INTERPRETATION OF EXEMPTION NOTIFICATIONS IN SERVICE TAX

[Dr. Sanjiv Agarwal]

In the earlier Service Tax regime prior to 1.7.2012, we had a long list of exempted services (88 in numbers) by virtue of different notifications which has now been consolidated under Notification No. 25/2012-ST dated 20.06.2012 effective from 01.07.2012 and are broadly 39 in number divided into broad categories. These are service specific exemptions under the new regime, all services will be liable to service tax except those which are specifically mentioned in the exemption notification (s) and the negative list (section 66D).

Apart from these mega exemptions provided under Notification No. 25/2012-ST, there are several other notifications which provide general exemptions to service providers under service tax law by way of refund, rebate or otherwise etc. This Chapter discusses the exemption available under Service Tax law other than the exemptions available under mega Notifications No. 25/2012-ST dated 20.06.2012 for which Topic No.41 can be referred to.

Exemption Notifications

Exemptions are governed by the exemptions notifications notified in that respect. While most of the notifications are prospective and applicable from the date of issuance of notifications, if specifically specified, such exemption may also apply retrospectively. taxmanagementindia.com

Following principles of interpreting any exemption notification are relevant:-

a) Substantial conditions of an exemption notification should be construed strictly.

b) Procedural conditions of an exemption notification may be construed liberally and benefit allowed, if otherwise entitled to.

c) If there are more than one exemption notifications, assessee has an option to choose one which is more beneficial to him. Department cannot force any notification on the assessee to follow.

d) Where exemption is allowed, adjudication should not prescribe its own conditions or presumptions, more so when legislative intention is clear.

e) Notification would apply only to current taxes.

f) Clarificatory notifications restoring or clarifying the benefit are generally clarificatory in nature and may have a retrospective application.

g) Benefit of Notification, if otherwise available, cannot be denied on the sole ground that the same is claimed belatedly.

h) Definitions contained in an exemption notification have application only for the purpose of that notification.

i) Notification has to be read as a whole.

j) Exemption notifications are issued under delegated legislative power, they have full statutory force.

k) Assessee claiming exemption has to prove that he / it is eligible for exemption contained in the notification.

l) There is no exemption by implication or by a logical deduction.

m) A person invoking exemption provision to relieve him from the tax liability must establish clearly that he is covered by it and in case of doubt, benefit of it must go to the state.

n) The principle that specific provision will override general provision will not be applicable to provision the nature of exemption or concession.

o) Assessee is entitled to the benefit of that exemption notification which gives him greater relief regardless of the fact that the later notification is general in its terms and other notification is more specific to the goods.

p) Interpretation of an exemption notification depends upon its nature and extent, terminology used in the notification has an important role to play.

q) Where exemption notification ex facie applies, there is no reason as to why the purpose thereof would be limited by giving a strict construction thereto.

r) The purpose for which the exemption was granted must be considered in its entirety – the purpose of exemption cannot be lost sight of.

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