SSI Exemption under Service Tax

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CA Kamlesh Singh Chauhan

1. Summary of previous notifications related to threshold exemption along with limit,

date of applicability and relevant Notification numbers:

Period Exemption limit Relevant Notification of Service Effective

(Rs.) Tax date

01-07-1994 to 31- Nil N.A. N.A.

03-2005

01-04-2005 to 31- 4 lakhs 6/2005* dt. 01-03-2005 01-04-

03-2007 2005

01-04-2007 to 31- 8 lakhs * as amended by 4/2007 dt. 01- 01-04-

03-2008 03-2007 2007

01-04-2008 to 30- 10 lakhs * as amended by 8/2008 dt. 01-04-

06-2012 01.03.2008 2008

01-07-2012 10 lakhs Notification No. 33/2012 dated 01-07-

onwards 20.06.2012 2012

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 2. The threshold exemption, which was available to all service providers vide
Notification No. 6/2005-ST dated 1.3.2005 as amended from time to time and last
amended vide Notification No. 33/2012- ST dated 20.6.2012 (and new Notification No.
25/2012-ST dated 20.6.2012) has been superseded by Notification No. 33/2012 dated
20/06/2012. Since this exemption is available to the Service Provider only therefore
only his transactions related to provision of service are eligible for the purpose of
threshold exemption benefit. This exemption is not available to receiver of service
under reverse charge [refer para (ii) of “what is exempted” given below]. If a service
provider (SP) is also paying duty as service receiver (SR) under reverse charge or partial
reverse charge, it will not be included or considered for the purpose of arriving at aggregate
value exempted under notification number 33/2012. This exemption, of Rs 10 lakhs in
current financial year from service tax payable on aggregate value of taxable services, is
available to service provider on the basis of provision of aggregate value of taxable services
rendered in the previous financial year if that does not exceed Rs. 10 lakhs for entity
existing in previous financial year and in case of new entity, it is available for such turnover.
Government of India has framed new conditions vide notification No. 33/2012-Service
Tax, dated 20-06-2012 for threshold exemption to be availed by “small” service
provider, which are discussed below;

3. What is Exempted vide notification No. 33/2012-Service Tax: Central Government

has exempted taxable services of aggregate value not exceeding ten lakh rupees in any
financial year from the whole of the service tax leviable thereon under section 66B of the
said Finance Act. But it is clarified that nothing contained in this notification shall apply
to following (as per proviso);

(i) taxable services provided by a person under a brand name or trade name, whether
registered or not, of another person; Here “brand name” or “trade name” means a brand
name or a trade name, whether registered or not, that is to say, a name or a mark, such as
symbol, monogram, logo, label, signature, or invented word or writing which is used in
relation to such specified services for the purpose of indicating, or so as to indicate a
connection in the course of trade between such specified services and some person using
such name or mark with or without any indication of the identity of that person, OR

(ii) such value of taxable services in respect of which service tax shall be paid by such
person and in such manner as specified in section 68(2)[1] of the said Finance Act read
with Service Tax Rules,1994.

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 It is absolutely clear by this proviso that services provided under “brand or
trade name of others” and services provided under “reverse charge
mechanism” as specified in section 68(2) are out of ambit of this notification.
The purpose of specific mention of non-inclusion of GTA service [falling under
section 68(2)] in the aggregate value vide para 3 of this notification is that legal
position of consignee is of SR but of consigner is of agent to SR (while GTA is
SP).

Further, as per para 10.1.3 of ST Education Guide, the liability of the service
provider and service recipient are different and independent of each other. Thus
in case the service provider is availing exemption owing to turnover being less
than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service
recipient shall have to pay service tax which he is required to pay under the
partial reverse charge mechanism.

1. This notification used two terminologies in defining the scope of threshold

exemption; first is ‘taxable services’, and second is “aggregate value”.

