GENERAL EXEMPTIONS UNDER SERVICE TAX PROVISIONS

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

            Section 93 of the Finance Act, 1994 gives power to the Central Government to grant exemption from service tax.   The section provides that if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be notified in the notification, taxable service of any description from the whole or any part of the service tax leviable thereon. It further provides that if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order.  

GENERAL EXEMPTIONS:

            In this article the general exemptions granted by the Central Government in service tax is discussed. General exemptions may be of the following types:

• Exemptions available to all assessees in respect of all services;
• Exemptions available in respect of specified assessees in respect of all services;
• Threshold exemptions.

EXEMPTION AVAILABLE TO ALL ASSESSEES:

            The following are the exemptions available to all service providers in respect of all the services:

• Services provided to United Nations or an International Organization;
• Services provided to a developer of Special Economic Zone or a Unit located therein;
• Value of goods and materials sold by the service provider;
• Services provided to the foreign diplomatic mission/consular posts in India;
• Services provided to the family members of diplomatic agents/career consular offices;
• Services exported from India.

Exemption for Services Provided to United Nations or an International Organization:

            'International Organization' means an international organization declared by the Central Government in pursuance of Sec. 3 of the United Nations (Privileges and Immunities) Act, 1947 to which the provisions of the schedule to the said Act apply.   This exemption is available with effect from 02.08.2002. The following are notified as International Organizations:

• International Civil Aviation Organization;
• World Health Organization;
• International Labor Organization;
• Food and Agriculture Organization of the United Nations;
• UN Educational, Scientific and cultural Organization (UNESCO);
• International Monetary Fund (IMF);
• International Bank for Reconstruction and Development;
• Universal Postal Union;
• International Telecommunication Union;
• World Meteorological Organization;
• Permanent Central Opium Board;
• International Hydrographic Bureau;
• Commissioner for Indus Waters, Government of Pakistan and his advisers and assistants;
• Asian African Legal Consultative Committee;
• Commonwealth Asia Pacific Youth Development Centre, Chandigarh;
• Delegation of Commission of European Community;
• Customs Co-operation Council;
• Asia Pacific Telecommunity;
• International Centre of Public Enterprises in Developing Countries, Ljubljana (Yugoslavia);
• International Centre for Genetic Engineering and Biotechnology;
• Asian Development Bank;
• South Asian Association for Regional Co-operation;
• International Jute Organization, Dhaka, Bangladesh.

Exemptions for services provided to a developer of SEZ or a Unit therein:

            Vide Notification No. 4/2004-ST, dated 31.3.04 exemption is given for the services provided to a developer of SEZ or a Unit (including a unit under construction) of SEZ subject to the following conditions:

• The developer has been approved by the Board or approvals to develop, operate and maintain the SEZ;
• The Unit of the SEZ has been approved by the Development Commissioner of Board of Approvals, as the case may be, to establish the Unit in the SEZ;
• The developer of Unit of a SEZ shall maintain proper account of receipts and utilization of the said taxable services.

Exemption to the Value of goods and materials sold by the Service provider:

            Exemption is given vide Notification No. 12/2003-ST, dated 20.06.2003 as amended by Notification No. 12/2004-ST, dated 10.09.2004 to the value of all the taxable services as is equal to the value of goods and materials sold by the service provider to the recipient of service from service tax leviable subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials.

            The said exemption shall apply only in such cases where-

• No credit of duty paid on such goods and materials sold, has been taken under the provisions of the CENVAT Credit Rules, 2004; or
• Where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit.

Exemptions to the Services provided to the foreign diplomatic mission/consular posts in India:

            The Central Government, vide Notification No. 33/2007, dated 23.05.2007 exempted all taxable services provided by any person for the official use of a foreign diplomatic mission or consular post in India which is issued with an entitlement certificate with or without any conditions on the principle of reciprocity, by the Protocol Division of the Ministry of External Affairs from the whole of the service tax.

Exemptions to the Services provided to the family members of diplomatic agents/career consular officers:

            The Central Government, vide Notification No.34/2007-ST, dated 23.05.2007 exempted all taxable services for the personal use or for the use of family member of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consult post in India, who is issued with an entitlement certificate with or without any conditions on the principle of reciprocity, by the Protocol Division of the Ministry of External Affairs. Such agent or Officer also holds a photo identification card bearing a unique serial number issued by the Protocol Division of Ministry of External Affairs or the Protocol Department of the State Government.

