Service Tax Exemption To Small Service Provider (SSP)

CA Nitin Bhatia

1. Threshold Exemption

A Small service provider whose value of taxable service from one or more premises did not exceeds Rs.10 lakhs in previous financial year will be exempt from tax in next financial year upto first consecutive payment of Rs. 10 lakhs received.

However, if taxable turnover in current year exceeds the specified limit, there will be no exemption from service tax in next financial year.

What is relevant is turnover of previous year only.

For the purpose of determining eligibility in current year, what is relevant is that ‘aggregate value’ of taxable services rendered in previous financial year should not exceed Rs.10 lakhs.

Meaning of Aggregate Value:“Aggregate value” 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.”

Thus, exempted turnover is not required to be considered for calculating the exemption limit of Rs.10 lakhs.

2. SSP Exemption can be availed by following person:-

a. Individual

b. HUF

c. Company

d. AOP

e. BOI

f. Firm

g. Society

h. LLP

i. Government

j. Local authority

k. any artificial juridical person, not falling within any of the preceding sub clauses.

3. Service tax under REVERSE CHARGE MECHANISM (RCM) :-

• Reverse charge mechanism means service tax is not required to charge by service receiver but service tax should be paid by service recipient himself to government.

• When service receiver is liable to pay service tax under reverse charge mechanism, he cannot avail small service provider exemption.

• So when you are liable to pay service tax under RCM, you are required to register yourself with service tax department and pay the tax. No matter tax amount is Rs. 100 or Rs. 1,00,000.

3.1 Will services provided as a INSURANCE AGENT or MUTUAL FUND AGENT be considered for exemption limit?

Normally, answer would be yes, but notification states that nothing in this notification shall apply to such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules 1994.

Hence value of services of such services provider is not to be considered while calculating the exemption limit.

3.2 Aggregate value of taxable services in case of GOODS TRANSPORT AGENCY:

In case of goods transport agency (GTA), for the purposes of determining the aggregate value not exceeding Rs. 10 lakh, to avail exemption under this notification, the payment received towards the gross amount charged by the GTA for which the person liable for paying service tax is the consignor or consignee shall not be taken into account.

4. In case of service provided jointly Whether each service provider be eligible for separate exemption of Rs.10 lakhs

In Dinesh K Patwa v. CST (2012) 37 STT 375= 25 taxmann.com 515 (CESTAT) a prima face view has been held that each co-owner is eligible for separate exemption available to small service providers.

In my view if property is purchased jointly for providing renting services or for business purposes, the turnover will be clubbed for purpose of exemption available to small service provider, as they will be considered as AOP or BOI.

5. Calculation of threshold limit where COMPOSITION or ABATEMENT is available.

If after applying composition scheme, value of service is less than Rs.10 lakhs the SSI exemption scheme is available- view expressed in Surinder Kumar Mittal v. CCE(2012) 36 STT 254=23 taxmann.com 197 (CESTAT.)

In case of abatement, value of taxable service does not come down. Value remains the full amount. Only tax payable is reduced by given percentage. Hence, the full vaule of service without abatement is required to be considered.

6. Total of turnover of SERVICES PROVIDED FROM MORE THAN ONE PREMISES:

If service provider is providing services from more than one premises, he is required to aggregate value of all those services to calculate exemption limit of Rs. 10 lakhs. Also consider all types of services you have provided from those premises. There is no separate limit for separate services.

7. Services in respect of which SSP EXEMPTION IS NOT AVAILABLE

(i) Service provided under brand name of another person:

Exemption for small service provider is not available when service provided by a person under brand name or trade name, whether registered or not, of another person.

When service is provided by person under own brand name or trade name would be eligible for exemption for small service provider.

“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.

(ii) Services taxed under reverse charge mechanism: SSP exemption is not available to such value of taxable services in respect of which service tax is payable on reverse charge mechanism by a person.

Thus threshold exemption of Rs.10 lakhs is not applicable in case where the service receiver is liable to pay service tax under reverse charge method.

8. CENVAT CREDIT not available during exemption period:

Service provider cannot avail cenvat credit for service tax paid on input, input services or Cenvat credit for capital goods while claiming exemption for small service provider.

If he starts payment of service tax, he can avail Cenvat redit in respect of inputs or input services received after he starts payment of service tax.

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;

Sometimes turnover of service provider goes down and he is able to avail small service provider exemption for the financial year. In that case, if he has taken any CENVAT credit for inputs lying in stock or in process on the date of availment of exemption, he is required to reverse that from CENVAT register. He cannot use that CENVAT credit.

Service provider can claim CENVAT credit on input and input services,when the service provider starts paying service tax and used for provision of taxable services for which service tax is payable.

In short, don’t claim CENVAT credit until you start paying service tax for taxable service provided.

9. Other points which merit consideration

(i) Exemption is optional: Service provider has an option not to avail the SSP exemption and pay service tax. Option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year.

(ii) Aggregate value of all taxable services provided from all premises to be considered: 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.

(iii) Charging service tax does not necessarily mean that he has foregone exemption:- Once an assessee starts paying service tax, he has to continue payment for balance financial year. However, if assessee was charging service tax due to mistake or ignorance, it cannot be said that he has ‘opted’ not to avail exemption.

(Author can be reached at nitinbhatia6865@gmail.com)