Service Tax – Exemption to manufacture or processing of alcoholic beverages
Government has granted an exemption to manufacture or processing of alcoholic beverages by the service provider, for or on behalf of the service receiver.
The exemption is the value which is equivalent to the value of inputs, excluding capital goods, used for providing the same service.
The exemption should normally be on the tax, not value.
Now look at this anomalous situation.
1. Suppose the value of inputs is Rs. 10000.
2. The service provider gets Rs. 1000 for the job work.
3. Now the total value of the service is taken to be Rs. 11000 on which he has to pay tax which is say Rs. 1100. (for ease of calculation).
4. Now the exemption is so much of value which is equivalent to the value of inputs. The value of inputs is Rs. 10,000/- and so he has to deduct Rs. 10,000 from Rs.1100 to arrive at his tax liability.
5. SO HIS TAX LIABILITY IS NEGATIVE.
As per Section 93, the Government can exempt taxable from the whole or any part of the service tax, not the value.
Anyway what the government intents is to allow deduction of the value of inputs while computing the value of taxable service.
Notification No. 39/2009 – Service Tax Dated 23 rd September, 2009