Analysis of Union Budget 2017 provisions of Income Tax Service Tax Excise Duty Custom Duty with Budget Highlights Commentary Speech, Notification, News & Articles.
CA Kamlesh Singh Chauhan
1. Summary of previous notifications related to threshold exemption along with limit, date of applicability and relevant Notification numbers:
|Period||Exemption limit (Rs.)||Relevant Notification of Service Tax||Effective date|
|01-07-1994 to 31-03-2005||Nil||N.A.||N.A.|
|01-04-2005 to 31-03-2007||4 lakhs||6/2005* dt. 01-03-2005||01-04-2005|
|01-04-2007 to 31-03-2008||8 lakhs||* as amended by 4/2007 dt. 01-03-2007||01-04-2007|
|01-04-2008 to 30-06-2012||10 lakhs||* as amended by 8/2008 dt. 01.03.2008||01-04-2008|
|01-07-2012 onwards||10 lakhs||Notification No. 33/2012 dated 20.06.2012||01-07-2012|
2. The threshold exemption, which was available to all service providers vide Notification No. 6/2005-ST dated 1.3.2005 as amended from time to time and last amended vide Notification No. 33/2012- ST dated 20.6.2012 (and new Notification No. 25/2012-ST dated 20.6.2012) has been superseded by Notification No. 33/2012 dated 20/06/2012. Since this exemption is available to the Service Provider only therefore only his transactions related to provision of service are eligible for the purpose of threshold exemption benefit. This exemption is not available to receiver of service under reverse charge [refer para (ii) of “what is exempted” given below]. If a service provider (SP) is also paying duty as service receiver (SR) under reverse charge or partial reverse charge, it will not be included or considered for the purpose of arriving at aggregate value exempted under notification number 33/2012. This exemption, of Rs 10 lakhs in current financial year from service tax payable on aggregate value of taxable services, is available to service provider on the basis of provision of aggregate value of taxable services rendered in the previous financial year if that does not exceed Rs. 10 lakhs for entity existing in previous financial year and in case of new entity, it is available for such turnover. Government of India has framed new conditions vide notification No. 33/2012-Service Tax, dated 20-06-2012 for threshold exemption to be availed by “small” service provider, which are discussed below;
3. What is Exempted vide notification No. 33/2012-Service Tax: Central Government has exempted taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66B of the said Finance Act. But it is clarified that nothing contained in this notification shall apply to following (as per proviso);
(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; Here “brand name” or “trade name” means a brand name or a trade name, whether registered or not, that is to say, 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, OR
(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified in section 68(2) of the said Finance Act read with Service Tax Rules,1994.
It is absolutely clear by this proviso that services provided under “brand or trade name of others” and services provided under “reverse charge mechanism” as specified in section 68(2) are out of ambit of this notification. The purpose of specific mention of non-inclusion of GTA service [falling under section 68(2)] in the aggregate value vide para 3 of this notification is that legal position of consignee is of SR but of consigner is of agent to SR (while GTA is SP).
Further, as per para 10.1.3 of ST Education Guide, the liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is required to pay under the partial reverse charge mechanism.
‘Taxable services’ are defined in Section 65B(51) as [“taxable service” means] any service on which service tax is leviable under section 66B, which is as hereunder;
Charging Section 66B: There shall be levied a tax (hereinafter referred as the service tax) at the rate of twelve percent, on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.
Section 65B(52): Taxable territory means the territory to which the provisions of this chapter apply.
Section 64(1): This Chapter extends to the whole of India except the State of Jammu and Kashmir.
5. Now, we have to find out what is included in aggregate value for this purpose. “Aggregate value” [as defined in this notification itself] 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 invoices 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.”
It is interesting to note that as per 3rd proviso to Rule 6(1) of the Service Tax Rules, 1994, an individual /partnership firm with turnover upto Rs. 50 lacs has an option to discharge service tax on receipt basis, while computation of turnover for threshold exemption limit, consecutive billing criteria applies.
From this definition, following aspects emerges;
(i) “Aggregate value” means the sum total of value of taxable services [as per section 67 of FA/ST and rule 2A, 2B, & 2C of Service Tax (Determination of Value) Rules, 2006] ……. but does not include…… which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification.”
