Government Services

1: Are all services provided by the Government or local authority exempted from payment of tax?

Answer: No, all services provided by the Government or
a local authority are not exempt from tax. As for instance,
services, namely,

(i) 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;
(ii) services in relation to an aircraft or a vessel, inside or
outside the precincts of an airport or a port;
(iii) transport of
goods or passengers; or
(iv) any service, other than services
covered under (i) to (iii) above, provided to business entities
are not exempt and that these services are liable to tax.
That said, most of the services provided by the Central
Government, State Government, Union Territory or local
authority are exempt from tax. These include services
provided by government or a local authority or governmental
authority by way of any activity in relation to any function
entrusted to a municipality under Article 243W of the
Constitution and services by a governmental authority by
way of any activity in relation to any function entrusted to a
Panchayat under article 243G of the Constitution.

2: Are Government or local authority or governmental authority liable to pay tax?

Answer: Yes. The Government or a local authority or a
governmental authority is liable to pay tax on supply of
services other than the services notified as exempt or
notified as neither a supply of goods nor a supply of services
under clause (b) of sub-section (2) of section 7 of the CGST
Act, 2017. 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.

3: What is the meaning of ‘Government’?

Answer: As per section 2(53) of the CGST Act, 2017,
‘Government’ means the Central Government. As per
clause (23) of section 3 of the General Clauses Act, 1897 the
‘Government’ includes both the Central Government and any
State Government. As per clause (8) of section 3 of the said
Act, the ‘Central Government’, in relation to anything done
or to be done after the commencement of the Constitution,
means the President. As per Article 53 of the Constitution,
the executive power of the Union shall be vested in the
President and shall be exercised by him either directly or
indirectly through officers subordinate to him in accordance
with the Constitution. Further, in terms of Article 77 of the
Constitution, all executive actions of the Government of India
shall be expressed to be taken in the name of the President.
Therefore, the Central Government means the President and
the officers subordinate to him while exercising the executive
powers of the Union vested in the President and in the name
of the President. Similarly, as per clause (60) of section 3
of the General Clauses Act, 1897, the ‘State Government’,
as respects anything done after the commencement of
the Constitution, shall be in a State the Governor, and in an
Union Territory the Central Government. As per Article 154 of
the Constitution, the executive power of the State shall be
vested in the Governor and shall be exercised by him either
directly or indirectly through officers subordinate to him in
accordance with the Constitution. Further, as per article 166
of the Constitution, all executive actions of the Government
of State shall be expressed to be taken in the name of
Governor. Therefore, State Government means the Governor
or the officers subordinate to him who exercise the executive
powers of the State vested in the Governor and in the name
of the Governor.

4: Who is a local authority?

Answer: Local authority is defined in clause (69) of section 2 of the CGST
Act, 2017 and means the following:

a “Panchayat” as defined in clause (d) of article 243 of the
Constitution;
a “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;
a 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; or
a Regional Council constituted under article 371A of the
Constitution;

5: Are all local bodies constituted by a State or Central Law regarded as local authorities for the purposes of the GST Acts?

Answer: No. The definition of ‘local authority’ is very specific
and means only those bodies which are mentioned as ‘local
authorities’ in clause (69) of section 2 of the CGST Act, 2017.
It would not include other bodies which are merely described
as a ‘local body’ by virtue of a local law.
For example, State Governments have setup local
developmental authorities to undertake developmental
works like infrastructure, housing, residential & commercial
development, construction of houses, etc. The Governments
setup these authorities under the Town and Planning
Act. Examples of such developmental authorities are
Delhi Development Authority, Ahmedabad Development
Authority, Bangalore Development Authority, Chennai
Metropolitan Development Authority, Bihar Industrial Area
Development Authority, etc. Such developmental authorities
formed under the Town and Planning Act are not qualified as
local authorities for the purposes of the GST Acts.

6: Would a statutory body, corporation or an authority constituted under an Act passed by the Parliament or any of the State Legislatures be regarded as ‘Government’ or “local authority” for the purposes of the GST Acts?

