Small scale service tax exemption cannot be denied for early-year tax payment once the option is validly exercised.

A validly exercised small scale exemption could not be denied merely because service tax was paid on some initial transactions in the same financial year. The denial was based on the view that early payment amounted to non-availment of the exemption, but the applicable condition did not treat such payment as a withdrawal of the exemption once opted. The objection relating to Cenvat credit also fell away after reversal of the credit. Applying the same principle earlier affirmed for the corresponding excise exemption, the appellant was entitled to exemption under Notification No. 06/05-ST up to the aggregate value of Rs. 8 lakhs, and the impugned order was set aside.

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Issues: Whether the appellant, having paid service tax in April 2007 and later reversed the Cenvat credit, was entitled to the small scale exemption under Notification No. 06/05-ST dated 01.03.2005 up to the aggregate value of Rs. 8 lakhs.

Analysis: The denial of exemption was based on the premise that payment of service tax at the start of the financial year amounted to non-availment of the exemption. The relevant condition, however, was that once the exemption option was exercised, it could not be treated as withdrawn merely because tax had been paid on some transactions in the beginning of the year. The reversal of Cenvat credit also removed the department's objection on that score. The identical principle had been applied in relation to the small scale exemption under Notification No. 01/2003-CE, and that view had been affirmed.

Conclusion: The appellant was entitled to the exemption under Notification No. 06/05-ST dated 01.03.2005 up to the aggregate value of Rs. 8 lakhs.

Final Conclusion: The exemption denial was unsustainable, the impugned order was set aside, and the appeal succeeded.

Ratio Decidendi: Where a small scale exemption is validly opted for, it cannot be denied merely because tax was paid on some initial transactions in the same financial year, especially when the credit objection has been reversed.

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