Businesses have been worried about paying GST on the license fees collected by the state governments. A section of aggrieved taxpayers believes that the license fee is collected by the governments as part of its sovereign/statutory duty of the state and not services rendered by the government. The sectoral players include telecom, casinos, and mining.
Accordingly, a certain small group of companies have moved the Goa division of the Mumbai High Court over the payment of tax on the license and spectrum fees. A writ petition is filed to challenge a CGST circular no. 121/40/2019-GST notified by the Central Board of Indirect Taxes and Customs (CBIC) on 11th October 2019.
The telecom operators are already grappling with the pressure from the government to cough up the Adjusted Gross Revenue (AGR) dues. On the other hand, the GST charged on the payment of license fees is said to worsen the conduct of business across India. In turn, it will have severe repercussions for one of the biggest industries in India -Telecommunications.
On looking into the circular 121/40/2019, it lays down a clarification for the non-applicability of GST on the license fees (any related fees) paid to the government. The only matter specified in it is the grant of the alcoholic liquor license for human consumption.
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As per the circular, the applicability of GST on license fees for grant of a liquor license has been done away with since its notification on 30th September 2019 via CGST notification no. 25/2019-Central Tax (Rate). The GST Council also had clarified that this treatment would backdate to 1st April 2016 – the period when service tax was operational. The notification provided that the transaction is classified under the negative list- neither a supply of goods nor services, hence no GST is applicable.
The contents of the circular highlight that the other cases of the government license grant like telecom or mining or gambling, are out of its scope. A reading of Article 14 of the Indian Constitution makes the matter contentious.
A particular clause of the article equates the exemption granted to alcoholic liquor for human consumption with other license fees paid to the government. It tells that there is no ‘intelligible differentia’ between the two, as defined by the article. It administers a right of equality and thus negates the above notification. Therefore, the charging of GST on license fees of other sectors is not justified, going by the Indian Constitution.
Currently, the sale of alcoholic liquor for human consumption is out of the scope of GST. Whereas, the other services such as telecommunication, casino or gambling services, and mining or oil exploration are subject to GST.
Keeping this underlying difference in mind, the taxman must necessarily exempt the license fees paid, especially for telecom business. Doing this will prevent a burden of increased service tariff on consumers, caused by the passing of the cost of GST on the license fee.
For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.