Answer: A statutory body, corporation or an authority created
by the Parliament or a State Legislature is neither ‘Government’
nor a ‘local authority’. Such statutory bodies, corporations or
authorities are normally created by the Parliament or a State
Legislature in exercise of the powers conferred under article
53(3)(b) and article 154(2)(b) of the Constitution respectively.
It is a settled position of law (Agarwal Vs. Hindustan Steel AIR
1970 Supreme Court 1150) that the manpower of such statutory
authorities or bodies do not become officers subordinate to the
President under article 53(1) of the Constitution and similarly
to the Governor under article 154(1). Such a statutory body,
corporation or an authority as a juridical entity is separate
from the State and cannot be regarded as the Central or a
State Government and also do not fall in the definition of ‘local
authority’. Thus, regulatory bodies and other autonomous
entities would not be regarded as the government or local
authorities for the purposes of the GST Acts.

7: Would services provided by one department of the Government to another Department of the Government be taxable?

Answer: Services provided by one department of the Central
Government/StateGovernment to another department of the
Central Government/ State Government are exempt under
notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 [S
No 8 of the Table].

However, this exemption is not applicable to:

(a) services provided by the Department of Posts by way of
speed post, express parcel post, life insurance, and agency
services provided to a person other than the Central
Government, the State Government and Union Territory;
(b) services in relation to a vessel or an aircraft inside or
outside the precincts of a port or an airport;
(c) services of transport of goods and/or passengers.

8: What are the transport services provided by the Government or local authorities exempt from tax?

Answer: Transport services provided by the Government to
passengers by —

(i) railways in a class other than— (a) first
class; or (b) an air-conditioned coach;
(ii) metro, monorail
or tramway;
(iii) inland waterways;
(iv) public transport,
other than predominantly for tourism purpose, in a vessel
between places located in India; and
(v) metered cabs or auto
rickshaws (including E-rickshaws) are exempt from tax.

9: Are various corporations formed under the Central Acts or State Acts or various government companies registered under the Companies Act, 1956/2013 or autonomous institutions set up by special Acts covered under the definition of ‘Government’?

Answer: No. The corporations formed under the Central
or a State Act or various companies registered under the
Companies Act, 1956/2013 or autonomous institutions set up
by the State Acts will not be covered under the definition of
‘Government’ and therefore, services provided by them will
be taxable unless exempted by a notification.

10: Are various regulatory bodies formed by the Government covered under the definition of ‘Government’?

Answer: No. A regulatory body, also called regulatory agency,
is a public authority or a governmental body which exercises
functions assigned to them in a regulatory or supervisory
capacity. These bodies do not fall under the definition of
Government.

Examples of regulatory bodies are – Competition Commission
of India, Press Council of India, Directorate General of Civil
Aviation, Forward Market Commission, Inland Water Supply
Authority of India, Central Pollution Control Board, Securities
and Exchange Board of India.

11: Will the services provided by Police or security agencies of Government to PSUs or corporate entities or sports events held by private entities be taxable?

Answer: Yes. 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.

Illustration: The Karnataka Cricket Association, Bangalore
requests the Commissioner of Police, Bangalore to provide
security in and around the Cricket Stadium for the purpose
of conducting the cricket match. The Commissioner of Police
arranges the required security for a consideration. In this case,
services of providing security by the police personnel are not
exempt. As the services are provided by Government, Karnataka
Cricket Association is liable to pay the tax on the amount of
consideration paid under reverse charge mechanism.

12: The Department of Posts provides a number of services. What is the status of those services for the purpose of levy of tax?

Answer: The services by way of speed post, express parcel
post, life insurance, and agency services provided to a person
other than the Government or Union territory are not exempt.
In respect of these services the Department of Posts is liable to
pay tax without application of reverse charge.
However, the following services provided by the Department
of Posts are not liable to tax.

(a) 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.
(b) Transfer of money through money orders, operation of
savings accounts, issue of postal orders, pension payments
and other such services.

