We are Small Scale service provider having the current turnover of less than Rs. 10 lakhs. What are the conditions to avail Service Tax exemption on turnover basis?
The Threshold limit exemption for small service providers is available to service providers vide Notification No 6/2005-St dated 1.3.2005 as amended by Notification No 4/2007-ST dated 1.3.2007 and Notification No 8/2008-ST dated 1.3.2008, however the ambiguity related to said exemption still prevails amongst the service providers.
There are many questions which crop up time and again in the mind of service providers as well as the professionals such as those related to the conditions governing the said exemption; inclusion and exclusions; meaning and scope of gross turnover; brand or trade name usage, etc. The exemption Notification is silent on certain aspects and thus living behind a grey area for the experts to ponder upon.
Experts always wonder whether there can be any Litmus Test to ensure that the said exemption is available or otherwise. Since the inception of the threshold limit exemption for small service providers in April 2005, not much has been done to clarify issues and thus there is an urgent need of a comprehensive guideline on the threshold limit exemption before we plunge into the new era of Goods and Service Tax where such confusion and ambiguities will simply multiply manifold.
In case the service provider intends to avail exemption from Service Tax w.e.f. 01st April 2009, i.e., financial year 2009-10, total aggregate turnover should not exceed Rs. 10 lakh in the financial year 2008-09. If the turnover exceeds Rs. 10 lakh in 2008-9, no exemption from Service Tax can be availed in 2009-10.
By the term aggregate value not exceeding Rs. 10 lakhs, it means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under Section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to Rs. 10 lakhs but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon under Section 66 of the said Finance Act under any other notification.
The service provider has to bear certain issues in mind before opting for such exemption. One has to ensure that such Taxable Services are not provided by a person under a brand name or trade name whether registered or not of another person.
The provider of taxable service has the option not to avail the exemption contained in this notification and pay service tax on the taxable services provided by him and such option, however once this option is exercised in a financial year, he shall not withdrawn during the remaining part of such financial year.
There is one more condition which has to be adhered to while availing the exemption. The service provider of taxable service shall not avail the CENVAT credit of service tax paid on any input services and capital goods, used for providing the said taxable service.
However, the service provider can avail such credits only on such inputs or input services received, on or after the date on which the service provider starts paying service tax, and used for the provision of taxable services for which service tax is payable. In case, the service provider starts availing exemption under this notification, he shall be required to pay an amount equivalent to the CENVAT credit taken by him.
There may be instances where a service provider provides one or more taxable services from one or more premises. In such cases, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each premises or each services. In other words, the said service provider has to ensure that the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed the threshold limit of Rs. 10 lakhs in the preceding financial year.
One of the major issues which service provider face is on the meaning and scope of the "brand name" or "trade name". The Notification explains that in context of the exemption, no exemption can be availed if the service provider uses any brand name or a trade name or a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person.
Fulfillment of above conditions may work as a Litmus Test to ensure that the Threshold limit exemption is properly availed by a Small Scale service provider.