On first impression of the speech delivered by the FM, it was felt that all services provided by the government are brought under negative list. Thought most services provided by the Central or State Government or Local Authority are in the negative list but some of them are deliberately left out. This will definitely result in widening the levy of service tax.
Interestingly, the term “Government” has not been defined in the Act, the definition of ‘Government’ as contained in the General Clauses Act, 1897 would be applicable as per which ‘Government’ includes both State Government and Central Government. Further as per the General Clause Act 1897, State includes Union Territory.
But various corporations formed under Central Acts or State Acts or various government companies registered under the Companies Act, 1956 or autonomous institutions set up by a special Acts are NOT covered under the definition of ‘Government’. That means services provided by such entities would, therefore, not be entitled to the negative list entry relating to the ‘Government’, that says service provided by such entities are taxable. It would also not include regulatory bodies.
Services provided by Government or local authority are exempt, but not in all the cases, Following services are taxable:
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.
However if any service provided is exempt by virtue of Negative list then such service would not be taxable.
Looking towards the widened base of support service, it has made life of the tax payer even more miserable and even burden of paying tax is shifted to assessee under reversed charge mechanism in case of support service.
Support services have been defined in section 65B of the Act as ‘infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis’.
Thus services which are provided by government in terms of their sovereign right to business entities are not support services e.g. grant of mining or licensing rights.