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 specifically defined as ‘business’ under section 2(17) (i) of CGST Act.
Thus, supply to and by Government is taxable, unless specifically 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 95 = 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) 30324 = 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.