“I also propose to grant relief to Small Service Providers. Accordingly I propose to exempt from Service Tax those service providers whose Gross Turnover does not exceed Rupees Four Lacs for year.” 

(Para 145 of the Budget Speech delivered on 28th day of February, 2005)

“I propose to raise the exemption limit for small service providers from Rs.4,00,000 to Rs. 8,00,000. Consequently, 2,00,000 assesses out of a total of 4,00,000 assessees will go out of the service tax net.”

(Para 152 of the Budget Speech delivered on 28th day of February, 2007)

These words of Hon’ble Finance Minister came as a great measure to unburden small service providers on these two occasions and further implemented via Notification No. 6-ST dated 1-3-2005 effective from 1-4-2005 further amended by Notification No. 4/2007, 5/2007 and 6/2007 dated 1st March, 2007.

We all are well familiar with the fact that ever green contest between the Revenue and the Assessee is visible to all and always in our country. So is here even in this case of relief notification. The learned officials of the Department are issuing Show Cause Notices to the Small Service Providers of non-filling of Service Tax Returns for the period following 1-4-2005. Following points are being considered in this discussion w.r.t. the above Show Cause Notices:

1. Whether Small Service Providers are under obligation to opt for this exemption or this exemption is by default available to these Small Service Providers?
2. Whether Small Service Providers are required to file Service Tax Returns after 01-04-2005?
3. Whether Small Service Providers are required to surrender their Service Tax Registration Certificates?
4. Whether the persons who are required to obtain registration vide Notification No. 26/2005-St, dated 7-6-2005 are required to file Service Tax Returns?

Let us have a look on relevant legal provisions to find point wise answers to these questions.

1. Our first point of discussion is whether Small Service Providers are required to opt for exemption under this Notification or the benefit of this Notification is available to them by default. In this regard, I request your attention to Para 2(i) of the Notification No. 6-ST dated 1-3-2005 that reads as follows:

“The provider of taxable service has the option not to avail the exemption contained in this notification and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year.”

Thus the exemption is optional and the service provider may pay service tax instead of availing exemption. There is nothing in the Notification as to mean or infer that the eligible service providers are to opt for the exemption instead those service providers are to opt for not availing the exemption who do not wish to avail it. 

2. Whether Small Service Providers are required to file Service Tax Returns after 01-04-2005 is the second pertinent question. The provisions of Section 65, 66, 68, 70 & Rule 7 alongwith Notification No. 6/2005 bear significance for our discussion. 

Accountability to file Service Tax Return is cast upon the Person Liable to Pay the Service Tax vide Section 70 that reads as follows

“Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.”

Rule 7 of The Service Tax Rules, 1994(the Rules) prescribes the form, manner and the frequency of filling the returns which reads as follows:

Every Assessee shall submit a half-yearly return in Form ‘ST-3’ or ‘ST-3A’, as the case may be, alongwith a copy of the Form TR-6, in triplication for the months covered in the half-yearly return.

(1) Every assessee shall submit the half-yearly return by the 25th of the month following the particular half-year.

Thus Section 70 of the Act read with Rule 7 as above stipulates that every person liable to pay tax / every ‘Assessee’ shall submit a half-yearly return.

Assessee has been defined vide Section 65(7) of the Act, as under:-

“Assessee” means a person liable to the service tax and includes his agent.

So a person liable to pay the service tax is Assessee and is liable to file the Return. 

Liability to pay Service Tax is determined by Section 68 and Charge of Service Tax is fixed by Section 66 of the Act.

Section 68(1) provides that every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed.

Section 66 which is charging section provides that there shall be levied a tax(hereinafter referred to as the Service Tax) at the rate of twelve per cent of the value of the taxable services referred to in sub-clauses (a), (b)…………………(zzzw) of clause (105) of Section 65 and collected in such manner as may be prescribed.

Hence Section 66 stipulates that service tax shall be levied at the rate of twelve percent OF THE VALUE OF TAXABLE SERVICES.

Notification No. 6/2005-ST exempts taxable services of aggregate value not exceeding Four Lacs Rupees in any financial year from WHOLE of the Service Tax leviable there on u/s 66 of the Act, therefore charge of Service Tax on the first Four Lacs Rupees in any financial year is not created because the aggregate value of first Four Lac Rupees in any financial year is EXEMPT from WHOLE of the Service Tax. Thus liability of payment of Service Tax does not arise at all.

