Ch 20 - Government Related Activities | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 20 - Government rel ated acti vi ti es 
 
 
 
 
 
CHAPTER 20 
 
Government related activities 
 
20.1 Government and local authorities are subject  to service tax unless exempted 
 
Government is defined as 'person'. 
 
Any activity or transaction undertaken by the Central Government, State Government or any Local Authority 
in which they are engaged as public authorities have been specifica ly defined as 'business' under section 2(17) 
(i) of CGST Act. 
Thus,  supply to and  by Government  is taxable,  unless  specifica ly exempted.  However,  GST cannot  be 
imposed on sovereign activities of Government. 
Central Government and State Government is 'person'. These are constitutional entities - State of Punjab v. 
Okara Buyers Syndicate Ltd. AIR 1964 SC 669. 
 
Government is 'juristic person' - Chief Conservator of Forests v. Collector (2003) 3 SCC 472. 
 
As  per  section  2(23)  of  General  Clauses  Act,  'Government'  includes  Central  Government  and  State 
Government and Union Territories. 
 
Presently, with few exceptions, any service provided by Government or local authority are subject to service 
tax. In most of the cases, service tax is payable by service receiver under reverse charge basis. 
This provision is likely to continue under GST also. 
 
Insurance services  provided  by Government   are  taxable  -  In Karnataka   Government  Insurance 
Department  v. ACCE (2012) 34 STT 260 = 17 Latest Case95 = 54 VST 226 (Karn HC DB), the 
department was providing insurance services. It was held that this is not statutory activity and is taxable. 
In Kerala State Insurance Department v. UOI (2013) 30 Latest Case324 = 39 STT 227 = 54 VST 231 
(Ker  HC),  it  was  held  that  activities  under  statutory  obligation,  relating  to  life  insurance  coverage  to 
Government  employees  and  general insurance  coverage  for  assets  of Government  are  not  taxable,  but 
insurance of commercial institutions and individuals is taxable. 
20.1-1 Meaning of Government 
 
"Government" means the Central Government - section 2(9) of IGST Act and section 2(53) of CGST Act. 
In SGST Act, 'Government' will be defined as 'State Government'. 
20.1-2 Meaning of 'local authority' 
 
Section 2(69) of CGST Act reads as follows — 
"Local authority" means 
(a)   a "Panchayat" as defined in clause (d) of Article 243 of the Constitution. 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 20 - Government rel ated acti vi ti es 
 
 
 
 
 
CHAPTER 20 
 
Government related activities 
 
20.1 Government and local authorities are subject  to service tax unless exempted 
 
Government is defined as 'person'. 
 
Any activity or transaction undertaken by the Central Government, State Government or any Local Authority 
in which they are engaged as public authorities have been specifica ly defined as 'business' under section 2(17) 
(i) of CGST Act. 
Thus,  supply to and  by Government  is taxable,  unless  specifica ly exempted.  However,  GST cannot  be 
imposed on sovereign activities of Government. 
Central Government and State Government is 'person'. These are constitutional entities - State of Punjab v. 
Okara Buyers Syndicate Ltd. AIR 1964 SC 669. 
 
Government is 'juristic person' - Chief Conservator of Forests v. Collector (2003) 3 SCC 472. 
 
As  per  section  2(23)  of  General  Clauses  Act,  'Government'  includes  Central  Government  and  State 
Government and Union Territories. 
 
Presently, with few exceptions, any service provided by Government or local authority are subject to service 
tax. In most of the cases, service tax is payable by service receiver under reverse charge basis. 
This provision is likely to continue under GST also. 
 
Insurance services  provided  by Government   are  taxable  -  In Karnataka   Government  Insurance 
Department  v. ACCE (2012) 34 STT 260 = 17 Latest Case95 = 54 VST 226 (Karn HC DB), the 
department was providing insurance services. It was held that this is not statutory activity and is taxable. 
In Kerala State Insurance Department v. UOI (2013) 30 Latest Case324 = 39 STT 227 = 54 VST 231 
(Ker  HC),  it  was  held  that  activities  under  statutory  obligation,  relating  to  life  insurance  coverage  to 
Government  employees  and  general insurance  coverage  for  assets  of Government  are  not  taxable,  but 
insurance of commercial institutions and individuals is taxable. 
20.1-1 Meaning of Government 
 
"Government" means the Central Government - section 2(9) of IGST Act and section 2(53) of CGST Act. 
In SGST Act, 'Government' will be defined as 'State Government'. 
20.1-2 Meaning of 'local authority' 
 
Section 2(69) of CGST Act reads as follows — 
"Local authority" means 
(a)   a "Panchayat" as defined in clause (d) of Article 243 of the Constitution. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   a "Municipality" as defined in clause (e) of Article 243P of the Constitution. 
 
