Applicability of GST on various services provided by the Government
and Compounding fee collected by the Department from the persons who have been charged
for violation under various preservation and protection acts.
SERVICES provided by
Government are generally treated out of scope of supplies, but not all the
services rendered by the government or local authority is exempted from GST. Notification
No: 12/2017 CT(R) dated 28/06/2017 and Notification
No: 9/2017 IT (R) dated 28/06/2017 elaborating the list of
exempted services under GST.
First of all, we need clarity
over what is government and local authority? And whether all bodies constituted
by a state or Central law is regarded as local authorities?
1. Government:
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S. No
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Empowerment
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Explanation
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1.
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Clause (23) of section 3 of General clauses act, 1897
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Government includes both the Central government and
State government.
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2.
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Clause (8) of section 3 of General clauses act, 1897
and Article 53 & 77 of the constitution.
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Central government means the President and the officers
subordinate to him while exercising the executive powers of the union.
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3.
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Clause (60) of section 3 of General clauses act, 1897
and Article 154 and 166 of the constitution.
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State government means the Governor and the officers
subordinate to him while exercising the executive powers of the state.
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2. Local Authority: As defined in clause
(69) of section 2 of the CGST act means: a "Panchayat" as
defined in clause (d) of article 243 of the Constitution; "Municipality" as
defined in clause (e) of article 243P of the Constitution; a "Municipal
Committee" a Zilla Parishad, a District Board, and any other
authority legally entitled to, or entrusted by the Central Government or any
State Government with the control or management of a municipal or local
fund; "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; a "Regional
Council" constituted under article 371A of the Constitution.
The definition of local authority
is specific one and does not include other bodies which are merely described as
local bodies. Such local government authorities are separate entities created
for specific public purposes to provide wide range of services to the citizens,
for example development authorities formed under Town and Planning act etc.,
are not qualified as local authorities for the purpose of the GST Acts.
Further it is clarified that a
Statutory body created by Parliament or Corporation or authority created by
state legislature is neither ‘government' nor ‘local authority' hence these
regulatory bodies and other autonomous entities would not be regarded as
government or local authority.
As a first part let us analysis
certain government service exemptions in the notification and their related
taxable services.
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S. No
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Particulars:
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Analysis and Comments:
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1.
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Services by Government:
(CG/SG/UT/LA) is exempted excluding the following services:
• Services by Department
of post- speed post, Express parcel post, Life Insurance and agency services
provided to a person other than CG/SG/UT.
• Services in relation to
an aircraft or a vessel, inside or outside the precincts of a port or an
airport.
• Transport of goods or
passengers.
• Any service, other than
above provided to business entities with aggregate turnover up to 20 lakhs
(10 in case of Special category states) in the preceding FY, but excludes
services by renting of immovable property.
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• Majority of the
services provided by the government are exempt from tax which (includes
services covered under Article 243W and 243G of the constitution).
• In respect of services
other than – (i) renting of immovable property; (ii) services by the
Department of Posts by way of speed post, express parcel post, life
insurance, and agency services provided to a person other than Government;
and (iii) services in relation to an aircraft or a vessel, inside or outside
the precincts of an airport or a port, the service recipients are required to
pay the tax under reverse charge mechanism.
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2.
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Services which is provided by
government where the consideration does not exceed 5,000 is exempted. (In
case of continuous supply the limit is 5,000 in a FY).
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This is not applicable to
Services by Department of post- speed post, Express parcel post, Life Insurance
and agency services provided to a person other than CG/SG/UT. Services in
relation to an aircraft or a vessel, inside or outside the precincts of a
port or an airport. Transport of goods or passengers.
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3
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Services provided by the
Government by way of assignment of right to use any natural resources where
such right to use was assigned before 1st April 2016 is exempted.
Further this exemption shall
apply only to tax payable on onetime charge payable, in full upfront or in
instalments.
Services provided by the CG,
SG, UT or LA by way of assignment of right to use natural resources to an
individual farmer for cultivation of plants and rearing of all life forms of
animals(except horses), for food, fibre, raw material or other similar
products.
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The Government provides license
to various companies including Public Sector Undertakings for exploration of
natural resources like coal, oil, hydrocarbons, iron ore, manganese, etc. For
having assigned the rights to use the natural resources, the licensee companies
are required to pay consideration in the form of annual license fee, lease
charges, royalty, etc. to the Government. The activity of assignment of
rights to use natural resources after 1 st April 2016 is treated as supply of
services and the licensee is required to pay tax on the amount of
consideration paid in the form of royalty or any other form under reverse
charge mechanism.
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4.
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Services by Department of post-
speed post, Express parcel post, Life Insurance and agency services provided
to a person other than CG/SG/UT is Taxable.
But 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 is exempted.
Transfer of money through money
orders, operation of savings accounts, issue of postal orders, pension
payments and other such services is also exempted.
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• The services by way of
speed post, express parcel post, life insurance, and agency services provided
to Local Authority are not exempt .
• The Department of Posts
provides services like distribution of mutual funds, bonds, passport
applications, collection of telephone and electricity bills on commission
basis. These services are in the nature of intermediary and generally called
agency services. In these cases, the Department of Posts is liable to pay tax
without application of reverse charge.
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5.
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Services provided by the
Central Government, State Government, Union territory to another Central
Government, State Government, Union territory or Local authority.
However, this is not applicable
to Services by Department of post- speed post, Express parcel post, Life
Insurance and agency services provided to a person other than CG/SG/UT.