13: What is the scope of agency services provided by the Department of Posts mentioned in the Notification No. 12/2017-Central Tax(Rate) dated 28.06.2017?

Answer: The Department of Posts also 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.

14: Would services received by Government, a local authority, a governmental authority from a provider of service located outside India be taxable?

Answer: No tax is payable on the services received by the
Government / local authority/ governmental authority from
a provider of service located outside India. However, the
exemption is applicable to only those services which are
received for the purpose other than commerce, industry
or any other business or profession. In other words, if the
Government receives such services for the purpose of
business or commerce, then tax would apply on the same.

15: Whether the exemption is applicable to online information and database access or retrieval services received by Government or local authorities from provider of service located in non taxable territory?

Answer: No. Online information and database access or
retrieval services received by Government or local authorities
from non taxable territory for any purpose including
furtherance of business or commerce are liable to tax.

16: What are the functions entrusted to a municipality under Article 243W of the Constitution

Answer: The functions entrusted to a municipality under the
Twelfth Schedule to Article 243W of the Constitution are as
under:

(a) Urban planning including town planning.
(b) Regulation of land-use and construction of buildings.
(c) Planning for economic and social development.
(d) Roads and bridges.
(e) Water supply for domestic, industrial and commercial
purposes.
(f) Public health, sanitation conservancy and solid waste
management.
(g) Fire services.
(h) Urban forestry, protection of the environment and
promotion of ecological aspects.
(i) Safeguarding the interests of weaker sections of society,
including the handicapped and mentally retarded.
(j) Slum improvement and upgradation.
(k) Urban poverty alleviation.
(l) Provision of urban amenities and facilities such as parks,
gardens, playgrounds.
(m) Promotion of cultural, educational and aesthetic aspects.
(n) Burials and burial grounds; cremations, cremation
grounds; and electric crematoriums.
(o) Cattle pounds; prevention of cruelty to animals.
(p) Vital statistics including registration of births and deaths.
(q) Public amenities including street lighting, parking lots, bus
stops and public conveniences.
(r) Regulation of slaughter houses and tanneries.

17: What are the functions entrusted to a Panchayat under Article 243G of the Constitution?

Answer: The functions entrusted to a Panchayat under the
Eleventh Schedule to Article 243G of the Constitution are as
under:

(i) Agriculture, including agricultural extension.
(ii) Land improvement, implementation of land reforms, land
consolidation and soil conservation.
(iii) Minor irrigation,
water management and watershed development.
(iv)Animal husbandry, dairying and poultry.
(v) Fisheries.
(vi)Social forestry and farm forestry.
(vii) Minor forest produce.
(viii) Small scale industries, including food processing
industries.
(ix)Khadi, village and cottage industries.
(x)Rural housing.
(xi) Drinking water.
(xii) Fuel and fodder.
(xiii) Roads, culverts, bridges, ferries, waterways and
other means of communication.
(xiv) Rural electrification,
including distribution of electricity.
(xv) Non-conventional
energy sources.
(xvi) Poverty alleviation programme.
(xvii)Education, including primary and secondary schools.
(xviii)Technical training and vocational education.
(xix) Adult and non-formal education.
(xx) Libraries.
(xxi) Cultural activities.
(xxii) Markets and fairs.
(xxiii) Health and sanitation, including
hospitals, primary health centres and dispensaries.
(xxiv)Family welfare.
(xxv) Women and child development.
(xxvi)Social welfare, including welfare of the handicapped and
mentally retarded.
(xxvii) Welfare of the weaker sections,
and in particular, of the Scheduled Castes and the Scheduled
Tribes.
(xxviii) Public distribution system.
(xxix) Maintenance of community assets.

18: What is the significance of services provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority?

Answer: Non-performance of a contract or breach of
contract is one of the conditions normally stipulated in the
Government contracts for supply of goods or services. The
agreement entered into between the parties stipulates that
both the service provider and service recipient abide by the
terms and conditions of the contract. In case any of the
parties breach the contract for any reason including non-performance
of the contract, then such person is liable to pay
damages in the form of fines or penalty to the other party.
Non-performance of a contract is an activity or transaction
which is treated as a supply of service and the person is
deemed to have received the consideration in the form of
fines or penalty and is, accordingly, required to pay tax on
such amount.