The Service Providers whose aggregate value of taxable service was below Rs. 4 Lacs during the financial year 2004-05 and who otherwise complied with all the conditions of the said Notification, ceased to exist as an “Assessee” since they were no longer liable to pay service tax if they don’t opt for not availing the exemption contained in the said notification at any point of time after 1-3-2005.

3. Whether Small Service Providers are required to surrender their Service Tax Registration Certificates? 

Rule 4 contains provisions regarding surrender and cancellation of Registration Certificate. Relevant extract is reproduced below:

"Every registered assessee who ceases to provide the taxable service for which he is registered, shall surrender his registration certificate immediately to the Superintendent of Central Excise.”

Thus only registered assessee who ceases to provide the taxable service for which he is registered, shall surrender his R.C. and not the other persons. So the persons who is otherwise exempt vide Notification and are still providing Taxable Services and has not ceased to provide taxable services are not required to surrender their R.C.

In addition a Letter issued by The Joint Secretary, Ministry of Finance, Department of Revenue, bearing No. D.O.F.NO.334/4/2006-TRU on 28th of February, 2006 further clarifies the issue by stating that:

“Rule 4(8) provides for cancellation of registration certificate where the assessee makes an application for cancellation. It may be noted that the cancellation of registration may be done when the assessee applies for cancellation on his own or surrender his certificate under Rule 4(7) and not in other cases. It may be noted that there is no statutory requirement for the assessee to make any application for cancellation in every case.”

4. Whether the persons required to obtain registration vide Notification No. 26/2005-St, dated 7-6-2005 (as amended up to date by Notification No. 5/2007 dated 1st March, 2007) are required to file Service Tax Returns?

Vide Notification bearing No. 26/2005-ST on 7-6-2005 (as amended up to date) specifying that providers of taxable service whose aggregate value of taxable service in a financial year exceeds Three Lacs Rupees (now Rs. Seven Lacs) shall make an application for Registration though he is not otherwise liable to pay Service Tax (the Turnover of Taxable Service being less than Rupees Four Lacs/Rupees Eight Lacs). This Notification has been issued u/s 69(2) of the Act that confers powers to the Central Government to specify such other person or class of persons, who are otherwise not liable to pay Service Tax, to get registration.

Section 70(2) provides that the persons or class of person notified under Section 69(2) shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.

The Central Government has under power to make rules, conferred to it under Section 94 of the Act has issued ‘Service Tax (Registration of Special Category of Persons) Rules, 2005’ vide Notification No. 27/2005-S.T., dated 7-6-2005 (as amended up to date by Notification No. 5/2007 dated 1st March, 2007). These rules provide for registration of Input Service Distributors and of the providers of taxable service whose aggregate value of taxable service in a financial year exceeds Rupees three lac for up to 31st March, 2007 and Rupees Seven Lacs from 1st April, 2007 onwards.

Rule 4 of these Rules further provide for Furnishing of Returns by Input Service Distributors only. These rules do not require the persons with their aggregate value of taxable service in a financial year exceeding Rupees Three Lacs/ now Rupees Seven Lacs to file the return.

The reason is loud and clear that persons not liable to pay service tax returns are not liable to file the service tax returns.

This fact gives weight to our above contention that persons with their aggregate value of taxable services in a financial year being less than the exemption limit are also not liable to file the Service Tax Return even if they are still registered with the Department.

I wish to quote the above words of our worthy Finance Minister here again.

Quote

“Consequently, 2,00,000 assesses out of a total of 4,00,000 assessees will go out of the service tax net”.

Unquote

So the intention of the legislature is very much ostensible. The prime objective of the welfare notifications as above has been to free the small service providers from the service tax net.

I have tried in this article to analyze and interpret the relevant provisions to reach at my points of conclusion as follows: 

1. The Small Service Providers are not under obligation to opt for this exemption and this exemption is by default available to these Small Service Providers.
2. The Small Service Providers are not required to file Service Tax Returns after 01-04-2005 as they are not the persons liable to pay the service tax.
3. The Small Service Providers are not required to surrender their Service Tax Registration Certificates as they have not ceased to provide taxable services.
4. The persons required to obtain registration vide Notification No. 26/2005-St, dated 7-6-2005(as amended up to date) are not required to file Service Tax Returns as there is no specific provision in this regard. 

The author is a member of the Institute. The views expressed herein are his personal views and do no necessarily represent the views of the Regional Council. He can be reached at manobhav_verma@yahoo.com