Clarifications Regarding Services Provided by way of Assignment of Spectrum

Clarifications Regarding Services Provided by way of Assignment of Spectrum

Any service provided by the Government or a local authority to a business entity has been made taxable with effect from 1st April 2016. Prior to this, only support services provided by Government to business entities were taxable. In order to clarify doubts raised by members of Industry and Trade Associations, a detailed Circular No. 192/02/2016-Service Tax dated 13 April 2016 has been issued. The Circular addressed to the field formations of the Central Board of Excise and Customs (CBEC) explains in a Q&A form the various provisions of the notifications issued in this regard. The Circular can be accessed at http://www.cbec.gov.in/resources//htdocs-servicetax/st-circulars/st-circulars-2016/st-circ-192-2016.pdf

            One of the issues raised by the telecom service providers (TSP) was whether Service Tax is payable, on instalments due after 1.4.2016, for spectrum assigned/auctioned to them in the past. It has been clarified that service tax payable, whether in full upfront or in instalments, for assignment of right to use such spectrum has been exempted from service tax. Furthermore, services provided by Government by way of allowing a TSP to operate as a telecom service provider or use radiofrequency spectrum during the financial year 2015-16 on payment of licence fee or spectrum user charges, has been specifically exempted from service tax. By these measures, Government has ensured that there is no new tax liability on the TSPs in respect of the services provided in the past.

                                                    Under the existing auction system of assigning spectrum, Government has provided the option of either making full upfront payment, or 25%/33% part upfront payment initially and thereafter making payment in equal number of instalments, under the deferred payment option. A  concern of the TSPs related to this was that there was a lack of clarity as to when the liability to pay service tax in respect of the service by way of assignment of spectrum  would arise, in cases  where the assignee chooses to make payment of the auction price  in instalments under the deferred payment option over a period of 10 years- at the time when a letter is  issued by the government  communicating  the full auction price payable   or when the  part upfront amount and  the instalments    are required to be paid as  per the deferred payment option plan.  There were apprehensions that liability to pay the entire service tax payable on the full auction price   at the time of assignment would severely jeopardise their finances. This has been addressed by the Government by making amendments in the Point of Taxation Rules so as to prescribe that service tax would be payable when  the payments, whether full upfront or part under the deferred payment option, become  due or are made, whichever is earlier. As a result, if a TSP opts for the deferred payment option, then the liability to pay service tax arises on the date on which  the part payment or instalments become due as specified in any invoice, bill, challan or any other document.

            Finally, the issue of distributing the input tax credit of service tax paid in respect of the services of the assignment of spectrum over the period of assignment, that is 20 years, was another big concern of the TSPs. This has been addressed by the Government by effecting changes in the Cenvat Credit Rules and allowing the credit of service tax paid on one time charges for assignment, i.e. the auction price, to be taken evenly over a period of 3 years. Moreover, the credit of Service Tax paid on spectrum user charges, license fee, transfer fee charged by the Government on trading of spectrum would be fully available in the year in which the same is paid. The Circular dated 13 April 2016 shows by way of illustrations how input tax credits can be taken.

            The above principles laid down for Assignment of spectrum would also apply in case of assignment of any other natural resource by Government or a local authority by auction or otherwise.

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Clarifications regarding Services Provided by Government or Local Authority; Any Service Provided by the Government or a Local Authority to a Business Entity has been Made Taxable with Effect from 1st April 2016.

                                               Any service provided by the Government or a local authority to a business entity has been made taxable with effect from 1st April 2016. Prior to this, only support services provided by Government or local authority to business entities were taxable. In order to clarify doubts raised by members of Industry and Trade Associations and mitigate the small assessees from compliance burden, a detailed Circular No. 192/02/2016-Service Tax dated 13 April 2016 has been issued. The Circular addressed to the field formations of the Central Board of Excise and Customs (CBEC) explains in a Q&A form the various provisions of the notifications issued in this regard. The Circular can be accessed at http://www.cbec.gov.in/resources//htdocs-servicetax/st-circulars/st-circulars-2016/st-circ-192-2016.pdf

            It may be recalled that services provided by Government or a local authority to business entities up to a turnover of Rs 10 lakh in the preceding financial year have been exempted. This would relieve small businesses from compliance burden.