However non performance of contract by the supplier of
service in case of supplies to Government is covered under
the exemption from payment of tax. Thus any consideration
received by the Government from any person or supplier for
non performance of contract is exempted from tax.

Illustration: Public Works Department of Karnataka entered
into an agreement with M/s. ABC, a construction company
for construction of office complex for certain amount of
consideration. In the agreement dated 10.7.2017, it was
agreed by both the parties that M/s. ABC shall complete the
construction work and handover the project on or before
31.12.2017. It was further agreed that any breach of the terms
of contract by either party would give right to the other
party to claim for damages or penalty. Assuming that M/s.
ABC does not complete the construction and handover the
project by the specified date i.e., on or before 31.12.2017. As
per the contract, the department asks for damages/penalty
from M/s. ABC and threatened to go to the court if not paid.
Assuming that M/s ABC has paid an amount of Rs. 10,00,000/-
to the department for non performance of contract. Such
amount paid to department is exempted from payment of
tax.

19: Whether services in the nature of change of land use, commercial building approval, utility services provided by a governmental authority are taxable?

Answer: 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 exempt from payment of tax.

20: Whether fines and penalty imposed by Government or a local authority for violation of a statute, byelaws, rules or regulations liable to tax?

Answer: No. This gets covered under the exemption by
way of tolerating non-performance of a contract for which
consideration in the form of fines or liquidated damages is
payable to the Government or the local authority.

21: Whether services provided by Government or a local authority to a business entity located in a special category State are subject to tax?

Answer: The expression “special category States” provided
in Explanation (iii) to section 22 of the CGST Act, shall mean
the States as specified in sub-clause (g) of clause (4) of Article
279A of the Constitution. As per the said clause, the States
of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand have been given the status of special
category States for the purpose of GST Acts. Notification
No. 12/2017-Central Tax(Rate), dated 28.06.2017 (Sl. No. 7 of
the Table) provides for exemption from payment of tax in
respect of services provided to a business entity located in a
special category State with a turnover up to Rs. 10 lakh rupees.
However, this exemption is not be applicable to (a) services

(i) by theDepartment of Posts by way of speed post, express
parcel post, life insurance, and agency services provided to a
person other than Government;
(ii) in relation to an aircraft or a
vessel, inside or outside the precincts of an airport or a port;
(iii)of transport of goods or passengers and
(iv) services by way of
renting of immovable property.

22: A small business entity is carrying on a business relating to consulting engineer services in Delhi. Does it need to pay tax on the services received from Government or a local authority?

Answer: If turnover of the entity is less than the limit of
Rs. 20 lakhs in a financial year, no tax would be payable.
The exemption from payment of tax is applicable to
services provided to a business entity having a turnover
up to Rs. 20 lakh rupees. However, this exemption is not
applicable to

(i) 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;
(ii) services in relation to an aircraft or a
vessel, inside or outside the precincts of an airport or a
port;
(iii) services of transport of goods or passengers and
(iv) services by way of renting of immovable property.

23: What is reverse charge in GST?

Answer: As per 2(98) of the CGST Act, 2017, ‘‘reverse
charge” means the liability to pay tax by the recipient of supply of goods or
services or both instead of the supplier of such goods or services or both
under sub-section (3) or subsection (4) of section 9 of the CGST Act, 2017, or
under subsection (3) or subsection (4) of section 5 of the IGST Act, 2017.

24: Whether reverse charge is applicable to services provided by Government or local authorities?

Answer: Yes, reverse charge is applicable in respect of
services provided by Government or local authorities to any
person whose turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for
Special Category States) excluding the following services:

(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;
(iii) services in relation to an aircraft or a vessel, inside or
outside the precincts of an airport or a port;
(iv) transport of goods or passengers.

Thus, the recipient of supply of goods or services is liable
to pay the entire amount of tax involved in such supply of
services or goods or both.