‘Taxable services’ are defined in Section 65B(51) as [“taxable service” means] any
service on which service tax is leviable under section 66B, which is as hereunder;

Charging Section 66B: There shall be levied a tax (hereinafter referred as the service
tax) at the rate of twelve percent, on the value of all services, other than those services
specified in the negative list, provided or agreed to be provided in the taxable territory
by one person to another and collected in such manner as may be prescribed.

Section 65B(52): Taxable territory means the territory to which the provisions of this
chapter apply.

Section 64(1): This Chapter extends to the whole of India except the State of Jammu and
Kashmir.

5. Now, we have to find out what is included in aggregate value for this purpose.
“Aggregate value” [as defined in this notification itself] means the sum total of value of
taxable services charged in the first consecutive invoices issued during a financial
year but does not include value charged in invoices issued towards such services which are
exempt from whole of service tax leviable thereon under section 66B of the said Finance
Act under any other notification.”

It is interesting to note that as per 3rd proviso to Rule 6(1) of the Service Tax Rules,
1994, an individual /partnership firm with turnover upto Rs. 50 lacs has an option to
discharge service tax on receipt basis, while computation of turnover for threshold
exemption limit, consecutive billing criteria applies.

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From this definition, following aspects emerges;

(i) “Aggregate value” means the sum total of value of taxable services [as per section
67 of FA/ST and rule 2A, 2B, & 2C of Service Tax (Determination of Value) Rules, 2006]
……. but does not include…… which are exempt from whole of service tax leviable
thereon under section 66B of the said Finance Act under any other notification.”

(a) Value of service rendered: Rule 2(c) of Service Tax (Determination of Value) Rules,
2006, “value” shall have the meaning assigned to it in section 67 [2], which is given in
footnote. There are two major cases under Service Tax (Determination of Value) Rules,
2006 under Rule 2A & 2C, which are as hereunder;

(i) Rule 2A for valuation of service portion in Work Contract Service is notified by NN-
24/2012-ST as updated by NN-11/2014-ST:

1. No. Where Works Contract is for… Value of the

Service
portion shall
be..

1 Execution of original contracts 40% of the

total amount
charged for the
works contract

2 Maintenance or repair or reconditioning or restoration or 70% of the

servicing of any goods(including services mentioned in para total amount
3) charged
including such
gross amount

3 In case of other works contracts, not included in S. No. 1 & 60% of the
2 above, including contracts for maintenance, repair, total amount
completion and finishing services such as glazing, charged for the
plastering, floor and wall tiling, installation of electrical works contract
fittings. [3]

(ii) Rule 2C for valuation of service portion in catering/restaurant service is notified by NN-
24/2012-ST :

Sl. Description Percentage

No. of the total
amount

(1) (2) (3)

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 1. Service portion in an activity wherein goods, being food or any 40
other article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as a part of the activity, at a
restaurant

2. Service portion in outdoor catering wherein goods, being food or 60

any other article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as a part of such outdoor
catering

It is absolutely clear from abovementioned notifications that in these cases, gross

amount charged is not the gross receipts but value of service as mentioned above. In
case of works contract, 40% or 70% of gross receipts is service portion and in case
of restaurant/catering service, 40% or 60% of gross receipts is service portion
therefore only that part, which is service portion has to be considered for the
purpose of computing taxable value for NN-33/2012-ST.

(b) Exempted service : As per Rule 2(e) of the CENVAT Credit Rules, 2004, “exempted
service” means a-

(1) taxable service which is exempt from the whole of the service leviable thereon; or

(2) service, on which no service tax is leviable under section 66B of Finance Act; or

(3) taxable service whose part of value is exempted on the condition that no credit of inputs
and input services, used for providing such taxable service, shall be taken;

but shall not include a service which is exported in terms of rule 6A of the Service
Tax Rules, 1994. [4]

[It is pertinent to mention here that Export of Service as per POPS is non-taxable service in
negative list tax regime. The reason behind it is that these are rendered beyond taxable
territory. It is further clarified that if a service is provided/rendered out of taxable territory,
whether it amounts to export as per Rule 6A or not, it is non-taxable service.]

