Exemptions in service tax

1 Exemptions

¨     In addition to negative list, there is a huge list of 39 services which have been exempted, vide Mega Exemption Notification No. 25/2012-ST dated 20-6-2012.

¨     In addition, some other exemption notifications are there

2 Exemption and Negative List

¨     Distinction between exemption and Negative List is that service in negative list is ‘service’ but not taxable at all,

¨     Exempted services are taxable but are exempted by Central Government by issue of a notification

¨     Exemption can be changed easily but not Negative List.

¨     Activity excluded from definition of ‘service’ under section 65B(44) is not ‘service’ at all. Hence, rule 6 of Cenvat Credit Rules will not apply.

3 Exemption to main service is not exemption to auxiliary Services

¨     As per section 66F(1); reference to a service (i.e. main service) shall not include reference to a service which is used for providing main service.

¨     Thus, even if ‘main service’ is either excluded or exempt from service tax, service provided to the ‘main service’ provider can come under Tax net.

¨     Advertisement is in negative list but service tax is payable on services of Advertisement Agents and services of design of advertisements

¨     Construction of public road is exempt but service like hire of equipment, excavation, manpower supply will be subject to service tax.

¨     Exemption to service provider in SEZ does not mean that sub-contractor is also exempt.

¨     One exception is that Sub-contractor under works contract providing service to main contractor (who is also under works contract) will be exempt from service tax, when service of main contractor is exempt.

¨Other exception is that sub-contractor will be exempt if he himself is providing the exempt service

4 Important Exemptions

¨     Services by UN and international organisations

¨     Health care and veterinary services

¨     Services by Charitable Organisations in respect of specified charitable activities only and construction of building for religious purposes for Charitable Organisation registered under section 12AA of Income Tax Act. Services imported by Charitable Organisations are also exempt from service.

¨     Religious ceremony and renting of religious places

¨     Advocate or Advocate firm to non-business entity or business entity with turnover upto ` 10 lakhs

¨     Person on Arbitral Tribunal

¨     Technical testing of new drugs

¨     Recreation relating to arts, culture, sports

¨     Services to or by recognised educational institution for auxiliary educational services and renting of Immovable Property (but not placement services)

¨     Auxiliary educational Services – Outsourced activities, Midday meals, admission and examination related services, mid-day meals, transport of students, staff, faculty

¨     Services to recognised sports body (but brand ambassadors not exempt)

¨     Sports sponsorship to recognised bodies (not IPL)

¨     Services provided to Government or local authority or governmental authority for erection, construction, maintenance, repairs of non-commercial or non-industrial use, educational purpose, sewage, residential colony etc.

¨     Infrastructure related civil construction services (discussed under construction services)

¨     Temporary transfer or permitting use of Copyright (except sound recording)

¨     Services of performing artists

¨     Services of journalists

¨     Hotels, guest houses with less than ` 1,000 per day tariff

¨     Restaurants without AC/central heating and without bar

¨     Goods transport upto ` 750 per consignee and ` 1,500 per vehicle and specified agricultural commodities

¨     Renting of motor vehicle to state transport or GTA

¨     Transport of passengers (in specified cases only).

¨     Parking for public exempt but not leasing for parking space

¨     Specified general insurance schemes exempt.

¨     Services by incubatee upto ` 50 lakhs

¨     Services by Trade Union.

¨     Housing Society or RWA to its members upto ` 5,000 p.m. – contribution to medical camps

¨     Sub-brokers on stock exchange

¨     Services of mutual fund agents or distributors of mutual fund, marketing agents of lottery

¨     Selling Agents or distributor of SIM card

¨     Sub-contractor under works contract providing service to main contractor (who is also under works contract), when service of main contractor is exempt

¨     Job work of agriculture, textile processing, diamonds and gemstones, parts of cycles and sewing machine

¨     Job work exempt where principal manufacturer is paying excise duty – when material sent under rule 4(5)(a) of Cenvat Credit Rules

¨     Business Exhibition held outside India (Really not taxable at all)

¨     Public telephones

¨     Services of slaughtering of animals.

¨     Services from outside India to Government or Charitable Organisations

¨     Public Libraries

¨     Services by ESIC

¨     Slump sale, sale of business, demergers

¨     Public conveniences like toilets, bathrooms etc.

¨     Services by Governmental authority.

5 Small Service Provider Exemption

¨     Exemption if value of taxable services rendered in previous financial year did not exceed ` 10 lakhs – Notification No. 33/2012-ST dated 20-6-2012.

¨     Exempted turnover not to be considered for 10 lakh limit.

¨     Turnover of sale or manufacture of goods is not to be considered for calculating the ten lakh limit.

¨     If turnover crosses ` 10 lakhs in any financial year, tax payable after Rs10 lakhs in that financial year. However, no exemption will be available in next financial year.

¨     He is required to register when his turnover crosses ` 9 lakhs.

6 Conditions for exemptions to small service providers

¨     No Cenvat Credit should be availed

¨     Clubbing provisions applicable

¨     Registration if turnover exceeds ` 9 lakh

¨     Service should not be under brand name of other. Thus, franchisees cannot avail the exemption.

¨     Mere authorised person does not mean that he is providing service under brand name of other person.

¨     Once assessee starts payment of service tax, option cannot be changed during financial year

¨     Exemption limit not available when service receiver liable to pay service tax under reverse charge

¨     GTA not required to register if value of services on which he is required to pay service tax is less than ` ten lakhs.