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SERVICE TAX

Service Tax
>>   EXEMPTIONS APPLICABLE TO ALL SERVICES
 

EXEMPTIONS APPLICABLE TO ALL SERVICES

  1. Services provided to UN or International Organization exempt [Not. No. 16/2002-S.T. dated 2.8.2002]

All taxable services, provided by any person to the UN or International Organization are exempt. "International Organization" means an international organization declared by the Central Government in pursuance of Section 3 of the United Nations (Privileges and Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply.

  1. Services, provided to a developer or units of Special Economic Zone exempt [Not. No. 17/2011-ST dated 1.3.2011]

Taxable services provided to the developer/unit of SEZ in relation to authorized operations is exempt from service tax subject to the certain conditions.

Modus Operandi of exemption

The exemption operates in the following manner:

  1. The exemption is applicable only in respect of "specified services" provided to the SEZ developer/unit. "Specified services" means those services which are required in relation to the authorized operations and which have been approved by the Approval Committee of the SEZ.

  2. If the "specified services" are wholly consumed within the SEZ, then the service provider is not required to charge service tax to the service recipient (developer or units of SEZ). A specified taxable service shall be considered to be "wholly consumed" within the SEZ if the relevant criteria given below as applicable to the service is satisfied. The criteria are as follows:

  1. such services as are listed in Table A of Appendix 1 (e.g., interior decorator, architect, construction services, etc.) would be considered as "wholly consumed" in the SEZ if they are in relation to an immovable property situated within the SEZ; or

  2. such services as are listed in Table B of Appendix 1 (e.g. steamer agent, custom house agent, cargo handling, storage and warehousing, tour operator services, etc.) would be considered as "wholly consumed" in the SEZ if they are wholly performed within the SEZ; or

  3. such services other than those falling under (a) and (b) above (See Table C of Appendix 1), would be considered as "wholly consumed" only if they are provided to a SEZ Developer/Unit, who does not own or carry on any business other than the operations in the SEZ. [In this regard it is to be noted that SEZ developer /unit who does not own or carry out any business other than SEZ operation would require to furnish the decoration in the prescribed form].

  1. In respect of "specified services" that are not consumed inside the SEZ, only a SEZ developer/unit would be the person who is entitled to claim the exemption in respect of the "specified services" provided to it by way of refunds. The service provider shall not be eligible to claim an exemption with respect to such specified services. It is, however, to be noted that with regard to services that are not "specified services" there is no exemption under the service tax law but the service provider may claim an exemption under the SEZ Act.

  2. The SEZ developer/unit claiming exemption, is required to pay service tax on such "specified services" that are not consumed inside the SEZ to the service provider and thereafter claim refund in accordance with the procedure below.

  3. In cases where the specified taxable services are not "wholly consumed" within the SEZ i.e. they are shared for both SEZ operations as well as domestic tariff area operations, the refund of service tax would be available on pro-rata basis i.e. the ratio of SEZ turnover to total turnover.

  4. In case where the SEZ developer / unit is liable to pay tax under reverse charge he may claim exemption if the specified services are wholly consumed within the SEZ. However, in cases where the specified services are not wholly consumed within the SEZ the SEZ developer / unit would have to pay service tax to the Government and thereafter claim refund.

Condition for claiming exemption (Refund)

In order to claim the exemption the SEZ developers/units must satisfy the following conditions:

  1. The "specified services" must actually be used in the authorized operations.

  2. The service tax on "specified services" must be actually paid by the SEZ developer/unit.

  3. The SEZ developer/unit has not claimed cenvat credit of service tax paid on the specified services.

  4. The SEZ developer/unit shall maintain proper account of receipt and utilisation of the taxable services for which exemption is claimed.

Procedure for claiming refund (Exemption)

  1. The SEZ developer/unit has to file a refund claim with the jurisdictional Assistant/Deputy Commissioner ("AC/DC") within one year [prior to 1.3.2011 it was six months] (or such extended period as the AC/DC may allow) from the date of actual payment of service tax to the service provider.

  2. If the SEZ developer/unit is not registered under the Central Excise Act, 1944 or the Finance Act, 1994 (Service tax law) it shall prior to the filing of refund claim make an declaration, in the prescribed form to the jurisdictional AC/DC for allotment of a Service tax Code number (STC number) who may after due verification allot the STC number within 7 days of the receipt of the said application.

  3. The refund claim shall be accompanied by the following documents, viz.:-

  1. copy of list of "specified services" in relation to authorized operations approved by Approval Committee;

  2. invoice / bill / challan issued by the service provider and proof of payment of service tax to the service provider in original;

  3. a declaration by SEZ developer/Unit to the effect that –

  • the said "specified services" have been received by it in relation to its authorised operations in the SEZ.

  • the proper account of the specified services received and used for authorized operations are maintained and same shall be produced to the officer sanctioning refund on demand.

  • the accounts / documents furnished by the SEZ developer/ unit as a proof of payment of service tax to input service provider are true and correct in all respects.

  1. The jurisdictional AC/DC may after satisfying himself that the said specified services have been used for the authorized operations grant refund of service tax paid on the said services.