Services in relation to an aircraft or a vessel, inside or outside the precincts
of a port or an airport. Transport of goods or passengers.
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• Services provided by
Police or security agencies of Government to PSU/private business entities
are not exempt from GST. Such services are taxable supplies and the
recipients are required to pay the tax under reverse charge mechanism on the
amount of consideration paid to Government for such supply of services.
• For example: Security
service provided by the police department for consideration to the Cricket
Association for conducting cricket matches.
• Security services
provided to Public Sector Undertaking and other business entities for
consideration by Central Industrial Security Force (CISF) 1.
• Security and Home guard
services provided by the government to FCI is taxable under reverse charge.
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6.
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Transmission or distribution of
electricity by an electricity transmission or distribution utility 2 is
exempted. The following services are subject to GST:
• Support services, Fees
for training, Renting of property etc.,
• Inter entity
transactions between the Electricity generation and transmission utility. For
example: GST is applicable on taxable supplies between TANGEDCO and
TANTRANSCO.
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Illustrative list of taxable
services provided by Electricity transmission or distribution utility:
1. Hire charges collected from
contractors.
2. Lease/Rental income from
contractors and other private parties.
3. Transformer testing fees.
4. Sale of tender forms (i.e.
tender processing fee).
5. Registration fee from
suppliers and customers.
6. Income from sale of
application forms.
7. Recovery for transport and
vehicles expenditure (other than the receipts from staff).
8. Miscellaneous income from
training activities.
9. Exam fees collected from the
candidates writing department exams.
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7.
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Services provided by the CG,
SG, UT, LA by way of tolerating Non-performance of a contract for which
consideration in the form of fines or liquidated damages is payable to the
CG, SG, UT, LA under such contract.
Note: Fines and Penalties
imposed by Government or a local authority for violation of a statute,
bye-laws, rules or regulations are also covered under this exemption and
hence not liable to tax.
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Illustration: Central Public
Works Department(CPWD) entered into a Construction contract with M/s. XYZ, a
construction company for certain amount of consideration. Assuming that M/s.
ABC does not complete the construction and handover the project by the
specified date. As per the contract, the department asks for damages/penalty
from M/s. XYZ and threatened to go to the court if not paid. M/s ABC has paid
an amount of Rs. 1,00,00,000/- to the department for non-performance of
contract. Such amount paid to department is exempted from payment of tax.
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8.
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FCI's (Food Corporation of
India)3 primary function relates to purchase, sale, storage and distribution
of food grains on behalf of government of India. Services relating to
loading, unloading, packing, storage and warehousing of agricultural produce
and other agricultural extension services is exempted from the GST levy.
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However, in open sale of food
grains FCI collects delay lifting charges from the private parties(buyer) if
he delays loading of goods. These charges fall under composite supply and
accordingly be taxable at the rate applicable to such goods.
Illustrative list of taxable
services by food corporation of India:
• Charges for renting of
immovable property.
• Hire charges of
Weighing machine.
• Charges collected by
providing accommodation in FCI's Guest houses and hotels.
• Processing fee from
applicants and sale of tender documents.
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9.
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No GST on Transportation by
Rail of Agricultural Produce, relief materials, milk, salt, food grain
including flours, pulses and rice, railway equipment and materials, defence
and military equipments, etc. Services of leasing of assets (rolling stock
assets including wagons, coaches, locos) by Indian Railways Finance
Corporation to Indian Railways.
And also on Inter-state
movement of trains between stations/workshops/sheds/depots, etc., for
the purpose of:
(1) Carrying goods or
passengers or both or
(2) For repairs and
maintenance.
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In spite of these exemption
several services provided by Indian railways is subjected to GST levy.
• 5% GST rate is
applicable on transportation of goods other than those covered in the
exemption list.
• With reference to
railways rate circular no 19: Several ancillary charges levied on
transportation of goods such as: Wagon registration fee, Demurrage, Wharfage,
Terminal access, Sidings, Shunting, Stabling, Haulage, Detention, Punitive
Charges for overloading, charges for unloading, charges for dummy wagons,
Hire/haulage of cranes, Charges for empty wagons on private account, Engine
haulage charges, Re-weightment wagon, Special train charges, Hire charges for
test wagons, Hire charges for wagon interchange, infringement charges etc.,
attracts GST at 5%.
• Further all penalties
and Penal charges shall also attracts GST at 5%.
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10.
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No GST in respect of Transport
of passengers by rail in Second class, Metro, Sleeper Class.
However, GST is applicable on
certain services provided by Indian railways as follows:
1. static catering services at
5% without ITC w.e.f 15.11.2017. (Reference Railway board commercial circular
no: 79 dated 01/12/2017).
2. Charges for verification of
journey details 4 other than to a non-business entity and government.
(Reference Railway board commercial circular no: 56 dated 02/08/2017.)
3. EFTs (Excess Fare
Ticket)5 issued for travel in the class were GST is applicable at 5%
including fare and penalty. (Reference Railway board commercial circular no:
46 dated 30/06/2017.)
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• GST is levied on the
fare of passenger services on the following classes:
1. AC first class.
2. Executive class.
3. AC -2tier class.
4. AC chair car class.
5. AC economy class.
6. First class.
7. AC and first class coaches
on special trains/on FTR.
• GST is levied on
charges being realized for verification of journey details/LTC verification
by a business entity at 18% and also liable under
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