Mega Exemption Notification amendments in Budget 2016

Published On - March 16, 2016

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Mega Exemption Notification amendments in Budget 2016 and the finer points for post budget memorandum
1)   Service Tax exemption to canal, dam or other irrigation works with retrospective effect.  [Clauses 156 of the Finance Bill, 2016 / New section 101 in the Finance Act, 1994]

  • 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 various works as listed under Entry 12 and 25 of the Mega Exemption Notification. 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.

Issue:- 1
Because of the above amendment, only the services of canal, dam or other irrigation works provided to the Government, a local authority or a governmental authority is covered. Thus, other services as listed under entry 12 and 25 as on 1.7.2012 provided to the Government, a local authority or a governmental authority should also be treated at par for the purpose of granting this retrospective exemption.
Suggestion:- 1. It is suggested that the said benefit be extended to all the items covered under Sr. No 12 and 25 of Notification No 25/2012-ST dated 20.06.2012.

2)   Restoration of certain exemptions withdrawn last year for projects, contracts in respect of which were entered into before withdrawal of the exemption [Clauses 156 of the Bill/ New section 102 in the Finance Act, 1994]

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

(i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
(ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(iii) 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use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act; was withdrawn with effect from 1.4.2015.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 is being 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 is being restored till 31.03.2020.
 
Issue:- 2

  • The exemption is there only when the services has been to the Government, a local authority or a governmental authority.
  • One of the condition is that if the appropriate stamp duty has been paid prior to 01.04.2015. However, as per Article 285(1) of the Constitution of India, ‘The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State’.
  • Thus, there would not be a case wherein stamp duty has been paid in a contract with the Government.
  • Similar will be the case for exemption that has been provided to services provided by way of construction, erection, etc. of original works pertaining to an airport, port.

Suggestion:- 2. It is suggested that the word ‘and on which appropriate stamp duty, where applicable, had been paid before that date’ may be deleted from proposed section 102(1) and section 103(1) in the Finance Act, 1994 as the party issuing the contract is government itself.

3)   Service Tax Exemptions to low cost houses (new entry at S. No. 14 (ca) of notification No. 25/2012-ST refers)

  • Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax.

Issue:- 3

  • These days, many areas are being developed, be it slums or otherwise, by Government as well as private parties. However, the exemption is available only when a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government

Suggestion:- 3

  • It is suggested that a may be granted in this regard to all categories, whether public or private.
  • Also a lot of confusion prevails whenever the government uses the words competent authority without properly defining it. The above is one such case, where the project is awarded but practically no one is aware who the competent authority is. It is thus suggested either to drop the word or explain it by way of a definition.

 4)   Exemption to 13 (ba) a civil structure or any other original works pertaining to the „In-situ rehabilitation of existing slum dwellers using land as a resource through private participation under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers. (new entry at S. No. 13 (ba) of notification No. 25/2012-ST refers)

Issue:- 4

  • A lot of rehabilitation activity is taking place for slum dwellers where the land is allotted by the government at a location distant from the existing slums. Will the above exemption because it carries the words “In-situ” restrict the exemption to only those constructions which take place exactly at the same location of residence of the slum dwellers.

Suggestion:- 4. In such a scenario we propose to remove the word “in-situ” for ensuring that the exemption is actually useful.