SMALL SCALE EXEMPTION UNDER SERVICE TAX PROVISIONS

[Mr. M. GOVINDARAJAN]

     The Central Government introduced the concept of small scale exemption from service tax vide Notification No.6/2005-ST, dated 01.03.2005 which was subsequently amended vide Notification No. 4/2007-ST, dated 01.03.2007 and Notification No. 8/2008-ST, dated 01.03.2008.  The Central Government on being satisfied that it was necessary in the public interest so to do, exempted taxable services of aggregate value not exceeding four lakh rupees in any financial year from the whole of the service tax leviable thereon under Sec. 66 of the Finance Act, 1994 in exercise of the powers conferred by Sec. 93(1) of the Finance Act, 1994.  The said limit was increased to eight lakh rupees vide Notification No.4/2007-ST, dated 01.03.2007 and to ten lakh rupees vide Notification No. 8/2008-ST, dated 01.03.2008.

     The above exemption is granted subject to the following conditions:

The provider of taxable service has the option not to avail the exemption and pay service tax on the taxable service provided by him and such option, once exercised in a financial year shall not be withdrawn during the remaining part of such financial year;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 the CENVAT credit of service tax paid on any input services under Rule 3 or Rule 13 of the CENVAT Credit Rules, 2004 used for providing the said taxable service, for which exemption from payment of service tax is availed of;

The provider of taxable service shall not avail the CENVAT credit under Rule 3 of the said rules on capital goods received in the premises of provider of taxable service during the period in which the service provider avail 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 services for which service tax is payable;

The provider of taxable service who starts availing exemption shall be required to pay an amount equivalent to CENVAT credit taken by him, if any, in respect of such inputs lying in 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 in the previous point, if any, shall not be utilized in terms of provision under Rule 3(4) of CENVAT Credit rules 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 such premises and not separately for each premises or each services; and

The aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed ten lakh rupees in the preceding financial year.

The term 'aggregate value' has not been defined in the Finance Act, 1994 or in Service Tax Rules, 1994.  The Service Tax (Registration of Special Category of Persons) Rules, 2005 defines the term 'aggregate value' as the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under Sec. 67 of the Act, charged by the service provider towards taxable services but does not include the payments received towards such gross amount which are exempt from the whole of service tax leviable thereon under Sec. 66 of the Act under any Notification other than Notification No.6/2005-ST, dated 1.3.2005. 

     The explanation given in this Notification provides that the aggregate value not exceeding ten lakh rupees means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under Sec. 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to ten lakh rupees but does not include payments received towards such gross amount which are exempt from the whole of service tax leviable thereon under Sec. 66 of the said Finance Act under any other notification.

     For the purposes of determining aggregate value not exceeding ten lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency under Sec. 67 for which the person liable for paying service tax is as specified under Sec. 68(2) of the said Finance Act read with Service Tax Rules, 1994, shall not be taken into account.

     The exemption granted in this notification is not applicable to the 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 such person and in such manner specified under Sec. 68(2) of the said Finance Act, read with Service Tax Rules, 1994.

     The term 'brand name' or 'trade name' means a brand name or trade name, whether registered or not, that is to say, a name of 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 Service Tax (Registration of Special Category of Persons) Rules, 2005 requires that any provider of taxable service whose aggregate value of taxable service in a financial year exceeds nine lakh rupees shall make an application to the jurisdictional Superintendent of Central Excise in such form as may be specified, by notification, by the Board, for registration within a period of  thirty days of exceeding the aggregate value of taxable service of nine lakh rupees.

 

    

 

Discussions to this article

[RAJEEV]

As per the article the service provider will have to pay the tax if the aggregate value of consecutive payments exceeds Rs. 10 Lakh, irrespective of the year in which services when rendered. Now the question is: the service tax provider has not charged his customer the service tax because he was claiming exemption. Do he has to pay the same from his own pocket. This does not seems to be constitutionally correct, because he is getting punishment for the crime which he has not committed. Sir,Your views in this regard will be highly appreciated.

[M. GOVINDARAJAN]

This is w.r.t. the comments of Shri Rajeev. His point is a valid one. It may be opened for the experts for further discussions.

[frankling g]

. I am running GTA ( not owner of any vehicle . only hiring) .From the total bill amount of GTA in a year , if i deduct first the abated amount and then deduct the fully exempted items amount , after that if the turnover amount comes below 10 lakhs ,can i avail small scale exemption of service tax ?

[MARIAPPAN GOVINDARAJAN]

In my view you cannot avail exemption, since the exemption is only on aggregate value not on net value.