Exemption of Service Exported from India:

            In terms of Export of Service Rules, 2005 effective from 15^th March, 2005 any taxable service may be exported without payment of service tax. In case any service has been exported after payment of service tax rebate can be claimed with reference to the amount of service tax so paid.

EXEMPTIONS AVAILABLE TO SPECIFIED ASSESSEES:

            The following service providers are exempt from service tax in respect of all taxable services:

• Reserve Bank of India;
• Technology Business Incubation and Science & Technology Entrepreneurship Park;
• Technology Business Incubatees.

Exemption is given to Reserve Bank of India covering-

• Services provided or to be provided by Reserve Bank of India;
• Service rendered by Reserve Bank of India under Sec. 68(2) of the Act read with Rule 2 of Service Tax Rules, 1994 which, inter alia, includes services received from goods transport agency and sponsorship service;
• Service imported in India under Sec. 66A of the Act.

The Department of Science and Technology assists technology business incubators and Science & Technology Entrepreneurship Parks also known as incubators to promote the clusters of technology based small entrepreneurs.   Notification No 9/2007-ST, dated 01.03.2007 gives exemption to all taxable services provided by incubators from levy of service tax with effect from 01.04.2007. The incubator is required to furnish information in the formats specified in the Notification to the jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise-

-         before incubator starts availing the said exemptions; and

-         before 30^th day of June of every financial year.

Notification No.10/2007-ST, dated 01.03.2007 exempts all taxable services provided by incubates from levy of service tax with effect from 01.04.2007. Incubatees are entrepreneurs working with the incubators to develop their ideas into a commercially viable nature. Incubatees are required to sign an agreement with the incubator. Every incubator who signs an agreement with the incubator is entitled to service tax exemption subject to the following conditions:

• the incubatee should  be located within the premises of an incubator;
• the total business turnover of the incubatee should not have exceeded Rs.50 lakhs during the preceding financial year;
• the total business turnover of the incubate remains within Rs.50 lakhs;
• exemption is available for three years from the date of signing with an incubator.

THRESHOLD EXEMPTION:

            A threshold exemption scheme has been introduced vide Notification No.6/2005-ST, dated 01.03.2005 exempting service tax on aggregate value of taxable service not exceeding four lakhs received by the service provider during a financial year.  This limit has been further extended to Rs. 8 lakhs vide Notification No. 4/2007-ST, dated 01.03.2007 and Rs.10 lakhs vide Notification No. 8/2007-ST, dated 01.03.2007 with effect from 01.04.2008.

            For the purpose of calculating the aggregate value not exceeding Rs.10 lakhs the total of first consecutive payments received during a financial year shall be considered. The said threshold limit can be availed subject to the following conditions:

• the service provider is not to avail CENVAT credit of service tax paid on any input services used for providing the said taxable service;
• the service provider is not to avail CENVAT credit on capital goods received in his premises during the period in which the service provider avails exemption benefit;

The following persons are excluded from the benefit threshold exemptions:

• persons using brand name/trade name of another person;
• service receivers who are liable to pay service tax.

Even when a service provider is eligible to avail threshold exemption he has an option to avail the threshold exemption and continue to pay service tax on the taxable services provided by him. However once an option is exercised in a financial year, it shall not be withdrawn during the remaining part of such financial year.

LATEST EXEMPTION:

            Vide Notification No.8/2009-ST, dated 24.02.2009, the Central Government exempts all the taxable services specified in Section 65 (105) of the Act from so much of service tax leviable thereon under Sec. 66 of the Finance Act, as in excess of the rate of 10% of the value of taxable service.

Discussions to this article

[Rajesh Malde]

Vide Notification No. 9/2009 dated 03.03.2009, service provider will have to pay the service tax and the recipient situated in the SEZ including the developer can claim refund of the tax after completing the formalities. It appears that correction is required in the above article to this effect.

[yogesh]

If any entity is recognised for the purpose of availing Service Tax exemption in terms of Gov. Not. no. 9/2007 dt. 1-3-07 is required to apply for registration. as the entity is exempt for service tax liabilty.