Threshold exemption and true nature of expenses govern service tax; exempt receipts and stamp paper purchases cannot sustain demands.

The small service provider threshold under Notification No. 33/2012-ST is computed after excluding services wholly exempt under another notification. Accordingly, where only Anganwadi construction receipts remained taxable and the resulting turnover was below the prescribed threshold, service tax was not sustainable on those receipts. Amounts recorded as legal expenses attract reverse-charge service tax only if they represent consideration for legal services. Payments established as purchases of stamp papers do not become taxable merely because they were booked under a legal-expense heading. On these principles, the related service tax demands and consequential penalties were treated as unsustainable.

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Issues: (i) Whether service tax could be demanded on the receipts for construction of Anganwadi Kendra when the assessee's taxable turnover, after excluding exempt services, was below the small service provider threshold exemption limit under Notification No. 33/2012-ST; (ii) Whether service tax under reverse charge was payable on amounts shown as legal expenses when the amounts were established to be payments for purchase of stamp papers.

Issue (i): Whether service tax could be demanded on the receipts for construction of Anganwadi Kendra when the assessee's taxable turnover, after excluding exempt services, was below the small service provider threshold exemption limit under Notification No. 33/2012-ST.

Analysis: The only surviving taxable receipt after exclusion of exempt construction services was the amount received for construction of Anganwadi Kendra. Explanation (B) to Notification No. 33/2012-ST provides that aggregate value for threshold exemption does not include the value of services wholly exempt under any other notification. Once the exempt receipts were excluded, the remaining taxable turnover was less than Rs. 10 lakhs. On that basis, the demand raised on the taxable value of Rs. 3,12,944/- could not be sustained.

Conclusion: The demand on the Anganwadi construction receipts was not sustainable and was set aside; this issue was decided in favour of the assessee.

Issue (ii): Whether service tax under reverse charge was payable on amounts shown as legal expenses when the amounts were established to be payments for purchase of stamp papers.

Analysis: The record showed that the disputed amount booked under the legal head related to purchase of stamp papers, and supporting information had been obtained from the concerned Government department through RTI. Since the expenditure was not towards advocate's fees or legal service, it did not attract service tax under reverse charge. The characterization of the amount as legal expense in the books was not sufficient to fasten tax liability once its actual nature stood explained.

Conclusion: The demand on the amount of Rs. 9,000/- treated as legal expenses was unsustainable and was set aside; this issue was decided in favour of the assessee.

Final Conclusion: The surviving taxable turnover fell within the threshold exemption and the reverse charge demand on stamp paper purchases was untenable; with both substantive demands failing, the related penalties also could not survive.

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