COAI in a statement on Sunday said that service tax should not be applicable on assignment of right to use spectrum by the India Government.

The telecom industry association for GSM operators also said the expected tax burden on the telecom industry in the proposed scheduled spectrum auction in June-July 2016 will be Rs 77,000 crore.

The Cellular Operators Association of India (COAI) further said this will also have an adverse impact on the government's 'Digital India' initiative and financial inclusion plan.

The Finance Bill 2016 has proposed that assignment of spectrum and subsequent transfer thereof to be declared as a service under Section 66E of the Finance Act, 1994. All Government services have been made liable to service tax and to be paid by the recipient on a reverse charge basis with effect from 1 April 2016.

Cenvat Credit of the tax so imposed on such assignment is proposed to be deferred over the life of the license period.

Further deferral of credits will mean that the industry will be burdened by minimum effective cost of Rs 40,000 – 50,000 crore.

"It is worth noting that what is meant to be a "zero cost" in the cenvat credit system for any operator who has adequate output service tax, will convert up to a 71% cost of the tax imposed. The cost on account of deferral of credit would severely impact the health of the telecom industry," COAI said.

Credits of service tax imposed in respect of received services are available immediately on receipt of invoice or payments for services. Even in case of capital goods, benefit of credit is available within an average period of six months over two financial years, COAI said.