Franklin P Adams once remarked, "The primary requisite for any new tax is for it to exempt enough voters to win the next election." A decade after the introduction of service tax in India, Budget 2005 opened up a window for small-service providers (probably with an eye on the vote bank) with a turnover of up to Rs 4 lakh "" an exemption from the levy of service tax. Notification No 6/2005 dated March 1, 2005 does the honour of informing us about the nuts and bolts of the legislation. | |
| There can be no notification, particularly under the service tax law, which says to whom it does not apply. The 6/2005 does not disappoint by making a statement that it does not apply to taxable services provided by a person under a brand name or trade name of another person and such value of taxable services as provided in Section 68(2) of the Finance Act read with the Service Tax Rules. The exemption does not come just like that. Following conditions apply: |
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| In case a service provider changes his mind and does not avail of the exemption by paying service tax, he cannot change his mind again during the remaining part of the financial year. Whether he could do so in the next financial year or not is happily left unanswered, but gut feel would dictate that one could re-claim the exemption. Claiming Cenvat credit is a clear no-no for exemption seekers""even on capital goods received in his premises during the time he seeks to continue with the exemption. Cenvat credit, if desired to be claimed, can be claimed only on payment of service taxes. In case taxable services are provided from more than one premises, the formula for claiming the exemption is not number of places times Rs 4 lakh but only Rs 4 lakh. If one has availed of Cenvat credit on items in stock and desires to claim the exemption, one has to pay up the Cenvat credit prior to claiming the exemption. In case there is any balance of Cenvat credit left, it shall lapse the day he starts availing of the exemption. Goods transport agencies"" who seem to be redefining service tax law in India""need not take into consideration the payment received by them under Section 67 read with Section 68(2). |
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| The notification then decides to define what brand name and trade name is and signs off by ruling that the " aggregate value not exceeding four lakh rupees" means the sum total of the first consecutive payments received during a financial year towards the gross amount charged as prescribed under Section 67 of the Finance Act 1994, but does not include exempted services. |
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| There was no need to introduce the clause that the exemption would not apply to taxable services provided by a person under a brand name or trade name of another person and such value of taxable services as provided in Section 68(2) of the Finance Act read with the Service Tax Rules. Probably a simple statement that it would not apply to taxable services done in someone else's name would have sufficed. |
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| Although one expected a higher exemption limit, we have become used to finance ministers in India offering a small piece of carrot to taxpayers with a variety of restrictions. With the passage of time, the size of the carrot increases but the restrictions remain or increase in proportion. It would be best to make hay while the sun shines. |
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