In what should come as a relief just ahead of the next round of auction for telecom spectrum, the finance ministry on Friday clarified that no service tax will be applicable for this fiscal year either on the airwaves assigned to operators, or the licence fee.
The telecom industry had estimated the impact of service tax on bottomlines at Rs.30,000 crore.
"One of the issues raised by the telecom service providers was whether service tax is payable, on installments due after April 1, 2016, for spectrum assigned or auctioned to them in the past," the ministry said in a statement.
"It has been clarified that service tax payable -- whether in full upfront or in installments -- for assignment of right to use such spectrum has been exempted from service tax," the statement said, referring to the doubts over the liability of 15 percent service tax.
"Furthermore, services provided by government by way of allowing a telecom service provider to operate as a telecom service provider or use radio frequency spectrum during the financial year 2015-16 on payment of licence fee or spectrum user charges, has been specifically exempted from service tax."
Thus, there will be no new service tax liability on spectrum or licence fee for services of the past.
Following the presentation of the national budget in February, the Cellular Operators' Association of India had raised strong objection on the service tax matter and said it will unnecessarily increase the cost of service and directly impact the average user.
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"The proposal to tax spectrum assigned by the government to the telecom operators, which is an input to operators is unintentionally punitive and evidently resulting in material distortion and discrimination to the industry," the industry body had said.
"This will increase the cost of provision of service and shall have a direct impact on the common man."
The finance ministry said under the existing auction system of assigning spectrum, the government had provided the option of either making the full upfront payment, or 25-33 percent part upfront payment and the rest in equal number of installments.
Following that, a concern on the lack of clarity as to when the liability to pay service tax would arise in cases where the operator chooses to make payment of the auction price under the deferred payment option over a period of 10 years.
There were also apprehensions that the liability to pay the entire service tax payable on full auction price at the time of assignment would severely jeopardise the operators' finances.
The finance ministry said if an operator chooses the deferred payment option, then the liability to pay service tax arises on the date on which the part payment or installments become due, as specified in any invoice, bill or other related documents.
Another clarification was on the central value added tax (Cenvat).
The government has allowed the credit of service tax paid on one-time auction prices to be taken evenly over a period of three years. Such credit on spectrum, license fee, and on sharing or trading of these airwaves would be fully available in the year in which the same is paid.