BUDGET CHANGES IN NEGATIVE LIST - PART I

[Dr. Sanjiv Agarwal]

Amendments made by Finance Bill, 2015 (w.e.f. notified date)

The Finance Bill, 2015 has made the following amendments in the negative list under section 66D which shall have the impact of expansion of scope of services under the tax net. The amendments have been made in clauses (a), (f), (i) and (j).

1. Government's support services [Clause (a)] - Support services provided by the Government or local authority shall no longer be in negative list. The words, 'support services' has been substituted by words 'any service'. It would render almost all services provided by Government or local authority taxable for the purpose of Service Tax. The word, 'Government' has been defined under clause 26A of section 65B and definition of 'support service' under clause (49) of section 65B stands omitted from the effective date. For meaning of these terms, refer to Topic No. 43 of the Book.
2. Processes in relation to alcoholic liquor [Clause (f)] - Activity of processing of goods amounting to production or manufacture of alcoholic liquor for human consumption has been taken out of negative list. Any process carried out under a contract or on job work basis for production of alcoholic liquor meant for human consumption shall be taxable. The definition of 'process amounting to manufacture or production of goods' under section 65B(44) of the Finance Act, 1994 has also been amended to omit the words 'alcoholic liquor for human consumption'.
3. Betting, gambling and lottery [Clause (i)] - The services in relation to betting, gambling and lottery continue to be in negative list but the services provided by lottery distributors and selling agents shall be taxable. An explanation has been inserted in Clause (i) stating that this entry shall not include the activity specified in Explanation - 2 to Clause (44) of section 65B which defines the term 'service'. This relates to services by a distributor or selling agent of a lottery appointed or authorized by a State Government for the purpose of promoting, marketing, selling or facilitating in organizing or in any other manner of lottery of any kind. It also includes chit fund services provided by chit fund foreman.
4. Entertainment events and amusement facilities [Clause (j)] - Clause (j) in relation to admission to entertainment events and access to amusement facilities has been omitted by the Finance Bill, 2015. This is subject to exemptions specified in Notification No. 25/2012-ST as amended.

Government Support Services [Clause (a)]

Finance Bill, 2015 has made three amendments in relation to Clause(a) of section 66D. These are-

1. substitution of words 'support service' by 'any service'
2. Omission of definition of 'support service' in section 65B(49) as a consequence of (i) above
3. Insertion of definition of 'government in section 65B(26A)

The impact of the amendment would result in enlarged scope of taxable services provided by government entities. All services (or any service) provided by the government or local authority to a business entity, except those in negative list or exempt services, shall be liable to Service Tax.

The services provided by Government to business entities shall be taxable under reverse charge mechanism vide Notification No. 30/2012-ST as amended by Notification No. 7/2015-ST dated 1.3.2015

CBEC vide Letter DOF No. 334/5/2015-TRU dated 28.02.2015 has clarified on amendment as follows -

"Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending section 66D (a)(iv), to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65 B (49)] is being omitted. Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax ."

As a result, Government activities or services may become costlier. For example, companies bidding for coal blocks or telecom / spectrum / mines allocation etc will attract Service Tax on the fee or charges or royalty payable by the companies to the Government. Other such auctions shall also be liable to Service Tax. Thus, Finance Bill, 2015 amendment would bring in Service Tax net almost all services (except those already covered in negative list and exempted services) provided by Government.

(To be continued ……………….)