Government restores exemptions to boost infrastructural projects

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Customer Care No. 91-11-45562222
Government restores exemptions to boost
infrastructural projects
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I. Introduction

• With affirmation on the economic development of
  the country as against the global slowdown, the
  Hon'ble Finance Minister Mr. Arun Jaitley
  presented its third Union Budget for 2016-17.
  During the budget speech, the Finance Minister
  flagged various issues which are in the top most
  priority of the Government. One of such issue
  which ranks high in the agenda ever since Mr.
  Narendra Modi came in power is to make the tax
  laws of the country transparent and predictable.
  The Government has been vehemently promoting
  against retrospective amendments which imposes an
  unforeseeable burden on the tax payer. In the
  current budget, the Government has proposed to
  introduce three new sections under service tax
  law namely 101,102 and 103 so as to restore
  certain exemptions where were withdrawn in the
  previous years.
• In order to understand the impact of these new
  sections, it is relevant to refer to serial
  numbers 12 and 14 of the Mega Exemption
  Notification 25/2012-ST dated 30.06.2012 as it
  stood at the time of its introduction and the
  subsequent amendments which happened over the
  years.

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II. Original Entries

• 1.0 The serial number 12 of the Mega Exemption
  Notification 25/2012-ST reads as under
• "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 historical monument, archaeological site
  or remains of national importance, archaeological
  excavation, or antiquity specified under the
  Ancient Monuments and Archaeological Sites and
  Remains Act, 1958 (24 of 1958)
• (c)  a structure meant predominantly for use as
  (i) an educational, (ii) a clinical, or (iii) an
  art or cultural establishment
• (d)  canal, dam or other irrigation works
• (e)  pipeline, conduit or plant for (i) water
  supply (ii) water treatment, or (iii) sewerage
  treatment or disposal or
• (f)  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"
•  
• 2.0 The relevant extracts of serial number 14 of
  the Mega Exemption Notification 25/2012-ST reads
  as under
• "Services by way of construction, erection,
  commissioning or installation of original works
  pertaining to
• (a)  an airport, port or railways, including
  monorail or metro

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• III. Amendment in 2014 and reasons for
  introduction of section 101
• The Government vide Notification No 2/2014-ST
  dated 30.01.2014 had amended the definition by
  "governmental authority" so as to include
  'entities set up by the Government but not
  necessarily by an Act of Parliament or a State
  Legislature within its ambit. Thus, services
  covered serial number 12 of Notification 25/2012
  provided to such entities were made exempt from
  30.01.2014.
•  
• Amendment proposed in Budget 2016-17
• The Government vide the Finance Bill 2016, has
  proposed to introduce section 101 so as to bring
  the aforesaid change in the definition of
  government authority with retrospective effect
  i.e. from July 01, 2012 to 29.01.2014 with regard
  to the services covered under serial number 12
  (d) i.e. services relating to canals, dams and
  other irrigational works. As a result, the
  services relating to canals, dams and other
  irrigational works when provided to an entity set
  up by the Government but not necessarily by an
  Act of Parliament or a State Legislature will be
  exempt from services tax since July 2012 i.e.
  from the introduction of new service tax regime
  based on negative list of services.
•  

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• IV. Amendment in 2015 and reasons for
  introduction of section 102
• In an attempt to review and rationalise the list
  of exemptions under the service tax regime, the
  Government vide Notification No 06/2015-ST dated
  01.03.2015 had withdrawn the exemption available
  on specified services of construction, repair of
  civil structures, etc. covered under serial
  number 12 (a), (c), and (f) of Notification No
  25/2012-ST with effect from April 01, 2015.
•  
• Amendment proposed in Budget 2016-17
• With the withdrawal of aforesaid exemptions,
  doubts were raised in the minds of assesses and
  tax department about the fate of these exemptions
  on the continuing contracts but entered prior to
  the date of withdrawal of such exemption.
  Accordingly, the Government vide. the Finance
  Bill 2016, has proposed to introduce section 102
  so as to clarify that the withdrawal of
  exemptions covered under serial number 12(a), (c)
  and (f) should not apply to the contracts which
  are entered prior to April 01, 2015. Also, where
  the assesse has deposited any service tax in
  respect of such contracts, refunds can be claimed
  for such service tax.
• Independent of the above, the Government has
  proposed to introduce such exemptions
  under serial number 12(a), (c) and (f) with
  effect from March 01, 2016 for all contracts
  entered prior to March 01, 2015 and upto April
  2020 vide the serial number 12A of the
  Notification No 09/2016-ST dated March 1, 2016.
•  

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• V. Amendment in 2015 and reasons for introduction
  of section 103
• In an attempt to review and rationalise the list
  of exemptions under the service tax regime, the
  Government vide Notification No 06/2015-ST dated
  01.03.2015had withdrawn the exemption available
  on specified services of construction, erection,
  commissioning or installation of original works
  pertaining to an airport or port covered under
  serial number 14(a) of Notification No 25/2012-ST
  with effect from April 01, 2015.
•  
• Amendment proposed in Budget 2016-17
• With the withdrawal of aforesaid exemptions,
  doubts were raised in the mind of assesses and
  tax department about the fate of these exemptions
  on the continuing contracts but entered prior to
  the date of withdrawal of such exemption.
  Accordingly, the Government vide the Finance Bill
  2016, has proposed to introduce section 103 so as
  to clarify that the withdrawal of exemptions
  covered under serial number 14 (a) pertaining to
  airport and port should not apply to the
  contracts which are entered prior to April 01,
  2015. In this regard, the assesse is liable to
  produce a certificate from the Ministry of Civil
  Aviation or the Ministry of Shipping in the
  Government of India. Also, where the assesse has
  already deposited any service tax in respect of
  such contracts, refunds can be claimed for such
  service tax.
• Independent of the above, the Government has
  proposed to introduce such exemptions under
  serial number 14(a) with effect from March 01,
  2016 for all contracts entered prior to March 01,
  2015 and upto April 2020 vide the serial number
  14A of the Notification No 09/2016-ST dated March
  1, 2016.
• From an analysis of the aforesaid changes, it is
  evident that the endeavor of the Government is to
  simplify the tax laws and to facilitate
  investments in India so as to promote its overall
  campaign of Make in India.

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