Saturday, September 19, 2015

Service Tax Exemptions FAQ

What are the conditions of exemption to small scale service providers ?
Taxable services provided by the small scale service provider were exempted from whole of service tax leviable there-on upto the aggregate taxable value Rs.4 lakhs in any financial year of vide Notification No.06/2005-ST dated 01.03.2005 (effective from 01.04.2005). The exemption limit of aggregate taxable was enhanced to Rs.8 lakhs vide Notification No.4/2007-ST dated 01.03.2007 (effective from 01.04.2007) and the same has been further enhanced to Rs.10 lakhs vide Notification No.8/ 2008-ST dated 01.03.2008 (effective from 01.04.2008).
  • Above exemption is not admissible to
  1. Taxable service provided by a person under a brand name or trade name, whether registered or not, of another person or
  2. Such value of taxable services in respect of which service tax shall be paid by recipient of service under section 68 (2) of Finance Act read with Service Tax Rules, 1994.
  • Above exemption is admissible subject to following conditions
  1. Taxable service provider has the option not to avail the said exemption and pay service tax on the taxable service and such option are exercised in a financial year shall not be withdrawn during the remaining part of such financial year ;
  2. The provider of taxable service shall not avail Cenvat credit of service tax paid on any input used for providing taxable service on which exemption of small scale is availed.
  3. The provider of taxable service shall not avail Cenvat credit under Rule 3 of the Cenvat Credit Rules 2004, during the period in which the service provider avail small scale exemption.
  4. The provider taxable service shall avail 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 provision of taxable services on which service tax is payable.
  5. The provider of taxable service 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 he starts availing exemption under this notification.
  6. The balance CENVAT Credit lying unutilized if any after the adjustment of credit under (e) above, shall lapse on the day such service provider starts availing the exemption under this notification.
  7. This notification shall apply to the aggregate value of one or more taxable services provided from one or more premises and not separately for each premises or each service.
  8. The aggregate value of taxable services rendered by a provider of such service from one or more premises does not exceed exemption limit fixed (i.e. Rs.Ten lakhs) in the proceeding financial year.
Whether Gross Value of taxable services on which recipient has paid service tax as specified under Section 67(2) of the Finance Act, 1994 read with Service Tax Rules 1994, charged by goods Transport Agency shall be counted for determining aggregate value of small scale exemption ?
No. The Gross amount charged by Goods Transport Agency under Section 67 ibid to the recipient of service shall not to be taken into account for determining the aggregate taxable value under the small scale exemption.

What is the meaning of "brand name" or "Trade name" in Para 8(i) (a) above?
A "brand name" or "trade name" means brand nameor trade name, whether registered or not i.e. to say, a name or a mark, such as symbol, monogram, logo, label, signature, or a 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 identification of the identity of that person.

How to determine the aggregate value of Rs 10 lakh under small scale exemption notification?
The aggregate taxable value means the sum of total of first consecutive payments received during financial year towards gross amount, as prescribed under Section 67 of F.A. 1994 towards the taxable services

