THRESHOLD LIMIT FOR EXEMPTION OF SERVICE TAX

[Mr. M. GOVINDARAJAN]

Service tax has been introduced during the year 1994. At that time only 3 services were included in the service tax regime. The number of services was at increase year by year. During the year 2005 threshold limit has been fixed for exemption of service tax.  Notification No.6/2005-Service Tax, dated 01.03.2005 exempted the taxable services of aggregate value not exceeding four lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act with effect from 01.04.2005.

The said threshold limit has been increased to Rs. 8 lakhs vide Notification No. 4/2007-Service tax, dated 01.03.2007 which came into effect from 01.04.2007. Again Vide Notification No. 8/2008-ST, dated 01.03.2008 the threshold limit has been increased to Rs.10 lakhs from Rs.8 lakhs with effect from 01.04.2008.

The Notification dated 01.03.2005 gives the explanation to the terms ‘aggregate value’ as the sum of total of first consecutive payments received during a financial year towards the gross amount as  prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to the threshold limit but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon under section 66 of the said Finance Act under any other notification.  Vide Notification No. 5/2012-Service Tax, dated 17.03.2012 substituted another definition for the terms ‘aggregate value’ which came into effect from 01.04.2012.

Since the negative list regime has made a shift in the service tax regime, the Government issued a fresh Notification for the threshold limit in supersession of the Notification No. 6/2005-ST, dated 01.03.2005.   This Notification came into effect from 01.07.2012. This Notification exempts taxable services of aggregate value not exceeding Rs.10 lakhs in any financial year from the whole of the service tax leviable thereon under Section 66B of the Finance Act.

The terms ‘aggregate value’ for the purposes of this Notification means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from value of service tax leviable thereon under Section 66B of the said Finance Act under any other Notification. taxmanagementindia.com

This Notification is not applicable to the following:

• Taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or
• Such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under Section 68(2) of the said Finance Act read with Service Tax Rules, 1994.

For the purposes of this Notification the terms ‘brand name’ or ‘trade name’ is defined as a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person.

The following are the conditions to be complied to avail the threshold limit of Rs.10 lakhs:

• The provider of taxable service has the option not to avail the exemption and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;
• The provider of taxable service shall not avail CENVAT  credit of service tax paid on any input services used for the providing of the said taxable service for which exemption from payment of service tax is availed of;
• The provider of taxable service shall not avail CENVAT credit on capital goods received, during the period in which the service tax provider avails exemption from payment of service tax;
• The provider of taxable service shall avail the CENVAT credit only on such inputs or input services received, on or after the date on which the service provider starts paying service tax and used for the provision of taxable service for which service tax is payable;
• The provider of taxable service who starts availing exemption shall be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in respect of such inputs lying in the stock or in process on the date on which the provider of taxable service starts availing exemption;
• The balance of CENVAT credit lying unutilized in the account of the taxable service provider after deducting the amount, if any, shall not be utilized and shall lapse on the day such service provider starts availing the exemption;
• Where a taxable service provider provides one or more taxable services from one or more premises, the exemption shall apply to the aggregate value of all such taxable services and from all the premises and not separately for each premises or each service; and
• The aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed Rs.10 lakhs in the preceding financial year.

In respect of Goods Transport Agency the payment received towards the gross amount charged by such GTA under Section 67 of the Finance Act for which the person liable for paying service tax is as specified under Section 68(2) of the said Finance Act read with Service Tax Rules, 1994 shall not be taken into account, to avail exemption under this Notification.

Discussions to this article

[Seetharaman K C]

While thanking you for the uodate, I think the issue relating to taxable services which are eligible for abatement has not been addressed here.The question whether the gross total amount of the taxable service should be taken while calculating the Threshold limit or only the Taxable portion after availing the abatement? There is clarity on the exclusion of wholly exempted services. How about partly exempted services?

[Seetharaman K C]

While thanking you for the uodate, I think the issue relating to taxable services which are eligible for abatement has not been addressed here.The question whether the gross total amount of the taxable service should be taken while calculating the Threshold limit or only the Taxable portion after availing the abatement? There is clarity on the exclusion of wholly exempted services. How about partly exempted services?

[vasudevan unnikrishnan]

Nice analysis.The threshold exemption is on the aggregate value of  taxable services and the value of services covered by the 'negative list'  only are excluded.The abatement of value of taxable service is only for computing the tax payable,once the tax is liable to be paid.The threshold limit of ten lakhs can not therefore be computed as value of taxable services less of abatement.  OR on the abated value alone.The abatement notification is issued  in terms of sec 68(2)and this has been excluded like the services renedered in the brand name or trade name of another person.