The Hindu Business Line : Tax worries of a service provider

I understand that service tax is payable when taxable service crosses Rs 4 lakh in a year, while registration must be done after it crosses Rs 3 lakh. Also service tax up to Rs 4 lakh service is exempt. My turnover crossed Rs 3 lakh in the 11th month of the year and I registered myself. My turnover then crossed Rs 4 lakh in the 12th month. I have not collected any service tax for the first 11 months. Would I have to pay service tax from my own pocket for the initial Rs 4 lakh worth of service provided?

Further, as I am already registered in the previous year, do I need to collect service tax next year from the first month even if my business is going through a lull (unlikely to cross Rs 4 lakh in the full year)? What happens if I collect the service tax and my turnover turns out to be less than Rs 3 lakh. Should I return the tax collected, if any, next year? Is service tax chargeable on advance payments? How should one claim credit of service tax already paid on taxable services consumed?

Bharat Agarwalla

A threshold exemption scheme in service tax was introduced by way of Notification No. 06/2005-ST dated March 1, 2005, w.e.f. April 1, 2005, exempting from service tax such aggregate value of taxable services not exceeding Rs 4 lakh received by the service provider during a financial year.

To be eligible, it should be satisfied that aggregate value of all taxable services rendered by a service provider from one or more premises does not exceed Rs 4 lakh in previous financial year. Aggregate value of Rs 4 lakh means sum total of first consecutive payments received during financial year towards the value of taxable services rendered till the amount equals Rs 4 lakh. Payment received towards exempted services will not be considered for reaching this limit. Preceding financial year's taxable services will be considered for eligibility.

The exemption is related to first payments received in a financial year irrespective of the actual date of provisions of services.

Assessees will have to take note of two important conditions for enjoying the exemption meant for small service providers. In Notification No. 06/2005-ST dated March 1, 2005, clause 2(viii) states that to be eligible for exemption, the aggregate value of taxable service from one or more premises should not exceed Rs 4 lakh in the preceding financial year.

Service tax will be payable only on the amounts over and above Rs 4 lakh, that is, the first Rs 4 lakh shall be exempt from service tax. In the next year, if the preceding year's turnover exceeded the threshold limit, the exemption cannot be used even if the value of services is less than Rs 4 lakh in that year because the eligibility has to be recovered with respect to previous year.

The doctrine of unjust enrichment applies to service tax. One cannot enrich oneself on any unjust basis. Any amount received by any person in the name of service tax, whether correctly or otherwise, is required to be deposited to the credit of Central Government.

Finance Act, 2006 has inserted a new Section 73A to provide for voluntary payment by an assessee of any amount collected in excess of the service tax leviable but not deposited with the Central Government or recovery of such excess amount. It may be noted that any amount collected as service tax, whether or not legally required to be paid, is to be deposited with the Government under this section.

The section is applicable not only to a person liable to pay service tax but also to any person, even if he is not an assessee, and provides for voluntary payment or recovery of any amount representing service tax that has been collected by a person but not deposited with the Central Government (Section 73A).

According to new Section 73B (w.e.f. April 18, 2006), where an amount has been collected in excess of the tax determined and paid for any taxable service, such person shall also be liable to pay interest at 13 per cent per annum.

The definition of taxable services was amended in 2005 to include both services provided and to be provided. This amount received in advance for any service to be provided shall also be liable to service tax. Any payment received before, during or after the provision of taxable service shall be liable to service tax.

So far as Cenvat credit is concerned, one needs to satisfy that the inputs/input services have been consumed while rendering the output service, which is a taxable service. According to Cenvat Credit Rules, one cannot enjoy the benefits of exemption scheme and Cenvat credit simultaneously. For claiming credit, Form ST-3 of service tax return, which contains all the particulars, needs to be filled in correctly. It is obvious that proper books of accounts will also have to be maintained.

Tax on input services

Will rebate be allowed on service tax paid in input services used in manufacture of goods or rendering of taxable services which are later exported out of India?

R. Satish, email

Yes. The Finance Act, 2006 has inserted a new Section 93A to provide for rebate of service tax paid on taxable services used as input services for manufacture or processing of goods or for providing taxable services meant for exports.

The Central Government shall grant rebate to the extent allowed under the rules.

Section 93 provides for grant of rebate of service tax paid subject to fulfilment of the following conditions:

Goods and services should be exported in relation to which rebate is being sought.

Goods must be excisable goods and services must be taxable services.

Rebate shall be granted for service tax paid on taxable services (not excise duty).

Taxable services on which rebate is granted shall be one which are used as input services for (a) manufacturing or processing of goods, or (b) providing any taxable services.

Sale proceeds in respect of goods or consideration in respect of services should be received by or on behalf of exporter in India within the time allowed by the Reserve Bank of India (under Section 8 of FEMA, 1999).

If payment as aforesaid is not received, then it will be deemed that such rebate was never allowed and the Central Government may recover or adjust such rebate. The rebate under Section 93A shall be subject to prescribed rules and manner as may be notified under Clause (hh) of sub-section (1) of Section 94 of the Finance Act, 1994.

Send in your queries to MentorAtYourService@gmail.com

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Sanjiv Agarwal

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