Since threshold exemption is available only to the Provider of the service and not to the
Receiver of the service and therefore, while calculating the aggregate value of Rs. 10 Lakhs
the sum total of value of taxable services charged by the provider in the first consecutive
invoices issued or required to be issued has to be considered.

6. The value of the following services need not be considered in reckoning aggregate
value:

(a) Value of services in the Negative List;

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(b) Value of services provided/rendered outside taxable territory of India (i.e. Jammu &
Kashmir or abroad) considering place of provision of service rules, 2012;

(c) Value of services under Mega-Exemption Notification 25/2012 or any other

notification which provides for full exemption from service tax;

Note: Since the definition of aggregate value given in this notification itself states that “not
include value charged in invoices issued towards such services which are exempt from
whole of service tax” therefore value of services under Abatement Notification 26/2012 or
any other notification which provides for partial exemption from service tax is includible in
the aggregate value to reckon value of service rendered to decide applicability of threshold
limit. Assessee can avail benefit of threshold exemption under notification number
33/2012 and any other exemption notification simultaneously. Citation: Aggarwal Rolling
Mills Vs. CCE-1997 (093) ELT 615 (Tri. Del.)

(d) Value of services provided/rendered which falls under complete reverse charge
mechanism including GTA service (as referred in para 3 of this notification) as specified
under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,
1994

7. The value of the following services will be considered in reckoning aggregate

value:

(a) Value of services provided/rendered under partial reverse charge has to be

included fully in the aggregate value. As per para 10.1.3 of ST Education Guide, the
liability of the service provider and service recipient are different and independent of each
other. Thus in case the service provider is availing exemption owing to turnover being less
than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient
shall have to pay service tax which he is required to pay under the partial reverse charge
mechanism.

(b) It is pertinent to mention here that exemption [granted by government on case to case
basis considering various factor and is of ex-gratia in nature i.e. cannot be demanded as a
matter of right unless granted] and abatement [though granted by government but it is a
matter of right on the ground that whole amount does not represent service but a part of it
and legally service tax cannot be imposed on whole/gross amount] are two different things
which are not comparable and therefore non inclusion of fully exempted services in the
aggregf ate value does not entitle abatements to be treated at par and these will form part
of aggregate value. Further, service tax paid on any exempted service does not make
him/them liable to tax and such exempted services will not be taken into account for
computing total value of services provided even if refund of duty paid on such services is
not claimed. Citation: Bonanzo Engg. & Chemical Pvt. Ltd. Vs. CCE-2012 (277) ELT 145
(SC).

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(c) The use of following words in the definition of Aggregate value …… “sum total of value
of taxable services charged in the first consecutive invoices issued during a financial
year…..” emphasizes first consecutive invoices issued during a financial year, and which
includes following two situations;

(i) Where service was taxable from the commencement of financial year i.e. taxable earlier,
aggregate value for this exemption will include first invoice from the commencement of
financial year, while

(ii) Where service became taxable from 1st July, 2012 by the new definition of service then
aggregate value for this exemption will be computed from 1st July, 2012 as invoices issued
for non taxable service in the financial year cannot be included in the aggregate value. It is
clear from the words used in the definition of aggregate value…..” the sum total of value of
taxable services charged in the first consecutive invoices issued during a financial
year…..”

8. Clubbing concept:

(i) Proprietorship is trade / business name of individual so if a person is rendering taxable

services in his own name, various trade / business name then they are liable to be clubbed
to compute threshold exemption limit of Rs. 10 lakhs under this notification.

(ii) If the entity is an incorporated body, it has separate legal entity and clubbing of taxable
turnover cannot be done merely on the ground of mutuality of some common
directors/managers etc. unless there is material mutuality of interests or flow back of funds.