In this background, the salient features of the Circular are as under:-

            Services provided by Government or a local authority to another Government or a local authority have been exempted. However, this exemption is not applicable to services provided by Government or a local authority which were subjected to service tax prior to 1^st April 2016 (for instance, the services of transport of goods or passengers by Indian Railways).

            Services by way of grant of passport, visa, driving license, birth or death certificates have been exempted. 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. 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. Needless to say that this exemption is not applicable to the services provided by Government or a local authority which were subjected to service tax prior to 1^st April 2016.

            It has also been clarified that taxes, cesses or duties levied are 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.

            It has been 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.     Further, 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.

            It has been clarified that any activity undertaken by Government or a local authority against a consideration constitutes a service and 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. As a result, Service Tax is leviable on any payment, in lieu of any permission or license granted by the Government or a local authority. 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.

It has also been 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 by CBE&C are no longer applicable.

            Services by way of allocation of natural resources by Government or a local authority to an individual farmer for the purposes of agriculture have been exempted.

            Regulation of land-use, construction of buildings and other services  listed in  the Twelfth Schedule to the Constitution which  have been entrusted to  Municipalities under Article 243W of the Constitution, when provided by governmental authority are already exempt from service tax. The said services when provided by Government or a local authority have also been exempted from Service Tax.

            Services provided by Government, a local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution have been exempted from service tax.

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FM holds a bilateral meeting with United States Trade Representative Ambassador Mr Michael Froman; Emphasis India’s keenness in early conclusion of a Totalization Agreement with the United States; Expresses India’s concern over the hike in the H-1B and L1 visa fee which is discriminatory and in effect, largely targeted at Indian IT companies.

The Finance Minister Shri Jaitley held a bilateral meeting with United States Trade Representative Ambassador Mr Michael Froman. The Finance Minister affirmed that the sustained engagement and rapidly increasing trade and investment partnership between India and the US are key elements of the bilateral engagement between the two countries and India looks forward to strengthening and deepening this economic engagement. The Finance Minister emphasized:

• India’s keenness in early conclusion of a Totalization Agreement with the United States. (As per Industry estimates, Indian professionals have contributed more than US$ 25 billion to the US Social Security during the last decade, without being able to retrieve their contributions)

• India’s concern over the hike in the H-1B and L1 visa fee which is discriminatory and in effect, largely targeted at Indian IT companies.

The Finance Minister is currently on official tour to Washington DC to attend the Spring Meetings of the International Monetary Fund (IMF) and the World Bank and other associated meetings. He is accompanied by Dr. Raghuram Rajan, Governor RBI, Mr. Shaktikanta Das, Secretary Economic Affairs, Dr. Arvind Subramanian, Chief Economic Adviser and other officials.

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FM: Amid weaker outlook across the globe, India’s experience of strong economic growth, comfortable price situation, low current account deficit, and adherence to fiscal recovery path has projected it as an outpost of opportunity for global investors.

The Finance Minister Shri Arun Jaitley said that Indian economy is estimated to register 7.6% growth in FY 2015-16, notwithstanding contraction of global exports and two consecutive years of shortfall in monsoon. Shri Jaitley said that amid weaker outlook across the globe, India’s experience of strong economic growth, comfortable price situation, low current account deficit, and adherence to fiscal recovery path have projected it as an outpost of opportunity for global investors. The Finance Minister was speaking on the theme of ‘Steering India towards Growth ’, at an event organized by ‘Carnegie Endowment for International Peace’ in Washington D.C. yesterday on the very first day of his US trip.

Earlier Mr William J Burns, President of Carnegie Endowment and former US Deputy Secretary of State welcomed the Finance Minister and gave the introductory remarks. Speaking further on the occasion, the Finance Minister Shri Jaitley emphasized on India’s economic recovery and the role of various initiatives taken by the present Government in achieving it.

Elaborating on the large number of initiatives taken by the Indian Government, the Finance Minister Shri Jaitley said that what distinguishes the present Government is this Government’s emphasis on decisiveness, consistency in policy direction and transparency in functioning. He also talked about reforms in taxation, Make in India programme, increase in FDI limits, expediting the process of granting clearances to new projects, steps taken for ease of doing business, rationalization of expenditure by making petrol and diesel prices market linked and promoting financial inclusion by linking Direct Benefits Transfer (DBT) to Aadhar.