Low limits for service tax exemption

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: Several of our members are concerned about the changes in indirect ta-xes proposed in Budget ‘05-’06, such as the SSI exemption scheme. What are the key proposals and their likely impact on SMEs?

— Indian Industries Association, Lucknow

The Budget proposals contain many relevant changes: SSIs had three options with respect to excise. First, SSIs could opt for complete exemption from excise up to production of dutiable goods worth Rs 1 crore, but credit for excise paid on input was denied to the unit. Second, the unit could opt for paying 60% of duty applicable on the final product and could also avail of credit on the duty paid on inputs. The third option was the general route: paying duty from zero production and availing credit on inputs.

The Budget proposes to withdraw the second option, initially meant to help progressive SSIs intending to graduate from complete exemption to integration with the Cenvat chain. The move was widely criticised, and may be reversed.

It is also proposed that SSIs opting for excise exemption, file a declaration to the concerned authorities once they cross the turnover of Rs 40 lakh. Earlier, this applied for turnover over limit of Rs 90 lakh. SSIs fear increase in excise inspector visits due to this.

Though the limit for excisable goods for exemptions remains pegged at Rs 1 crore, the Budget proposes to increase the total turnover criteria for eligibility for excise exemption from Rs 3 crore to Rs 4 crore. This move is not seen as a concession of any consequence.

Service providers, whose aggregate value of taxable services provided during the preceding financial year was up to Rs 4 lakh, have been exempted from service tax up to an aggregate value of taxable service of 4 lakh in a financial year. A very large number of small and tiny units doing job work have come under the purview of service tax. The affected group feels the threshold limit is unrealistically low and should have been at least Rs 25 lakh. It is substantially low even going by the criteria of definition of Small Scale Service and Business Enterprises (SSBEs), where the investment limit is currently Rs 10 lakh. The affected units compare the SSI investment limit of Rs 1 crore and the excise exemption limit of the same value.