Service Tax on Services provided by Government or local authority

1. Most services provided by the Central or State Government or local authorities are in the negative list except the following :

(a)  Services provided by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services carried out on payment of commission on non government business;

(b)  Services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport;

(c)  Transport of goods and/or passengers;

(d)  Support services, other than those covered by clauses (a) to (c) above, to business entities.

2. Governments, Local bodies etc

I . Meaning of 'Government'

a. Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.

b. State Government means the Governor or the officers subordinate to him who exercise the executive power of the state vested in the Governor and in the name of the Governor.

c. Union territory administration.

II . Definition of local authority?

Local authority is defined in clause (31) of section 65B and means the following:-

  ♦  A Panchayat as referred to in clause (d) of article 243 of the Constitution

  ♦  A Municipality as referred to in clause (e) of article 243P of the Constitution

  ♦  A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund

  ♦  A Cantonment Board as defined in section 3 of the Cantonments Act, 2006

  ♦  A regional council or a district council constituted under the Sixth Schedule to the Constitution

  ♦  A development board constituted under article 371 of the Constitution, or

  ♦  A regional council constituted under article 371A of the Constitution.

III. Local bodies constituted by a State or Central Law

a. The definition of 'local authority' is very specific as explained above and only those bodies which fall in the definition comprise 'local authorities'. It would not include other bodies which are merely described as a local body by virtue of a local law.

Exception:

a. Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are specifically exempt under the mega exemption.

b. 'Governmental authority' has been defined in the said mega exemption as a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution.

c. Thus if it fits into (a) and (b) above even though there  services are taxable, their services are exempted under the mega exception notification.

IV. Entities like a statutory body, corporation or an authority constituted under an Act passed by the Parliament or any of the State Legislatures.

a. The manpower of such statutory authorities or bodies do not become officers subordinate to the President under Article 53(1) of the Constitution. Such a statutory body, corporation or an authority as a juristic entity is separate from the state and cannot be regarded as Central or State Government and also do not fall in the definition of 'local authority'.

b. Thus regulatory bodies and other autonomous entities which attain their entity under an act would not comprise either government or local authority.

V. Services provided by one department of the Government to another Department of the Government .

a. If services are provided by one department of the Central Government to another department of the Central Government or by a department of a State Government to another department of the same State Government then such service would not be taxable as it would amount to self-service..

b. However if a service is provided by a Central Government department to a State Government department or vice versa or a by a State to another State Government or by a Government to an autonomous body, the same would be taxable if such service does not fall in the negative list.

3. Service tax registration for Government:

a. Where such support services are by way of renting of immovable property, to business entities

b. For services mentioned at (a) to (c) of the list in item no 1 above, tax will be payable by the concerned department.

Definition of support “services”

Support services have been defined in section 65B of the Act as

a. 'infrastructural, operational, administrative, logistic marketing or

b. any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves

c. but may obtain as services by outsourcing from others for any reason whatsoever and

d. shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis.

Therefore

 Services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services e.g. grant of mining or licensing rights or audit of government entities established by a special law etc.

4. Illustrations:

a. Services provided by Police or security agencies to PSUs or corporate entities or sports events held by private entities will be taxable. Because such service is included in the definition of support services and also similar services can be provided by private entities also. However the tax will be actually payable on reverse charge by the recipient.

b. Following services provided by Department of Posts are not liable to service tax.

  ♦  Basic mail services known as postal services such as post card, inland letter, book post, registered post provided exclusively by the Department of Posts to meet the universal postal obligations.

  ♦  Transfer of money through money orders, operation of savings accounts, issue of postal orders, pension payments and other such services.

However, Agency services carried by department of posts on payment of commission on non government business are excluded from the negative list entry relating to services provided by Government or a local authority, and hence taxable.