MARCH 08, 2015

By Sushma Prasad

IT is no doubt true that the present Government is committed towards Clean India or what we say as ‘Swachh Bharat'. One of the welcome moves for the assessees as proposed in the present Finance Bill, 2015 is by way of extending exemption from payment of service tax on the services provided by an operator of a Common Effluent Treatment Plant (CETP) by way of treatment of effluents. There is a proposal in the Finance Bill to insert Entry 43 in the Mega Exemption Notification No.25/2012-ST dated 20.6.2012 granting the said exemption from payment of service tax. By virtue of this,services rendered by a CETP operator for treatment of effluents shall be exempt from payment of service tax with effect from 1.4.2015.

It is worthwhile to note in this regard that even earlier, exemption from payment of service tax in relation to this service was extended to assessees, granting retrospective exemption.Vide Finance Act, 2012, Notification No.1/2012-ST dated 17.3.2012 was introduced amending Notification No.42/2011-ST dated 25.7.2011 extending the benefit of exemption from payment of service tax on the activity of treatment of effluents by a CETP operator. Accordingly, a validation Section 145 was introduced in Finance Act, 2012 which provided for retrospective exemption to these services w.e.f 16.6.2005. It was also provided in the said section that refund shall be granted to all such asessees where service tax has been collected.

The retrospective exemption was available to theassessee'still 01.07.2012 and the said Notification No.1/2012-ST dated 17.3.2012 amending Notification No.42/2011-ST dated 25.7.2011 was rescinded/superseded by Notification No.34/2012-ST dated 20.6.2012. Accordingly w.e.f1.7.2012, no such exemption was granted to the assessees in relation to effluent treatment service provided by CETP operator. Accordingly, from 1.7.2012 onwards, the assessees were collecting and discharging service tax on these activities.

As is evident form above, exemption from payment of service tax was granted to the assessees all along with effect from 16.6.2005 till 1.7.2012. Further, by virtue of insertion of the proposal of inserting Entry 43 in the Finance Bill, 2015 the said exemption is again extended to the assessees with effect from 1.4.2015.

The question which remains unanswered is whether it is the intention of the Government to impose service tax on this activity for the period from 1.7.2012 to 31.3.2015 i.e. only for a period of 2 years 9 months. According to me,intention of the Government cannot be to impose service tax on a particular transaction for such short span of time, and the trade may make a representation in this regard for grant of retrospective exemption.

Another aspect which merits consideration in this regard is that Entry 43 as proposed in the Finance Bill, 2015 exempts only such services provided by an operator of a CETP by way of treatment of effluents. However, it does not mention about the ancillary or incidental services rendered for example, operation and maintenance activity undertaken for CETP. Applying the principle of interpretation of bundled service in Section 66F of the Finance Act, it provides that in cases where various elements of service is naturally bundled in the ordinary court of business it shall be treated as provision of single service which gives such bundle service its essential character. Therefore, in a case where an assessee provides service of treatment of effluents and is incidentally also carrying out operation and maintenance of such plant, the provision of Section 66F should apply. Accordingly, operation and maintenance activity must be treated as treatment of effluent service, which gives its essential character. However, the Department may dispute this and may view this as two separate transactions and may try to levy service tax on the operation and maintenance portion.

However, in a case where such operation and maintenance activity is not a part of treatment of effluents, but a third party is engaged for such service, the Finance Bill does not clarify it and the Department may in this case also levy service tax on such operation and maintenance.

To conclude,the proposal made in the Finance Bill, to insert Entry 43 of the Mega Notification No. 25/2012-ST granting exemption from payment of service tax to CETP operators,is a welcome move and also emphasizes the fact that the present Government is undertaking all steps to promote ‘Swachh Bharat'.

[The Author is a Senior Associate in Lakshmi Kumaran & Sridharan, Hyderabad]