(c)   a Municipal Committee, a Zi laParishad, a District Board, and any other authority lega ly entitled to, 
or entrusted by the Central Government or any State Government with the control or management of 
a m unicipal or local fund. 
(d)   a Cantonment Board as defined in section 3 of the Cantonments Act, 2006. 
(e)   a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution. 
(f)  a Development Board constituted under Article 371 of the Constitution or 
(g)   a Regional Council constituted under Article 371A of the Constitution. 
Local  body is not  local  authority  -  Local bodies  constituted  by State or Central Law are not 'local 
authorities' - Para 2.4.9 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012. 
Functions  entrusted   to  municipality   -  Functions  entrusted  to  m unicipality  under  Article  243W  of 
Constitution of India have been listed in Para 7.3.2 of CBE&C's 'Taxation of Services : An Education Guide' 
published on 20-6-2012. These cover services like urban planning, regulation of land use, roads and bridges, 
water supply, public health, fire services, slum improvement, public amenities, functions entrusted to them by 
Government etc. 
20.1-3 Statutory body, corporation or authority are not Government or local authority 
 
A statutory body, corporation or an authority created by the Parliament or a State Legislature  is neither 
'Government' nor a 'local authority'. It is a settled position of law (Agarwal v. Hindustan Steel AIR 1970 SC 
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). - - Thus 
regulatory bodies and other autonomous entities which attain their entity under an act would not comprise 
either Government or local authority - Para 2.4.10 of CBE&C's 'Taxation of Services : An Education Guide' 
published on 20-6-2012. 
20.1-4 Government company is not 'Government' 
 
Government is 'State' only for purpose of enforcement of fundamental rights under Constitution. For a l other 
purposes, it is not 'Government' or 'Government department'. 
In Steel Authority of India v. National Union Water Front Workers 2001 LLR 961 = AIR 2001 SC 3527 
= 2001(7) SCC 1 = 2001 AIR SCW 3574 (SC 5 member Constitution Bench), it was held that the principle 
that while discharging public functions and duties, the Government companies/Corporations/Societies  which 
are instrumentalities or agencies of the Government must be subjected to the same limitations in the f iled of 
public law - constitutional or administrative law - as the Government itself, does not lead to the inference that 
they become agents of the Centre/State Government for a l purposes so as to bind such Government for a l 
their acts, liabilities and obligations under various Central and/or State Acts or under private law. 
Government  company is not a department  of Government.  It has  separate  legal existence  and  is not a 
Government concern. It is not an industry run under authority of Union Government - Praga  Tools v. C V 
Imanual (1969) 39 Comp Cas 889 (SC) = (1969) 1 SCC 585 = AIR 1969 SC 1306 * Dr. S L Agarwal v. 
Hindustan Steel Ltd. AIR 1970 SC 1150 = (1970) 1 SCC 177 (SC Constitution Bench). 
A corporation formed under an Act is not 'Government'. It is an autonomous body. It may sue or be sued by 
its own name - State of Punjab v. Raja Ram AIR 1981 SC 1694. 
Even if a l shares of company are owned by Government  of India, the company is not a department  of 
Government. It has personality distinct from Government of India. - Steel Authority of India Ltd. v. Shri 
Ambica Mills Ltd. - 1998(16) SCL 429 = 1997 AIR SCW 4408 = (1998) 1 SCC 465 = 92 Comp Cas 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 20 - Government rel ated acti vi ti es 
 
 
 
 
 
CHAPTER 20 
 
Government related activities 
 
20.1 Government and local authorities are subject  to service tax unless exempted 
 
Government is defined as 'person'. 
 
Any activity or transaction undertaken by the Central Government, State Government or any Local Authority 
in which they are engaged as public authorities have been specifica ly defined as 'business' under section 2(17) 
(i) of CGST Act. 
Thus,  supply to and  by Government  is taxable,  unless  specifica ly exempted.  However,  GST cannot  be 
imposed on sovereign activities of Government. 
Central Government and State Government is 'person'. These are constitutional entities - State of Punjab v. 
Okara Buyers Syndicate Ltd. AIR 1964 SC 669. 
 
Government is 'juristic person' - Chief Conservator of Forests v. Collector (2003) 3 SCC 472. 
 
As  per  section  2(23)  of  General  Clauses  Act,  'Government'  includes  Central  Government  and  State 
Government and Union Territories. 
 
Presently, with few exceptions, any service provided by Government or local authority are subject to service 
tax. In most of the cases, service tax is payable by service receiver under reverse charge basis. 
This provision is likely to continue under GST also. 
 
Insurance services  provided  by Government   are  taxable  -  In Karnataka   Government  Insurance 
Department  v. ACCE (2012) 34 STT 260 = 17 Latest Case95 = 54 VST 226 (Karn HC DB), the 
department was providing insurance services. It was held that this is not statutory activity and is taxable. 
In Kerala State Insurance Department v. UOI (2013) 30 Latest Case324 = 39 STT 227 = 54 VST 231 
(Ker  HC),  it  was  held  that  activities  under  statutory  obligation,  relating  to  life  insurance  coverage  to 
Government  employees  and  general insurance  coverage  for  assets  of Government  are  not  taxable,  but 
insurance of commercial institutions and individuals is taxable. 
20.1-1 Meaning of Government 
 
"Government" means the Central Government - section 2(9) of IGST Act and section 2(53) of CGST Act. 
In SGST Act, 'Government' will be defined as 'State Government'. 
20.1-2 Meaning of 'local authority' 
 
Section 2(69) of CGST Act reads as follows — 
"Local authority" means 
(a)   a "Panchayat" as defined in clause (d) of Article 243 of the Constitution. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   a "Municipality" as defined in clause (e) of Article 243P of the Constitution. 
 
