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 1st 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 1st 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.
• 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.
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.
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