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Contributed by Sarabjeet Chawla

 

Threshold Exemption in Service Tax

 

A major relief was given to service providers by exempting them from service tax upto a turnover limit of Rs. 4 lacs in a year. Notification No. 6/2005 dated 1st March 2005 was issued w.e.f. 1st April 2005 to grant the benefit.

 

General

 

Q.  Is this exemption available to all service categories ?

A.   Yes.

 

Q.  Is it mandatory to avail this exemption?

A.   No, a service provider may opt not to avail the exemption and once exercised it cannot be withdrawn in that financial year.

 

Operative Part of Exemption

 

Q.  What is the limit of exemption?

A.   Taxable services of aggregate value not exceeding Rs. 10 lacs in any financial year is exempted.

 

Q.  Aggregate value means services rendered or payments received?

A.   Invoices raised as per Explanation to the Notification.

 

Q.  How will the exempted 10 lacs be calculated?

A.   Ten  Lacs will be computed by adding value of taxable services provided ( whether billed or not) in chronological order.

 

Q.  What if the value of taxable service crosses 10 lacs?

A.   Tax is to be paid on amount above 10 lacs.

 

Q.  We have provided services amounting to Rs. 10.50 lacs in the year 2011-12, but received payment of Rs.9.75 lacs only and have paid tax accordingly. Can we avail exemption under the notification under 2012-13?

A.   No. The notification clearly states that the aggregate value of services RENDERED should not exceed Rs. 10 lacs in the preceding financial year for all premises and all taxable services.

 

Q.  What if the business is started say on 1st Nov 2011 and turnover is 9 lacs till 31st Mar 2012, Will the exemption be available?

A.   Yes, Since the notification simply says aggregate value of taxable services provided during preceding year should not exceed Rs. 10 lacs. Nowhere it talks about the period for which service are to be rendered in preceding year.

 

Q.  What if business is started in the year 2011-12?

A.   Yes, the exemption will apply in the first year.

 

Specific Issues on Gross Value

 

Q.  We also provide services, which are exempted from service tax. Are they also aggregated while computing 10 Lacs?

A.   No. services which are exempted from whole of service tax are excluded, For eg. Services provided to UNO etc.

 

Q.  How will exemption limit be calculated in case of service providers availing exemptions of nature of a certain %age; like Outdoor Caterers?

A.   The explanation to notification clarifies that aggregate value not exceeding ten lakh rupees will be as per section 67 of the Act, i.e. to say the gross amount charged by the service provider.

 

      Moreover the exemption notification exempts the service provider from tax at a certain %age and does not exempt the taxable service as such.

 

Q.  We are a goods transport agency and our service receivers are liable in certain cases to pay tax as per the provisions of Sec. 68(2). Is freight received by us to be considered in the limit of 10 lacs?

A.   No, the same has to be excluded while computing the limit of 10 lacs.

 

CENVAT

 


CENVAT Credit under 10 lac Regime

 

Credit available and unutilized carried forward

Credit During Exemption

Credit After exemption ceiling i.e. 4 Lacs

(Pre- exemption period)

Input Services

Yes, Available

NO Availment of credit on services used for providing exempted taxable services -  2(ii)

Yes, On services used for providing the TAXABLE service(> 4 Lacs)  - 2(iv)

Remarks

C/F credit, No specific Bar

 

 

 

 

 

 

Inputs

Credit Reversal on inputs in stock or WIP - 2(v)

NO

Yes, On inputs used for providing the TAXABLE service(> 4 Lacs)  - 2(iv)

Balance Credit (if any) to Lapse  - 2(vi)

Remarks

Reversal by means of payment of CENVAT either through Payment of by debiting Cenvat Credit A/c

No express disallowance( However Refer 2 - (iv)

 

 

 

 

 

Capital goods

Yes, Available

NO Availment of credit on capital goods received in the premised during the period of availment of exemption from payment of service tax  - 2(iii)

Yes, Allowed

Remarks

There is no bar on availing 50% credit of capital goods received earlier and balance credit not availed.

Hardship , since capital goods will be used even after exemption is over

No Bar

 

 

 

 

Note: Relevant para nos. of notification are mentioned wherever applicable

 

 

Clubbing of premises and services

 

Q.  Service tax registration is given to a premise. We provide services from more than one premises, how will exemption be available to us?

A.   For computing the aggregate value of 10 lacs, value of all taxable services and from all premises of the service provider will be cumulated.

 

Q.  Does 10 lacs exemption operate for each taxable service or for aggregate?

A.   No, as stated above, on total of the taxable service (s)
 

Q.  Are we allowed to avail exemption for some of our services and pay on some?

A.   No, The notification is applicable in totality to the entire service(s) provided by a service provider.

 

Non-applicability of Notification

 

Q.  We are not service providers but service receivers. However we are liable to pay tax u/s 68(2). Can we avail the exemption under the notification?

A.   No, the exemption notification does not apply to the service tax payable by a person other than the service provider (service receiver) falling under Rule 2(1) (d).

      However the benefit of exemption can be availed on the services rendered.

 

Q.  What about services provided under a brand name?

A.   No exemption is given to taxable services provided under a brand name or trade name whether registered or not.

 

      However only the services provided under the trade/brand name are taxable whereas the other services provided by same service provider enjoy the 10 lac exemption. This is because Exemption is given to the taxable service(s) and not to a person.

 

Tax collected to be paid

 

Q.  Services rendered in previous year are < 10 lacs. What about service tax on payments received for previous year?

A.   If service tax was charged and received then it has to be paid in pursuance of provisions of Sec 11D of Central Excise Act,1944.

      Consequently if tax is not received then there is no need to pay tax.

 

Registration

 

Q.  We wish to avail the benefit of exemption. Should we continue with our registration or surrender the same. And if we continue are we required to file NIL returns?

A.   There is difference of opinion on the same. In the opinion of author, since the taxable services are exempted, there should be no need for registration and hence no need for filing NIL returns.

 

Q.  Ours is a new business. Our turnover may or may not cross 10 lacs in 2012-13. Should we take registration?

A.   As per the provisions of Notification 26/2005, every person who taxable turnover crosses Rs. 9 lacs is required to apply for registration

 

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