Are there any other General exemptions?
The following general exemptions from payment of whole of the amount of Service Tax are available for the Service Providers:
  1. Services provided to the United Nations or International Organisations (Notification No.16/2002-ST dated 02.08.2002).
  2. Services provided to a developer of Special Economic Zone or a unit of Special Economic Zone as prescribed in the notification.(Notifn. No.04/2004-ST dated 31.03.2004).
  3. The value of the goods and materials sold by the service provider to the recipient of the service is exempted from payment of the Service Tax, if there is a documentary proof specifically indicating the value of the goods and materials and no credit of duty paid on such goods and material sold, has been taken under the provisions of CENVAT Credit rules, OR where such credit has been taken by the service provider on such goods and materials, but such service provider has paid the amount equal to such credit availed before the sale of such good and materials. (Notifn.12/2003-ST dated 20.06.2003 as amended from time to time).
  4. Exemptions to Diplomatic Missions for official use of taxable services and also to the officers and their families of a Diplomatic Mission for personal use of taxable services- Refer Notification Nos. 33/2007-ST and 34/2007-ST, both dated 23.5.2007.
  5. Specified taxable services, as listed below, received by an exporter and used for export of goods (Notification No. 17/2009 dated 07.07.2009 as amended). Under this notification, the service tax paid by an exporter on these services is refunded to the exporter on compliance of conditions mentioned in that notification.
  • General Insurance
  • Port Service
  • Technical Testing & analysis
  • Technical Inspection & Certification
  • Other Ports
  • Transport of Goods by Road (Goods Transport Agency)[from the inland container depot to the port of export] 
  • Transport of goods in containers by Rail [from the inland container depot to the port of export] 
  • Cleaning Service
  • Storage & Warehousing 
  • Courier
  • Transport of Goods by Road (Goods Transport Agency)[directly from the place of removal, to inland container depot or port or airport,]
  • Transport of goods in containers by Rail [from the place of removal to inland container depot or port or airport]
  • Custom House Agent
  • Banking & other Financial Services
  • Business Auxiliary Services
  • Service of sale or purchase of foreign currency including money changing by a banking company or financial institution including non-banking financial company or a body corporate or a financial concern.
  • Service of sale and purchase of foreign currency including money changing provided by a person other than those referred at S.No 16.
  • Service of supply of tangible goods for use without transferring the right of possession and effective control.
  • Clearing and forwarding service
  • Terminal handling charges.
Is there any exemption from payment of Service Tax if the receiver/provider of the service is the Central/State Government organization and Public Sector Undertakings?
  • No. There is no such exemption. All service providers, including the Central/State Government Organisations and the Public sector undertakings rendering the specified taxable service, are liable to pay Service Tax.
  • If a Government Department (sovereign)/public authorities performs any mandatory or statutory function under the provisions of any law and collect any fees, such activity shall be treated as activity purely in public interest and will not be taxable(Refer Board circular No.96/7/2007-ST dated 23.8.2007)
  • However, if such authority performs a service, which is not in the nature of statutory activity, for a consideration, the same shall be taxable.
  • The taxable services provided by a Banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, to the Government of India or the Government of a State, in relation to collection of any duties or taxes levied by the Government of India or the Government of a State, are exempted from the payment of Service Tax. (Notifn.No.13/2004-ST dated 10.09.2004 as amended).
  • Whether  cleaning  of export  cargo  by  fumigation  is  taxable  under "cleaning services'?
No. Fumigation of export cargo including agricultural/horticultural produce, whether loaded into containers or otherwise, does not satisfy the statutory............
1994. Further the cleaning of the containers used for exporting the cargo are also exempted from the scope of cleaning services.
  • Is any Service Tax  exemption provided for group insurance policy schemes such  as Janata   Personal  Accident  Policy  scheme  floated  by  Insurance companies?   
Yes. Service Tax exemption is available to customized group insurance policy schemes known as JPAP, floated by various insurance companies as specified by state governments, to extend risk cover to certain specified target populations, under varying terms of insurance. The sum assured in these JPAP policies is often as low as Rs. 25, 000/- , so that even people without regular income can afford to purchase a risk cover for themselves.The customized group JPAP insurance schemes floated by various insurance  companies  as  per  the specifications  of  state  governments concerned, to extend risk cover to target populations, and to fulfill the rescribed 'rural or social sector' obligation, are covered by the subject service tax exemption.
  • Whether service is to be paid on processing of visa applications?
Yes. Service tax is leviable on any service provided other than assistance directly to individuals for obtaining visa, falling under the description of any taxable service, as classifiable under the appropriate heading. To cite a few instances, where in addition to rendering assistance directly to individuals for obtaining visa, visa facilitators may also act as agents of recruitment or of foreign employer, in which case, service tax is leviable to the extent under the service of 'supply of manpower'. In certain other cases, for example, a visa facilitator, may be rendering visa assistance to individuals who are employed in a business entity, but the service charge may be paid by the business entity on behalf of those individuals, to the visa facilitator, in which case service tax is leviable under 'business support service'.
  • Who is a sub-contractor? Whether the services provided by a sub-contractor are liable for service tax?
A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work. A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability
  • Whether Service Tax is to be paid for processing of tobacco involving threshing and drying of tobacco leaves and client processing of raw cashew involving roasting/drying, shelling and peeling of raw cashew to recover kernel,?
No. the agricultural produce namely tobacco or raw cashew, which are subject to client processing retains their essential characteristics at the output stage and therefore the processes undertaken on or behalf of client should be considered as covered by the expression 'in relation to agriculture'. Client processing which falls under business auxiliary service undertaken on the primary agricultural produce namely tobacco or raw cashew, does not result in any change in their essential character of tobacco or cashew. In the light of the above principle (i.) Process of threshing and drying of tobacco leaves and thereafter packing the same and (ii.) Processing of raw cashew and recovering kernel, undertaken for, or on behalf of, the clients by processing units are covered by the expression" ... processing of goods for, or on behalf of, the client.....and provided in relation to  agriculture..." appearing in the Notification.No.14/2004-ST (as amended) dated 10th September, 2004. Therefore they are not Service Taxable.
  • Whether Country of Origin Certificate (COOC) issued by Chambers of Commerce-is Service taxable?
Yes. The activity carried out by the Chambers, involving certification of the national character of the export goods, squarely falls  under 'technical inspection or certification', as defined in section 65(108) of Finance Act, 1994. In certain cases, when COOC is issued with reference to nation character of the goods upon examination of the origin of their composition, requirements of the definition provided in section 65(108) of Finance Act, 1994 is clearly fulfilled. A chamber or EPC or Trade Association which issue COOC acts as a technical inspection and certification agency, and issuance of COOC attracts service tax under 'technical inspection and certification agency' service which is a specific description when compared to a general description like 'club or association service', by the application of the principles of classification provided in section 65A of Finance Act, 1994.
  • Whether delayed payment charges received by the stock brokers to be included in the taxable value?
As per the clarification issued by the Board vide Circular No. 137/25/201 dtd. 03.08.2011, delayed payment charges received by the stock brokers are not includible in taxable value as the same are not the charges for providing taxable services. Such charges are on account of penal charges for not making the payment within the stipulated time and hence are not included in the taxable value for charging service tax.
However, Section 67 of the Finance Act 1994 provides that service tax is chargeable on taxable value which shall be the 'gross amount charged' by the service provider. Delayed payment charges would not be includible in 'gross value charged' only if these charges are shown separately in account statement/invoice/bill.
  • Whether the value of SIM cards is liable to be included in the value of taxable services being provided by cellular companies?
Yes. As per the clarification received from the Board vide circular No. 137/41/2011 dtd. 06.04.2011, the SIM cards are never sold as goods independent from services provided by the cellular telephone company. The value of the SIM cards forms a part of the activation charges and the taxable value is calculated on the gross total amount received by the operator from the subscribers. Hence the amount received by the cellular telephone company from its subscribers towards SIM cards will form a part of the taxable value for levy of service tax.
  • Whether computer embroidery work carried out on job work basis is taxable under Business Auxiliary Service (BAS)?
As per clarification received from the Board vide Dy.No. 305/Commr(ST)/2011 dtd. 15.07.2011, embroidery work is a manufacturing activity falling under Chapter 5810 of the Central Excise Tariff Act. Since the activity is a manufacturing activity of goods specified under Central Excise Tariff Act, the said activity is not covered in the purview of BAS.


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