Service tax exemption threshold fails where SEZ-related receipts are excluded from aggregate taxable services

The service tax exemption threshold under Notification No. 6/2005-ST, as amended, depends on the aggregate value of taxable services received during the financial year, read with the explanation tied to the first consecutive payments under section 67 of the Finance Act, 1994. Receipts in the accounts were examined and amounts attributable to services rendered to SEZ units were excluded. On that basis, the aggregate did not exceed the threshold, so the resulting service tax demand, which rested entirely on an assumed breach of the limit, could not survive.

---

---

Issues: Whether the appellant crossed the exemption threshold under Notification No. 6/2005-ST as amended by Notification No. 8/2008-ST so as to make the service tax demand for the relevant financial years sustainable.

Analysis: The exemption under the notification turns on the aggregate value of taxable services received during the financial year, read with the explanation referring to the first consecutive payments received towards the gross amount under section 67 of the Finance Act, 1994. The receipts shown in the accounts were considered, and the amount attributable to services rendered to SEZ units was excluded. On that basis, the aggregate value did not exceed Rs. 10 lakhs for the relevant year. Since the subsequent demand was entirely founded on the assumption that the threshold had been crossed, that demand also could not survive.

Conclusion: The demand of service tax was unsustainable and the impugned order was set aside; the appeal was allowed with consequential relief.

---