25: What is the scope of ‘pure services’ mentioned

in the exemption notification No. 12/2017-Central Tax (Rate),
dated 28.06.2017?

Answer: In the context of the language used in the notification,
supply of services without involving any supply of goods would
be treated as supply of ‘pure services’. For example, supply
of man power for cleanliness of roads, public places, architect
services, consulting engineer services, advisory services, and
like services provided by business entities not involving any
supply of goods would be treated as supply of pure services.
On the other hand, let us take the example of a governmental
authority awarding the work of maintenance of street lights
in a Municipal area to an agency which involves apart from
maintenance, replacement of defunct lights and other spares.
In this case, the scope of the service involves maintenance
work and supply of goods, which falls under the works contract
services. The exemption is provided to services involves only
supply of services and not for works contract services.

26: Would services in relation to supply of motor vehicles to Government be taxable?

Answer: Supply of a motor vehicle meant to carry more than
twelve passengers by way of giving on hire to a state transport
undertaking is exempted from tax. The exemption is applicable
to services provided to state transport undertaking and not to
other departments of Government or local authority. Generally,
such State transport undertakings/corporations are established
by law with a view to providing public transport facility to
the commuters. In some cases, transport undertakings hire
the buses on lease basis from private persons on payment of
consideration. The services by way of supply of motor vehicles
to such state transport undertaking are exempt from payment
of tax. However, supplies of motor vehicles to Government
Departments other than the state transport undertakings are
taxable.

27: Can the supplier of services claim the tax paid under reverse charger mechanism as input tax credit?

Answer: Yes. The supplier of services may claim the input
tax credit on the amount of tax paid under reverse charge
mechanism subject to the provisions of Chapter V of CGST
Act, 2017 read with Chapter V of the CGST Rules, 2017.

28: What is the concept called ‘tax deduction at source’?

Answer: As per section 51 of the CGST Act, 2017, the
Government may mandate

(a) a department or establishment
of the Central Government or State Government; or
(b) local
authority; or
(c) Governmental agencies; or
(d) such persons
or category of persons as may be notified by the Government
on the recommendations of the Council, to deduct tax at the
rate of one per cent on account of CGST and one percent on
account of SGST from the payment made or credited to the
supplier where the total value of the supply under a contract
exceeds two lakh and fifty thousand rupees (excluding tax
payable under the GST Acts).

The deductor shall remit the
deducted amount to the Government and is also required to
furnish a certificate to the deductee by mentioning the details
of the amount deducted and payment of such deducted
amount.

Illustration: ABC Ltd supplies the service valued at Rs.
3,00,000/- excluding tax to Government department. The
department while making the payment of Rs. 3,00,000/-
should deduct Rs. 3000/- on account of CGST and Rs. 3000/-
on account of SGST and make a net payment of Rs. 2,94,000/-
to ABC Ltd. Thereafter, the department shall pay the amount
of Rs. 3,000/- to the Central Government andRs. 3,000/- to the
State Government and furnish a certificate to the deductee,
containing the details of such deduction including the details
of such deductee.

29: Whether the deductee can claim the input tax credit on the deduction of tax at source amount?

Answer: No. The tax deducted at source is not input tax
credit. However, the amount deducted shall be credited
to the electronic cash ledger (upon being accepted by the
deducteein his Form GSTR-2A) of the deductee and can be
utilized for payment of output tax.

30: Whether an amount in the form of royalty or any other form paid/payable to the Government for assigning the rights to use of natural resources is taxable?

Answer: The Government provides license to various
companies including Public Sector Undertakings for
exploration of natural resources like 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 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.

31: Whether a Government Department, required to deduct tax at source, is liable to take registration as a normal taxpayer?

Answer: The Government Department is required to
take registration as a normal taxpayer only if it makes a
taxable supply of goods and/or services and in such cases,
the registration shall be obtained on the basis of PAN but
Bank account is not mandatory. However, if it is not making
any taxable supply of goods and/or services, it is required to
register only as a deductor of tax at source on the basis of
TAN/PAN.