DECEMBER 29, 2016

By Pritam Mahure, CA

THE paradox is that while all the envelopes and files (i.e. stationery) of CBEC proudly carries the Swachh Bharat Abhiyan logo and slogan, however, in 'letter' and spirit, in year 2017 it may effectively de-rail the Swachh Bharat Abhiyan.

What is the issue?

The Hon'ble Supreme Court of India vide its order dated 14 October 2003 issued directives on hazardous waste treatment, storage and disposal. In accordance with the Apex Court directives, the Ministry of Environment and Forest (MoEF), inter-alia, has also conceded that there is a significant gap between generation of hazardous waste and the availability of treatment and disposal facilities.

Given this, MoEF provides financial assistance to incentivize setting up of adequate number of treatment and disposal facilities on Public Private Partnership (PPP) basis for environmentally sound disposal of hazardous and bio-medical waste.

Also, as per Central Pollution Control Board (CPCB) guidelines, it is mandatory for all States/UTs to ensure setting up Common Facilities for land filling of hazardous waste and to utilize common landfill facilities set up.

What is CBEC's apparent view on the financial assistance?

It appears that the Service Tax Authorities have been taking adverse stand in EA Audit by proposing levy of service tax on the aforesaid Financial Assistance received from Central and State Government.

What Service Tax legislation says on financial assistance/ subsidy?

Rule 6 (2) of the Service Tax (Determination of Value) Rules, 2006specifically excludes '(vii) subsidies and grants disbursed by the Government, not directly affecting the value of service'.

It may be noted that the finance assistance received from the Government is for setting up of waste disposal facility and it cannot be directly linked to services provided to the customer. Even at paragraph 8.6.3 the Education Guide, it is clarified that 'In terms of this exclusion any subsidy or grant disbursed by the Government cannot form part of the value of taxable service unless such subsidy or grant directly influences the value of such service'.

The grant received is nothing but contribution by the Central and the State Government in the total project cost to ensure more such facilities are set-up and, therefore, cannot form part of the value liable to service tax.

Further, even if it is assumed that subsidies form part of the value, still as the service is provided to Government,service tax will not be applicable as sr. no. 25 of Notification No. 25/2012-ST specifically exempts services provided to the Government as under:

'Services provided to Government, a local authority or a governmental authority by way of -

(a) water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation; or…'

Whether there is any judicial precedence on the issue under consideration?

Reference may be also be made to the Punjab and Haryana High court judgement in the case M/s Nahar Industrial Enterprises Ltd - 2010-TIOL-547-HC-P&H-ST wherein the issue involved was whether subsidy received from the Government for storing and maintaining buffer stock of sugar is exigible to service tax.

In this case, the Hon'ble High Court observed that 'The Respondent-Assessee has received subsidy not on account of services rendered to Government of India but has received compensation on account of loss of interest, cost of insurance etc. incurred on account of maintenance of stock. The act of Respondent-Assessee cannot be called as rendering of services.'

Whether CBEC has a negative outlook towards Swachh Bharat Abhiyan?

Service Tax Authorities are effectively de-railing Swachh Bharat Abhiyan which is apparent from following:

a)  CENVAT credit on input services used for making of Structured Land Fill (SLF) is being denied to entities engaged in waste management. Please see CBEC should clarify & help the 'Swachh Bharat Abhiyan'?

b) Even CENVAT credit on waste management services provided to manufacturers of excisable goods is being denied in EA Audits on the ground that waste management service does not qualify as 'ínput service'

c) Service Tax is being demanded on GTA activity from the waste management entities although the liability to pay service tax on Goods Transport Agency (GTA) is on the recipient of services.

Way forward

A humble request to CBEC is to spare some time to clarify its stand on the aforesaid issue so as to assist in achieving the celebrated initiative of Swachh Bharat Abhiyan!