CCE Vs. CATALCO CHEMICALS (P) LTD. 2012 (277) ELT 056 (Guj.) – Merely
because a company being subsidiary of another, clearances by both companies
cannot be clubbed together for ascertaining SSI limits; Department has to establish
mutuality of interests or flow back of funds.
SPICK-N-SPAN STEEL WOOLS PVT. LTD. Vs. CCE, NAGPUR 2011 (274) ELT 568
(Tri. – Mumbai) Private companies and partnership firms are independent entities and
merely because of some mutuality of interest in the business of each other, their
turnover (value of clearances) cannot be clubbed for determining their eligibility to
SSI.

(iii) If some partners are common in various partnership firms or Karta of HUF is also the
partner in the partnership firm, their taxable turnover cannot be clubbed unless there is
material mutuality of interests or flow back of funds.

(iv) If there is change in ownership and thereby change in the constitution of the entity but
factory and premise are same, clubbing will be done. Further, if more than one
manufacturer is clearing goods or the service provider is rendering service from common

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factory/premise and also using of common facilities/infrastructure directly required for such
purpose, clubbing will be done (except in the cases of use of remote/immaterial services
like common premise only with a demarcation for seperation).

APPALO THREADS Versus COMMISSIONER OF C. EX., COIMBATORE 2011 (267)

E.L.T. 371 (Tri. – Chennai) Clubbing of clearances of more than one manufacturer
from one factory/premise. Requirement under impugned notification that value of
clearances of specified goods from any one factory premises required to be
aggregated even if clearances made by or on behalf of more than one manufacturer –
HELD: Clubbing of clearances was proper.
COMMISSIONER OF C. EX., AHMEDABAD Versus S.C. PATEL 2011 (264) E.L.T.
414 (Tri. – Ahmd.) Units having proximity, common passage and storage of raw
materials, and inter-relationships between their partners – No evidence of flow back
between units, and major part of interest free loan, taken on principal to principal
basis, paid back – Both units having separate income/sales tax, import and export
code numbers, bank accounts etc. – HELD : Clearances of such units cannot be
clubbed.

General Rule: Pervasive financial control and management control are two basic features
to exhibit/ establish whether there is, prima facie, an inter-dependence and existence of
dummy unit/ firm/ company. Mere a relationship of holding and subsidiary company alone is
not sufficient to render a case fit for clubbing.

(v) Where a taxable service provider provides one or more taxable services from one or
more premises, the exemption under this notification shall apply to the aggregate value of
all such taxable services and from all such premises and not separately for each premises
or each services (para-vi of T&C in the notification).

9. Whether making claim for the exemption is mandatory or procedural lapse of not
claiming it will not debar its entitlement:

Jay Travels vs. Commissioner of Service Tax Order No. A/306/W ZB/AHD OF 2012: The
benefit of notification is statutory and should have been automatically be given to the
assessee even if such claim was not seeked by him on the principles of natural justice.

10. Whether a service provider is also discharging ST liability under reverse/ partial
reverse charge, can avail benefit under this notification:

Yes, This notification, Notification No. 33/2012 Service Tax dated 20.06.2012 does not
impose any restriction on availing threshold exemption subject to fulfillment of all others
T&C framed in this regard.

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Similarly in case of a Service Receiver, the full value of services, on which he is required
to discharge service tax liability under reverse charge, whether fully or partially, shall be
excluded for reckoning the limit of Rs. 10 Lakhs

11. What is the previous year and current year taxable turnover criteria to reckon
“aggregate value” for the applicability of threshold exemption:

For the entity carrying on business in previous rear also, aggregate value of taxable
turnover should not exceed Rs. 10 lakhs to avail threshold exemption in current year.
Further, in current year, taxable turnover eligible for falling in “aggregate value” upto Rs 10
lakhs will remain exempt and afterwards such turnover/receipts become taxable. It is
pertinent to mention here that applicability of this exemption notification is evaluated by
checking previous year’s turnover only, so if the entity exempted in one year and taxable in
ensuing year, may again become eligible and exempted under this notification in the current
year if it falls within the specified limit of “aggregate value” in any previous year.

