EXEMPTIONS RESTORED RETROSPECTIVELY BY FINANCE ACT, 2016

[Dr. Sanjiv Agarwal]

Exemption to canal, dam or other irrigation works ( section 101 )

Finance Act, 2016 has inserted a new section 101 to provide for special retrospective exemption in certain cases relating to construction of canal, dam etc.

The text of section 101 is as follows :-

“101. (1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of July, 2012 and ending with the 29th day of January, 2014 (both days inclusive) in respect of taxable services provided to an authority or a board or any other body––

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by the Government,

with ninety per cent. or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President."

It may be noted that -

(a) Definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature. However, services provided prior to 30.01.2014 to such bodies remained taxable. The benefit of exemption is proposed to be extended to the said services provided during the period from the 1st July, 2012 to 29.01.2014.

(b) Refund of Service Tax paid on the said services during the period from the 1st July, 2012 to 29.01.2014 shall also be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President. 

The provision has come into force on enactment of Finance Bill, 2016 i.e. from 14.05.2016.

Exemption relating to construction of Government buildings (Section 102)

Finance Act, 2016 has inserted a new section 102 to provide for special retrospective exemption in certain cases relating to services provided to the Government, Local Authority or a Governmental Authority by way of construction, repair, maintenance etc of specified civil structures or residential complex.

The text of section 102 is as follows –

"102. Special provision for exemption in certain cases relating to construction of Government buildings –

(1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of taxable services provided to the Government, a local authority or a Governmental authority, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of––

(a) a civil structure or any other original works meant predominantly for use other than for

commerce, industry or any other business or profession;

(b) a structure meant predominantly for use as––

(i) an educational establishment;

(ii) a clinical establishment; or

(iii) an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or for the use of their employees or other persons specified in Explanation 1 to clause (44) of section 65B of the said Act, under a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all the material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President."

Exemption from Service Tax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of -

• a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
• a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
• a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

was withdrawn with effect from 1.4.2015. The same has been restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date. The exemption has been restored till 31.03.2020. As per the proviso to Entry 12A, above exemption shall be applicable till 31.03.2020. Thus, if such contracts do not get completed by 31.03.2020, then service tax shall become applicable on such contracts.

[Notification No. 25/2012-ST as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]

The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts are also exempted from service tax. In terms of proposed Section 102(1) of the Finance Act, 1994, the services provided during the period from 01.04.2015 to 29.02.2016 under such contracts shall also be exempted from service tax.

In terms of Section 102(2), if any assessee has already paid service tax in respect of above services provided for the period 01.04.2015 to 29.02.2016, then it shall be entitled to refund of service tax paid on the said services in accordance with the law subject to the satisfaction of principle of unjust enrichment. It may be noted that in terms of Section 102(3), an application for the claim of refund of service tax shall be made within a period of six months from the date of enactment of the Finance Bill, 2016, i.e., from 14.05.2016.

Exemption to services relating to port or airport (Section 103)

Finance Act, 2016 has inserted a new section 103 to provide for retrospective exemption relating to construction of port or airport.

The text of section 103 is as follows -

"103. Special provision for exemption in certain cases relating to construction of airport or port 

(1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport or port, under a contract which had been entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date, subject to the condition that Ministry of Civil Aviation or, as the case may be, the Ministry of Shipping in the Government of India certifies that the contract had been entered into before the 1st day of March, 2015.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.”

Exemption from Service Tax on services by way of construction, erection, etc. of original works pertaining to an airport, port was withdrawn with effect from 1.4.2015. The same has been restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping, as the case may be, that the contract had been entered into prior to 01.03.2015. The exemption is being restored till 31.03.2020. [Notification No. 25/2012-ST as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts shall also be exempted from service tax.