GST Misuse in Road Cut Charges MDMK Councillor Raises Concern
Recently, a MDMK councillor in Tamil Nadu raised a serious concern about the misuse of GST in road cut charges collected from contractors by the civic body. The claim? That GST is being wrongfully collected on government-imposed fees — a practice that might be legally invalid.
This issue opens a larger question:
When is GST applicable on government fees, and when is it not?
Let’s break this down for Indian taxpayers, consultants, and local contractors.
Understanding Road Cut Charges and GST
What are Road Cut Charges?
- Levied by Municipal Corporations or Local Bodies
- Paid by contractors when they dig roads for utility work (e.g., laying water pipes, cables)
- Aimed at covering restoration costs after road cuts
Issue Raised by MDMK:
- Civic contractors were forced to pay GST on these charges
- Councillor argues this violates CBIC rules
- Demands action against officials/contractors misusing tax law
Legal Angle: CBIC Clarification on Government Fees
As per CBIC Circular No. 151/07/2021-GST dated 17.06.2021, the following are exempt from GST:
“Fees charged by government or local authorities for providing services which they are constitutionally obligated to perform (like issuing licenses or levying development charges), are not considered ‘supply’ and are not subject to GST.”
Relevant Law:
- Entry 5 of Schedule III of the CGST Act: “Services by any court or tribunal or functions of sovereign nature by government/local bodies are not treated as supply.”
When is GST Not Applicable?
GST is NOT applicable on:
- Road cut/restoration charges by municipal bodies
- Statutory fees collected by government (e.g., registration, inspection charges)
- Compulsory levies under sovereign function
GST is applicable if:
- The government is offering a commercial service (e.g., renting property)
- The payment is for a tendered/outsourced project (not a sovereign duty)
Comparison Table: GST on Government Charges
| Type of Charge | Levying Authority | GST Applicable? | Legal Reference |
|---|---|---|---|
| Road Cut Charges (Restoration Fees) | Municipality | ❌ Not Applicable | CBIC Circular No. 151/07/2021-GST |
| License Fees (Trade/Building Permit) | Municipality | ❌ Not Applicable | Schedule III, CGST Act |
| Property Rent by Govt | State Government | ✅ Applicable | CBIC Circular No. 32/06/2018-GST |
| Utility Services by Govt | Govt/PSUs | ✅ Applicable | CBIC Clarifications, Notification No. 12/2017 |
Expert View: Avoid Unlawful GST Payments
Tip from Efiletax Experts:
Before paying GST on any government or local body charge, ask for a legal basis or clarification. You can even request a tax invoice with HSN/SAC code. If the service is not a “supply” under CGST Act, GST is not due.
Why This Matters
Wrong collection of GST has cascading consequences:
- Ineligible ITC (input tax credit) for businesses
- Cost overruns on government contracts
- Public distrust in civic administration
The MDMK councillor’s intervention reflects growing awareness — and the need for strict enforcement of tax laws by officials.
Call to Action
If you’re a contractor or small business facing GST issues with local bodies, consult Efiletax.
We help decode whether GST is valid on such charges and ensure you don’t overpay or miss out on eligible ITC.
👉 Explore GST Advisory Services
Summary (Snippet Format for Google)
MDMK councillor flags GST misuse in road cut charges, claiming local bodies are illegally collecting GST on statutory fees. As per CBIC Circular 151/07/2021, such sovereign functions are not taxable. Know when GST is legally applicable.
FAQ
Q1: Is GST applicable on road cutting charges by local bodies?
Ans: No, road cutting charges levied as part of sovereign functions are not liable to GST as per CBIC clarification.
Q2: Can contractors claim ITC on GST paid for such charges?
Ans: If GST was wrongly collected, ITC may not be valid. Always seek legal confirmation before claiming.
Q3: What to do if GST is charged unlawfully?
Ans: Raise the issue with the concerned municipal officer. You can also file a grievance with the GST department or approach a GST consultant.