(c)   a Municipal Committee, a Zi laParishad, a District Board, and any other authority lega ly entitled to, 
or entrusted by the Central Government or any State Government with the control or management of 
a m unicipal or local fund. 
(d)   a Cantonment Board as defined in section 3 of the Cantonments Act, 2006. 
(e)   a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution. 
(f)  a Development Board constituted under Article 371 of the Constitution or 
(g)   a Regional Council constituted under Article 371A of the Constitution. 
Local  body is not  local  authority  -  Local bodies  constituted  by State or Central Law are not 'local 
authorities' - Para 2.4.9 of CBE&C's 'Taxation of Services : An Education Guide' published on 20-6-2012. 
Functions  entrusted   to  municipality   -  Functions  entrusted  to  m unicipality  under  Article  243W  of 
Constitution of India have been listed in Para 7.3.2 of CBE&C's 'Taxation of Services : An Education Guide' 
published on 20-6-2012. These cover services like urban planning, regulation of land use, roads and bridges, 
water supply, public health, fire services, slum improvement, public amenities, functions entrusted to them by 
Government etc. 
20.1-3 Statutory body, corporation or authority are not Government or local authority 
 
A statutory body, corporation or an authority created by the Parliament or a State Legislature  is neither 
'Government' nor a 'local authority'. It is a settled position of law (Agarwal v. Hindustan Steel AIR 1970 SC 
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). - - Thus 
regulatory bodies and other autonomous entities which attain their entity under an act would not comprise 
either Government or local authority - Para 2.4.10 of CBE&C's 'Taxation of Services : An Education Guide' 
published on 20-6-2012. 
20.1-4 Government company is not 'Government' 
 
Government is 'State' only for purpose of enforcement of fundamental rights under Constitution. For a l other 
purposes, it is not 'Government' or 'Government department'. 
In Steel Authority of India v. National Union Water Front Workers 2001 LLR 961 = AIR 2001 SC 3527 
= 2001(7) SCC 1 = 2001 AIR SCW 3574 (SC 5 member Constitution Bench), it was held that the principle 
that while discharging public functions and duties, the Government companies/Corporations/Societies  which 
are instrumentalities or agencies of the Government must be subjected to the same limitations in the f iled of 
public law - constitutional or administrative law - as the Government itself, does not lead to the inference that 
they become agents of the Centre/State Government for a l purposes so as to bind such Government for a l 
their acts, liabilities and obligations under various Central and/or State Acts or under private law. 
Government  company is not a department  of Government.  It has  separate  legal existence  and  is not a 
Government concern. It is not an industry run under authority of Union Government - Praga  Tools v. C V 
Imanual (1969) 39 Comp Cas 889 (SC) = (1969) 1 SCC 585 = AIR 1969 SC 1306 * Dr. S L Agarwal v. 
Hindustan Steel Ltd. AIR 1970 SC 1150 = (1970) 1 SCC 177 (SC Constitution Bench). 
A corporation formed under an Act is not 'Government'. It is an autonomous body. It may sue or be sued by 
its own name - State of Punjab v. Raja Ram AIR 1981 SC 1694. 
Even if a l shares of company are owned by Government  of India, the company is not a department  of 
Government. It has personality distinct from Government of India. - Steel Authority of India Ltd. v. Shri 
Ambica Mills Ltd. - 1998(16) SCL 429 = 1997 AIR SCW 4408 = (1998) 1 SCC 465 = 92 Comp Cas 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
120 (SC) * Bharat Sanchar Nigam Ltd. v. Pawan Kumar Gupta (2016) 1 SCC 363. 
 
In Hindustan Steel Works v. State of Kerala  AIR 1997 SC 2275 = (1998) 2 CLJ 383 (SC) also, it was 
held that a government company is not a department of Government. 
20.2 Services provided by Government which will not be subject  to GST 
 
Service Tax Law has made provisions relating to Government services which not be subject to service tax. 
Schedule IV of Model GST Law, November, 2016 read with section 3(3)(b) of GST Model Law, November 
2016 had specified various services supplied by Government which will not be treated as supply of goods and 
services. 
The CGST Act as passed by Lok Sabha does not contain such schedule. It seems most of these services will 
be exempted by way of notification. 
In other cases, mostly service receiver will be liable to pay GST under reverse charge. However, in case of 
services provided by post, port, insurance, transport of goods and passengers by Government or local body, 
the Government itself may be liable to pay GST, as at present.