BAS- EXEMPTION FOR SOME PROCESSES ON PARTS OF CYCLES AND SEWING MACHINES

[C.A. DEV KUMAR KOTHARI]

Relevant links:

Notification No. 42/2009-Service Tax Dated 12-11-2009

sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994)

sub-clause (zzb) of clause (105) of section 65 of the Finance Act, A small relief:

A small relief has been allowed to some units which are mostly SSI units by exempting certain processes carried on parts of cycles and sewing machines. The processes are not major processes. Furthermore, the benefit will accrue in real sense only in case of some of service users who are unable to take advantage of CENVAT.  The benefit is not relevant to those who carry such services  for others also and they are treated as manufacture in their hands.

Recent notification:

Notification No. 42/2009-Service Tax Dated 12-11-2009 exempt service tax on business auxiliary service provided in relation to specified processes during the course of manufacture of parts of cycles and sewing machines.

The notification is issued in exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) by the Central Government, on being satisfied that it is necessary in the public interest so to do. The exemption is in relation to services provided by a person ('service provider'), to any other person ('service receiver'), in relation to one or more of the specified process during the course of manufacture of parts of cycles or sewing machines, subject to the following conditions, namely :-

Exemption is only for specified processes. Vide an Explanation given in the notification these processes are the following:

electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black.

This is given as a meaning of "specified process". Therefore, the meaning is exhaustive.

Specified conditions:

Upper limit:  the aggregate value of taxable service in relation to one or more of the specified process provided by a service provider, does not exceed rupees one hundred and fifty lakhs during the preceding financial year;

Restriction: the exemption shall be restricted to the first clearances, wherein the aggregate value of taxable service in relation to one or more of the specified process provided by a service provider does not exceed rupees one hundred and fifty lakhs, made on or after the 1st day of April in any financial year, and Separate records:

If the service provider also undertakes one or more of the specified process in relation to manufacture of parts or whole of goods leviable to Central Excise duty, then he shall maintain separate accounts of receipt, production and clearance of exempted and dutiable goods and services.

Limit for remaining part of current year:

It is also provided that notwithstanding anything contained in sub-para (b), exemption shall be restricted to the clearances, wherein the aggregate value of taxable service in relation to one or more of the specified process provided by a service provider, does not exceed rupees sixty three lakhs during the remaining part of the current financial year,

Business Auxiliary Service is very wide service vide section 65 (19). The present exemption allowed is only for some of processes carried by a person in capacity of service provider. Therefore, care should be taken to properly claim exemption and to satisfy conditions laid down in the notification.

Manufacture / Sale - no service:

If any process in a given case falls in category of 'manufacture' liable to Central Excise, then such process shall not be subject to service tax, and accordingly exemption under present notification will not be applicable to such cases. Similarly a sale will not be subject to service tax, therefore, if raw parts are purchased and then processed parts are sold there will be VAT payable. Therefore, in a given case comparative analysis should be made to find out what is best suitable to keep costs lowest.

In house services are not affected by levy or its exemption.