Note: As per the Special Economic Zones Act, 2005 (‘SEZ Act’) no service tax is payable on services provided to a developer or unit (including a unit under construction) to carry on the authorized operations in a Special Economic Zone. [Section 26(e) of the SEZ Act read with Rule 31 of SEZ Rules, 2006]. These provisions override anything contrary in any other law for the time being in force [Section 51 of the SEZ Act]. Hence the exemption provided under the SEZ Act, 2005 maybe more beneficial to the assessee. The provisions of SEZ Act maybe more relevant in the following cases:

  1. where services other than specified services are provided to SEZ developer/unit

  2. where specified services are not consumed inside the SEZ, the SEZ unit would prefer to request the service provider not to charge service tax instead of opting for refund mechanism provided under service tax.

  1. Exemption in respect of value of goods and materials from the value of taxable service [Not. No. 12/2003-S.T. dated 20.6.2003 read with Not. No. 12/2004-S.T. dated 10.9.2004]

Value of goods and materials sold by a service provider to the recipient of service is exempt from service tax subject to documentary proof specifically indicating the value of the said goods and materials. This exemption is subject to the following conditions–

(i) that no credit of duty paid on such goods/materials is taken; or

(ii) where such credit has been taken, an amount equal to the amount of credit availed is paid before the sale of such goods/materials.

  1. Exemption to Reserve Bank of India from payment of service tax

All Taxable Services provided by Reserve Bank of India are exempt. Further, the Reserve Bank is also not liable to pay service tax as recipient of the services or as a payer of freight [Notification No. 22/2006 dated 31.5.2006].

  1. Exemption scheme for small service providers – Minimum/threshold limit of Rs. 10 lakhs provided subject to conditions [Not. No.6/2005-S.T. dated 1.3.2005 (as amended)]

Service Tax Law in spite of being 10 years old did not have a minimum/threshold limit. Even if a person renders taxable service for a paltry amount of Rs. 100/- he had to register and pay service tax. The Central Government having appreciated the requirement of minimum/threshold limit has issued Notification No. 6/2005-S.T. dated 1.3.2005 providing for an exemption scheme for small service providers w.e.f. 1.4.2005. Thus, w.e.f. 1.4.2005 aggregate value of all taxable services upto Rs. 4 lakhs in a financial year provided from one or more premises shall be exempt from service tax subject inter alia to certain conditions. W.e.f 1.4.2007 this limit of Rs. 4 lakhs was increased to Rs. 8 lakhs which is further increased to Rs. 10 lakhs w.e.f. 1.4.2008. The conditions to be satisfied are as follows:

  • Aggregate value of all taxable services rendered by a service provider from one or more premises, in the preceding financial year does not exceed Rs. 10 lakhs.

  • The following restrictions on availment of CENVAT credit apply:

– CENVAT credit on input services and capital goods is not availed;

– An amount equal to the CENVAT credit taken on inputs lying in stock or in process on the date on which this exemption is availed would have to be paid;

– Unutilised balance of CENVAT credit shall lapse on the day the service provider starts availing the exemption;

– CENVAT credit shall be availed only on such inputs or input services –

a) received on or after the date on which the service provider starts paying service tax, and

b) used for the provision of taxable services for which service tax is payable;

Calculation of monetary limits

The provisions regarding monetary limits can be summarized as under:

  1. where the previous year’s value of taxable service provided exceeds Rs. 10 lakhs, service tax would be payable even if the current year’s turnover is less than Rs. 10 lakhs.

  2. where the previous year’s turnover is Rs. 10 lakhs or below and the current year’s turnover exceeds Rs. 10 lakhs, no service tax is payable up to Rs. 10 lakhs if the specified conditions are complied with.

Further, the sum total of first consecutive payments ‘received’ during the financial year towards the taxable services upto Rs. 10 lakhs would be exempt. The payments received towards wholly exempt services are to be excluded for determining the amount of Rs. 10 lakhs.

Thus, it appears that, while considering the limit of Rs. 10 lakhs of the current year, it is the payment ‘received’ for the taxable service that has to be considered but for considering the previous year’s limit of Rs. 10 lakhs, it is the value of taxable service ‘provided’ that has to be taken.

The above exemption would not be applicable in the following cases:

  1. where taxable services are provided by a person under a brand name / trade name of another person whether registered or not. Thus, service provided by a person under his own brand name would not be affected by this restriction and would be entitled for the exemption.

  2. Where service tax is payable by a person

a) As a receiver of service e.g.

(i) Services provided by Non-residents / foreign companies who do not have an office in India

(ii) Services provided by insurance agents

(iii) Services provided by a mutual fund distributor

(iv) Services provided by a sponsor

b) As a payer of service - for transport services

Thus, the exemption would apply only in cases where service tax is payable as a provider of service.

N. B. The service provider has the option not to avail the exemption and pay service tax and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year.

  1. Services provided to foreign diplomatic mission or consular post in India is exempt [Notification No. 33/2007-S.T. dated 23.5.2007]

Taxable services provided by any person for the official use of a foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.

  1. Services provided to family members of foreign diplomatic agents or career consular officers is exempt from service tax [Notification No. 34/2007-S.T. dated 23.5.2007]

The services provided by any person for the personal use or for the use of family members of diplomatic agents or career consular officers posted in foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.


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