EXEMPTION SCHEME FOR SMALL SERVICE PROVIDERS

[Dr. Sanjiv Agarwal]

Scheme prior to 1.7.2012

Exemption Scheme for Small Service Providers was covered by the following Notifications –

No. 06/2005-ST dated 01.03.2005                 Threshold limit Rs. 4 lakhs.

No. 04/2007-ST dated 01.03.2007                 Threshold limit Rs. 8 lakhs.

No. 08/2008-ST dated 01.03.2008                 Threshold limit Rs. 10 lakhs.

Scheme w.e.f. 1.7.2012

Exemption Scheme for Small Service Providers is governed by Notification No. 33/2012-ST dated 20.06.2012 and the exemption limit is Rs. 10 lakhs.

Legislative history

Amendments w.e.f. 1.4.2007

The threshold exemption limit of Rs. 4 lakhs was raised to Rs. 8 lakhs w.e.f. 1.4.2007 vide Notification No. 04/2007-ST dated 1.3.2007 amending the exemption Notification No. 06/2007-ST dated 1.3.2007. Thus, w.e.f. 1.4.2007, the limit of Rs.4 lakhs was raised to Rs. 8 lakhs with all other conditions of Notification No. 06/2005-ST remaining unchanged.

Amendment w.e.f. 1.4.2008

W.e.f. 1.4.2008, vide Notification No. 8/2008-ST dated 1.3.2008, threshold exemption limit for service tax exemption was increased from Rs.8 lakhs to Rs.10 lakhs. For financial year 2008-09, if service provider's aggregate value of taxable services was not more than Rs.10 lakh in 2007-08, such assessees could opt for exemption scheme.

Amendment w.e.f. 1.4.2012

Vide Notification No. 5/2012-ST dated 17.3.2012, w.e.f. 1.4.2012, amendment was made in the meaning of 'aggregate value' to the effect that first clearances up to Rs.10 lakhs would be constituted in terms of invoices raised or to be raised and not on the basis of payments received to determine the 'aggregate value'.

Amendment w.e.f. 1.7.2012

Vide Notification No. 33/2012-ST dated 20-6-2012, Notification No. 6/2005-ST has been superseded. W.e.f. 1-7-2012, 'aggregate value' 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 invoice issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification.

Exemption scheme at a Glance

Particulars	From 1.4.2005 to 31.3.2007	W.e.f. 1.4.2007	W.e.f.1.4.2008	W.e.f. 1-7-2012
Relevant Notification	06/2005-ST, dated 1-3-2005	04/2007-ST, dated 1-3-2007	08/2008-ST, dated 1-3-2008	33/2012-ST, dated 20-6-2012
Application	w.e.f. 1.4.2005	w.e.f. 1.4.2007	w.e.f. 1-4-2008	w.e.f. 1-7-2012
Threshold limit	Rs.  4 lakhs	Rs.  8 lakhs	Rs.  10 lakhs	Rs.  10 lakhs
Registration requirement under Service Tax (Registration of Special Category of Persons) Rule, 2005	Rs.  3 lakhs	Rs.  7 lakhs	Rs.  9 lakhs	Rs.  9 lakhs
Qualifying financial years for claiming exemption	2004-   05 (for 2005-06) 2005-   06 (for 2 006-07)	2006-07 (for 2007-08)	2008-09 (for 2009-10)	2011-12 (for 2012-13)

 Some Judicial Pronouncements

• In L.G. Marwadi v. CCE, Pune 2010 (5) TMI 234 - CESTAT, MUMBAI, where assessee claimed refund of service tax paid by on the ground that value of taxable service received by it during 2006-07 was below Rs. 4 lakh as per exemption limit under Notification No. 6/2005-ST, it was held that a service provider who opts to pay service tax in first half of the financial year cannot withdraw the option later in that year. Since the assessee had paid service tax for the first half year and surrendered its registration in second half which was not permissible as per condition laid does in notification, assessee was not entitled to avail exemption.

• In Charanjeet Singh v. CCE, Lucknow, 2010 (10) TMI 492 - CESTAT, NEW DELHI , part pre-deposit was directed where assessee was a manpower recruitment or supply agent but he did not took the plea on small scale service provider exemption under Notification No. 6/2005 - ST before nor quantum of turnover of previous year and documentary evidence for same was produced.

• In NT Automobiles v. CCE, Mangalore 2010 (10) TMI 512 - CESTAT, BANGALORE, where assessee, an authorised service station claimed benefit under Notification No. 6/2005-ST and where no specific claim was made in earlier submission or before CCE (Appeals) or before original authority under the said notification, it was held that such a claim for exemption cannot be raised for first time before the Tribunal and that too without laying any factual foundation to justify the same.

• In Cancio E.P. Mascarenhas v. CCE, Goa 2010 (9) TMI 404 - CESTAT, MUMBAI, as per the notification the assessee was to take the decision in advance whether it intended to avail of the threshold exemption of Rs. 8 lakhs and the condition laid down in the notification is that nowhere during the financial year he can opt for exemption if once he has not opted for exemption in advance. In the instant case, the assessee had got registered with the department on 20-11-2007 and had paid the service tax on the whole of the commission received by it. The assessee was a new assessee and there was no question of opting for exemption in advance. It had paid the service tax without knowing the fact that it was entitled to claim the threshold exemption of Rs. 8 lakhs as per the above said notification. Accordingly, condition 2(1) was not applicable to the case of the assessee. The assessee had done only one transaction of receiving commission of Rs. 20 lakhs on 12-8-2007 and it was also a fact that no service tax had been received by the assessee. Although the assessee had not received the service tax, yet, being an honest taxpayer, it opted to pay service tax on the commission received by it, applied for service tax registration and also paid the service tax. So, there was no question to opt out of exemption limit as per the said notification. Hence, the condition 2(1) of the said notification was not applicable to the facts and circumstances of the instant case and accordingly, the impugned order was set aside and the refund claim allowed.

• In  CCE, Indore v. Jyotsna Singh [2013 (12) TMI 1281 - CESTAT NEW DELHI] it was held that the Department was duty bound to provide proper guidance to small service providers where Department mechanically raised demand without considering and denying exemption available under Notification No. 6/2005-ST leading to incorrect computation. It was also held that there was no merit in revenue's argument that value of taxable services rendered when the service was not taxable should be included in aggregate value of clearance, if such value is received after the service became taxable. Further, non-filing of declaration on crossing the limit of Rs. 3 lakh cannot be fatal to claim for exemption under Notification No. 6/2005-ST.

• In Surinder Kumar Mittal v. CCE, Chandigarh 2012 (8) TMI 244 - CESTAT, NEW DELHI, where exemption under Notification No. 4/2007-ST was denied as turnover exceeded the limit of Rs. 8 lakh, and assessee's contention was that the value to be taken should be only 50 percent of the gross value after allowing for exemption, it was held that value of exempted services shall not be taken into account for calculating aggregate value and as such, pre-deposit was waived. There is a provision in the Notification to the effect that value of services exempted by other Notification should not be taken into account for calculating the aggregate value under Notification No. 4/2007-ST.