(a) Value of service rendered: Rule 2(c) of Service Tax (Determination of Value) Rules, 2006, “value” shall have the meaning assigned to it in section 67 , which is given in footnote. There are two major cases under Service Tax (Determination of Value) Rules, 2006 under Rule 2A & 2C, which are as hereunder;
(i) Rule 2A for valuation of service portion in Work Contract Service is notified by NN-24/2012-ST as updated by NN-11/2014-ST:
||Where Works Contract is for…||Value of the Service portion shall be..|
|1||Execution of original contracts||40% of the total amount charged for the works contract|
|2||Maintenance or repair or reconditioning or restoration or servicing of any goods(including services mentioned in para 3)||70% of the total amount charged including such gross amount|
|3||In case of other works contracts, not included in S. No. 1 & 2 above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings. ||60% of the total amount charged for the works contract|
(ii) Rule 2C for valuation of service portion in catering/restaurant service is notified by NN-24/2012-ST :
|Sl. No.||Description||Percentage of the total amount|
|1.||Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant||40|
|2.||Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering||60|
It is absolutely clear from abovementioned notifications that in these cases, gross amount charged is not the gross receipts but value of service as mentioned above. In case of works contract, 40% or 70% of gross receipts is service portion and in case of restaurant/catering service, 40% or 60% of gross receipts is service portion therefore only that part, which is service portion has to be considered for the purpose of computing taxable value for NN-33/2012-ST.
(b) Exempted service : As per Rule 2(e) of the CENVAT Credit Rules, 2004, “exempted service” means a-
(1) taxable service which is exempt from the whole of the service leviable thereon; or
(2) service, on which no service tax is leviable under section 66B of Finance Act; or
(3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken;
but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994. 
[It is pertinent to mention here that Export of Service as per POPS is non-taxable service in negative list tax regime. The reason behind it is that these are rendered beyond taxable territory. It is further clarified that if a service is provided/rendered out of taxable territory, whether it amounts to export as per Rule 6A or not, it is non-taxable service.]
Since threshold exemption is available only to the Provider of the service and not to the Receiver of the service and therefore, while calculating the aggregate value of Rs. 10 Lakhs the sum total of value of taxable services charged by the provider in the first consecutive invoices issued or required to be issued has to be considered.
6. The value of the following services need not be considered in reckoning aggregate value:
(a) Value of services in the Negative List;
(b) Value of services provided/rendered outside taxable territory of India (i.e. Jammu & Kashmir or abroad) considering place of provision of service rules, 2012;
(c) Value of services under Mega-Exemption Notification 25/2012 or any other notification which provides for full exemption from service tax;
Note: Since the definition of aggregate value given in this notification itself states that “not include value charged in invoices issued towards such services which are exempt from whole of service tax” therefore value of services under Abatement Notification 26/2012 or any other notification which provides for partial exemption from service tax is includible in the aggregate value to reckon value of service rendered to decide applicability of threshold limit. Assessee can avail benefit of threshold exemption under notification number 33/2012 and any other exemption notification simultaneously. Citation: Aggarwal Rolling Mills Vs. CCE-1997 (093) ELT 615 (Tri. Del.)
(d) Value of services provided/rendered which falls under complete reverse charge mechanism including GTA service (as referred in para 3 of this notification) as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994
7. The value of the following services will be considered in reckoning aggregate value:
(a) Value of services provided/rendered under partial reverse charge has to be included fully in the aggregate value. As per para 10.1.3 of ST Education Guide, the liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is required to pay under the partial reverse charge mechanism.
(b) It is pertinent to mention here that exemption [granted by government on case to case basis considering various factor and is of ex-gratia in nature i.e. cannot be demanded as a matter of right unless granted] and abatement [though granted by government but it is a matter of right on the ground that whole amount does not represent service but a part of it and legally service tax cannot be imposed on whole/gross amount] are two different things which are not comparable and therefore non inclusion of fully exempted services in the aggregf ate value does not entitle abatements to be treated at par and these will form part of aggregate value. Further, service tax paid on any exempted service does not make him/them liable to tax and such exempted services will not be taken into account for computing total value of services provided even if refund of duty paid on such services is not claimed. Citation: Bonanzo Engg. & Chemical Pvt. Ltd. Vs. CCE-2012 (277) ELT 145 (SC).
(c) The use of following words in the definition of Aggregate value …… “sum total of value of taxable services charged in the first consecutive invoices issued during a financial year…..” emphasizes first consecutive invoices issued during a financial year, and which includes following two situations;
(i) Where service was taxable from the commencement of financial year i.e. taxable earlier, aggregate value for this exemption will include first invoice from the commencement of financial year, while
(ii) Where service became taxable from 1st July, 2012 by the new definition of service then aggregate value for this exemption will be computed from 1st July, 2012 as invoices issued for non taxable service in the financial year cannot be included in the aggregate value. It is clear from the words used in the definition of aggregate value…..” the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year…..”
8. Clubbing concept:
(i) Proprietorship is trade / business name of individual so if a person is rendering taxable services in his own name, various trade / business name then they are liable to be clubbed to compute threshold exemption limit of Rs. 10 lakhs under this notification.
