The Finance Ministry – headed by Arun Jaitley — said that telecom network operators will not have to pay service tax on payments made for license fee or spectrum user charges during the financial year 2015-16.

This will offer some relief to telecoms such as Bharti Airtel, Idea Cellular, Vodafone, Aircel, Telenor, Reliance Communications, among others. However, this will be a burden on the telecom industry because the finance ministry is not ready to discontinue the new service tax.

Recently, COAI, the telecom industry body for GSM operators in India, had requested Arun Jaitley to review the service tax related announcements during the Budget 2016. COAI warned that the recent announcements will force telecoms to spend less during the forthcoming spectrum auction due to additional debt burden.

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.

“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. This will increase the cost of provision of service and shall have a direct impact on the common man,” said COAI.

Spectrum auction is a cash cow for the India government. The spectrum auctions are expected to mobilize around Rs 5 lakh crore for the Government and telecom players may have to spend around Rs 75,000 crore as service tax.

“Government has ensured that there is no new tax liability on the TSPs in respect of the services provided in the past,” said the Finance Ministry in a statement on Thursday.

“Under the existing auction system of assigning spectrum, Government has provided the option of either making full upfront payment, or 25-33 percent part upfront payment initially, and thereafter making payment in equal number of installments.”

If a TSP opts for 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, challan or any other document.

The government said services provided by the India Government by way of allowing a TSP to operate as a telecom service provider or use spectrum during fiscal 2015-16 on payment of license fee or spectrum user charges, has been exempted from service tax. Government has ensured that there is no new tax liability on the telecoms in respect of the services provided in the past.

The Central Board of Excise and Customs (CBEC) has clarified that while one time user charges on the assignment of the right to use any natural resource before April 1, 2016 will be exempt from service tax, telecom companies will still have to pay service tax on any periodic payments such as spectrum user charges and license fee for spectrum.

The clarification from the finance ministry comes in the wake of the Budget 2016 decision to levy service tax on any service provided by the government or a local authority to a business entity. The levy came into effect from April 1 at the rate of 14.5 percent.

CBEC has clarified that the liability to pay service tax on the assignment of the right to use spectrum will be decided on the date on which the invoice for any part of the payment for the service was issued or the payment was made – whichever is earlier.

This apart, the Finance Ministry said that the India government has amended the Cenvat Credit Rules and allowed the credit of service tax paid on one time charges for the auction price, to be taken evenly over a period of three years. The credit of service tax paid on spectrum user charges, license fee, and transfer fee charged by the government on trading of spectrum would be fully available in the year in which the same is paid.

Finance Minister Arun Jaitley had in the Union Budget 2015-16 had also announced that assignment by the government of the right to use the radio-frequency spectrum and its subsequent transfers as well as assignment of right to use the spectrum would be a service.