RECEIVER CANNOT AVAIL THE BENEFIT OF THRESHOLD EXEMPTION SCHEME

[Dr. Sanjiv Agarwal]

Threshold Exemption Scheme

A threshold exemption scheme was introduced in Union Budget 2005-06 (effective from 1.4.2005) exempting from service tax aggregate value of taxable services not exceeding four lakh rupees received by the service provider during a financial year. A point has been raised whether payments received after 1.4.2005 towards the services provided prior to 1.4.2005 would be included while computing this threshold value of ₹ 4 lakhs.

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 ₹ 8 lakhs to ₹ 10 lakhs. For the current financial year 2008-09, if service provider’s aggregate value of taxable services was not more than ₹ 0 lakh in 2007-08, such assessees can opt for exemption scheme. W.e.f. 1.4.2008, the requirement for registration of special category of persons being small service provider had also been enhanced to ₹ 9 lakhs from ₹ 7 lakhs.

W.e.f. 1.4.2012, ‘aggregate value’ shall mean the sum total of value of first consecutive invoices issued or required to be issued, as the case may be, during a financial year, but does not include value charged in invoices towards such services which are exempt from whole of service tax leviable thereon under section 66 of the Finance Act under any other notification.

Receiver cannot avail the benefit

The small service provider’s exemption scheme of ₹ 10 lakhs is meant only for service providers. The exemption cannot be availed by service providers who are not liable to pay service tax on the services rendered by them. Similarly, service receivers who avail the services but are person liable to pay the tax under Section 68(2) as a special case are not the service providers. As such, service receivers cannot claim the benefit of exemption scheme. Thus, this scheme will not be of any benefit to either the service receiver or the service provider in such cases. Uptil 30 June, 2012, these included mutual fund distribution, services rendered from outside India, life insurance, general insurance auxiliary services, recipient of goods transport service etc.

Notification No. 33/2012-ST, dated 20.06.2012 which provides for threshold exemption up to ₹ 10 lakhs from payment of Service Tax specifically excludes the service receivers who are liable to pay Service Tax under reverse charge. Thus even for any isolated and/or for minimum number of transactions, the service receivers shall have to discharge Service Tax obligations. This exemption would not be available irrespective of whether the Service Tax is payable wholly or jointly by the service receiver.

According to the proviso given below the first para of the Notification No. 33/2012-ST, dated 20.06.2012 which start with the phrase that “Provided that nothing contained in this notification shall apply to” means what is stated in sub-clause (i) and (ii) under this proviso is excluded from the benefit of Notification No. 33/2012-ST. It is noted that under clause (ii) of this Notification contemplate such value of taxable service in respect of which the service tax shall be paid by such person in such manner as specified in section 68(2) read with Service Tax Rules, 1994. In this clause word used “such value” has an importance which inter alia contemplates that the value on which the Service Tax is payable by service recipient is not entitled for general exemption. Therefore, the service provider even though whose aggregate value of service is less than 10 lakhs but services provided by service provider are covered by reverse charge mechanism then such value of services are taxable and need to take registration.

The exemption scheme does not apply to person liable under section 68(2) of the Finance Act, 1994 or person other than service providers as specified under rule 2(1)(d) of Service Tax Rules, 1994. To avail the exemption, the person should be a service provider only. However, CENVAT credit can be taken as per rules subject to fulfilment of the specified condition of being an input service.

Thus, exemption scheme meant for small service providers does not apply to following persons

paying service tax under reverse charge method -

- Recipient of service

- Importers of service

- Input service distributors

- Insurance agents

- Mutual fund AMC’s

- Specified consignors or consignees availing GTA services

- Sponsors for sponsorship services

- Service providers under franchise or brand.

The scope of reverse charge mechanism has been expanded w.e.f. 1stJuly, 2012. As such, the service recipients of services such as arbitral tribunal, legal services, support services provided by the Government, renting of vehicles, works contracts, manpower supply, security services, director’s service etc covered under reverse charge as per Notification No. 30/2012-ST dated 20.6.2012 shall have to pay service tax and in such cases, benefit of exemption scheme will not be available to service receiver.

The service receiver is only liable to pay service tax and by doing so, he does not become service provider. The liability to pay service tax has only been shifted.

= = = = = = = = = = = =