Date Credit available to in the F.Y. Credit available to XYZ in the F.Y TOTAL CASE 3: Company becomes the successful bidder. The is assigned to for a total consideration Rs. 1000/-. chooses the deferred option. The schedule, and eligibility Credit would be as follows: F.Y. Instalment Due date for Upfront (33%) payable Date Point ation Date Eligible Credit in the F.Y Page 10 13

11 F.Y. Instalment Due date for payable Date Point ation Date Eligible Credit in the F.Y st nd rd th th th th th th th TOTAL Note: Figures with * indicate the amount credit available against paid during that year. Page 11 13

12 CASE 4: In the above example, if further assigns the right to use the to Company XYZ on for a consideration Rs. 200/-. The and eligibility Credit would be as follows: F.Y. Instalment Due date for Upfront (33%) payable to Govt for charged by for further to XYZ payable to Govt for XYZ XYZ Date Point ation Date Eligible Credit in the F.Y st Eligible Credit in the F.Y. XYZ nd (on 2 nd Instalment) + 30 (for further to XYZ) (in respect the 2 nd installment) and (in respect further to XYZ) (in respect the 2 nd installment) and (in respect further to XYZ) (being balance Credit) rd th th th th th /3 = 10* Page 12 13

13 F.Y. Instalment Due date for payable to Govt for charged by for further to XYZ payable to Govt for XYZ XYZ Date Point ation Date Eligible Credit in the F.Y. Eligible Credit in the F.Y th th TOTAL XYZ Note: Figures with * indicate the amount credit available against paid during that year. 3. All concerned are requested to acknowledge the receipt this Circular. 4. Wide publicity may be given so that the assessees and public are aware the above. All the major Industry and Trade Associations may be informed accordingly. Difficulty if any, in the implementation the Circular should be brought to the notice the Research Unit. 5. Hindi version would follow. Yours faithfully, (Abhishek Verma) Technical Officer (TRU) Page 13 13