(ii) If the entity is an incorporated body, it has separate legal entity and clubbing of taxable turnover cannot be done merely on the ground of mutuality of some common directors/managers etc. unless there is material mutuality of interests or flow back of funds.
(iii) If some partners are common in various partnership firms or Karta of HUF is also the partner in the partnership firm, their taxable turnover cannot be clubbed unless there is material mutuality of interests or flow back of funds.
(iv) If there is change in ownership and thereby change in the constitution of the entity but factory and premise are same, clubbing will be done. Further, if more than one manufacturer is clearing goods or the service provider is rendering service from common factory/premise and also using of common facilities/infrastructure directly required for such purpose, clubbing will be done (except in the cases of use of remote/immaterial services like common premise only with a demarcation for seperation).
General Rule: Pervasive financial control and management control are two basic features to exhibit/ establish whether there is, prima facie, an inter-dependence and existence of dummy unit/ firm/ company. Mere a relationship of holding and subsidiary company alone is not sufficient to render a case fit for clubbing.
(v) Where a taxable service provider provides one or more taxable services from one or more premises, 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 (para-vi of T&C in the notification).
9. Whether making claim for the exemption is mandatory or procedural lapse of not claiming it will not debar its entitlement:
Jay Travels vs. Commissioner of Service Tax Order No. A/306/W ZB/AHD OF 2012: The benefit of notification is statutory and should have been automatically be given to the assessee even if such claim was not seeked by him on the principles of natural justice.
10. Whether a service provider is also discharging ST liability under reverse/ partial reverse charge, can avail benefit under this notification:
Yes, This notification, Notification No. 33/2012 Service Tax dated 20.06.2012 does not impose any restriction on availing threshold exemption subject to fulfillment of all others T&C framed in this regard.
Similarly in case of a Service Receiver, the full value of services, on which he is required to discharge service tax liability under reverse charge, whether fully or partially, shall be excluded for reckoning the limit of Rs. 10 Lakhs
11. What is the previous year and current year taxable turnover criteria to reckon “aggregate value” for the applicability of threshold exemption:
For the entity carrying on business in previous rear also, aggregate value of taxable turnover should not exceed Rs. 10 lakhs to avail threshold exemption in current year. Further, in current year, taxable turnover eligible for falling in “aggregate value” upto Rs 10 lakhs will remain exempt and afterwards such turnover/receipts become taxable. It is pertinent to mention here that applicability of this exemption notification is evaluated by checking previous year’s turnover only, so if the entity exempted in one year and taxable in ensuing year, may again become eligible and exempted under this notification in the current year if it falls within the specified limit of “aggregate value” in any previous year.
12. Terms and Conditions for availment of threshold exemption as per Notification No. 33/2012 Service Tax- dated 20.06.2012 :
The exemption contained in this notification shall apply subject to the following conditions, namely:-
(i) 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, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;
(ii) the provider of taxable service shall not avail the CENVAT credit of service tax paid on any input services, under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 (herein after referred to as the said rules), used for providing the said taxable service, for which exemption from payment of service tax under this notification is availed of;
(iii) the provider of taxable service shall not avail the CENVAT credit under rule 3 of the said rules, on capital goods received, during the period in which the service provider avails exemption from payment of service tax under this notification;
(iv) the provider of taxable service shall avail the CENVAT credit 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;
(v) the provider of taxable service who starts availing exemption under this notification shall be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in respect of such inputs lying in stock or in process on the date on which the provider of taxable service starts availing exemption under this notification [i.e. either reversal of CENVAT credit from the balance lying unutilized (refer para –vi- below or pay cash differential];
(vi) the balance of CENVAT credit lying unutilized in the account of the taxable service provider after deducting the amount referred to in sub-paragraph (v), if any, shall not be utilized in terms of provision under sub-rule (4) of rule 3 of the said rules and shall lapse on the day such service provider starts availing the exemption under this notification;
(vii) where a taxable service provider provides one or more taxable services from one or more premises, 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 (clubbing concept); and
(viii) the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed ten lakh rupees in the preceding financial year.
 Section 68(2) Notwithstanding anything contained in sub-section (1), in respect of such taxable service as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.
 SECTION [67. Valuation of taxable services for charging service tax.
Sec. 67(1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, —
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
67(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
67(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
67(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
 Deleted by NN 11/2014-ST dated 11-07-2014
 “RULE 6A. Export of services. – (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,-
(a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act
(2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.”
(Author- CA Kamlesh Singh Chauhan-FCA, LLB, DISA(ICA), E-mail: email@example.com, Mobile: +91 9839 094 094)
(Article was first published on 09.08.2012 and republished with amendment on 05.12.2014)