12. Terms and Conditions for availment of threshold exemption as per Notification
No. 33/2012 Service Tax- dated 20.06.2012 :

The exemption contained in this notification shall apply subject to the following conditions,
namely:-

(i) 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;

(ii) the provider of taxable service shall not avail the CENVAT credit of service tax paid
on any input services, under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 (herein
after referred to as the said rules), used for providing the said taxable service, for which
exemption from payment of service tax under this notification is availed of;

(iii) the provider of taxable service shall not avail the CENVAT credit under rule 3 of the
said rules, on capital goods received, during the period in which the service provider
avails exemption from payment of service tax under this notification;

(iv) the provider of taxable service shall avail the CENVAT credit only on such inputs or
input services received, on or after the date on which the service provider starts
paying service tax, and used for the provision of taxable services for which service tax is
payable;

(v) the provider of taxable service who starts availing exemption under this notification shall
be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in
respect of such inputs lying in stock or in process on the date on which the provider of

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taxable service starts availing exemption under this notification [i.e. either reversal of
CENVAT credit from the balance lying unutilized (refer para –vi- below or pay cash
differential];

(vi) the balance of CENVAT credit lying unutilized in the account of the taxable service
provider after deducting the amount referred to in sub-paragraph (v), if any, shall not be
utilized in terms of provision under sub-rule (4) of rule 3 of the said rules and shall lapse on
the day such service provider starts availing the exemption under this notification;

(vii) where a taxable service provider provides one or more taxable services from one or
more premises, the exemption under this notification shall apply to the aggregate value of
all such taxable services and from all such premises and not separately for each
premises or each services (clubbing concept); and

(viii) the aggregate value of taxable services rendered by a provider of taxable service from
one or more premises, does not exceed ten lakh rupees in the preceding financial
year.

————–

[1] Section 68(2) Notwithstanding anything contained in sub-section (1), in respect of such
taxable service as may be notified by the Central Government in the Official Gazette, the
service tax thereon shall be paid by such person and in such manner as may be prescribed
at the rate specified in section 66 and all the provisions of this chapter shall apply to such
person as if he is the person liable for paying the service tax in relation to such service.

[2] SECTION [67. Valuation of taxable services for charging service tax.

Sec. 67(1) Subject to the provisions of this Chapter, where service tax is chargeable on any
taxable service with reference to its value, then such value shall, —

(i) in a case where the provision of service is for a consideration in money, be the gross
amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly
consisting of money, be such amount in money as, with the addition of service tax charged,
is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable,
be the amount as may be determined in the prescribed manner.

67(2) Where the gross amount charged by a service provider, for the service provided or to
be provided is inclusive of service tax payable, the value of such taxable service shall be
such amount as, with the addition of tax payable, is equal to the gross amount charged.

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67(3) The gross amount charged for the taxable service shall include any amount received
towards the taxable service before, during or after provision of such service.

67(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be
determined in such manner as may be prescribed.

[3] Deleted by NN 11/2014-ST dated 11-07-2014

[4] “RULE 6A. Export of services. – (1) The provision of any service provided or agreed to
be provided shall be treated as export of service when,-

(a) the provider of service is located in the taxable territory, (b) the recipient of service is
located outside India,

(c) the service is not a service specified in the section 66D of the Act, (d) the place of
provision of the service is outside India, (e) the payment for such service has been received
by the provider of service in convertible foreign exchange, and (f) the provider of service
and recipient of service are not merely establishments of a distinct person in accordance
with item (b) of Explanation 2 of clause (44) of section 65B of the Act

(2) Where any service is exported, the Central Government may, by notification, grant
rebate of service tax or duty paid on input services or inputs, as the case may be, used in
providing such service and the rebate shall be allowed subject to such safeguards,
conditions and limitations, as may be specified, by the Central Government, by notification.”

(Author- CA Kamlesh Singh Chauhan-FCA, LLB, DISA(ICA), E-mail:

ks_chauhans@yahoo.com, Mobile: +91 9839 094 094)

(Article was first published on 09.08.2012 and republished with amendment on 05.12.2014)

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