Total Turnover Determines Eligibility For Tax Exemption, Not Just Taxable Services: CESTAT New Delhi

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 7 April, held that to claim exemption under Notification No. 25/2012-ST, the “turnover” of a business entity includes its entire income and not just taxable services. Therefore, if the total turnover exceeds the prescribed limit, a refund of service tax cannot be granted.

A Bench comprising Judicial Member Dr. Rachna Gupta and Technical Member Hemambika R. Priya dismissed the appeal filed by Jal Mahal Resorts Pvt. Ltd. and upheld the order rejecting its refund claim of service tax paid under the reverse charge mechanism on legal consultancy services. It held:

“The general meaning of turnover is not restricting it to mean turnover of the taxable service… the net aggregate thereof has to be taken while calculating the turnover of the business entity.”

The appellant had paid service tax on legal consultancy services under the reverse charge mechanism and later claimed exemption on the ground that its turnover in the preceding financial years was below Rs. 10 lakh. The appellant argued that “turnover” should be confined only to taxable services and should not include other income such as nursery sales or interest earnings.

Rejecting this contention, the Tribunal relied on its earlier decision in the appellant's own case and held that the term “turnover” includes the total revenue of the business entity and is not limited to taxable services alone.

On facts, the Tribunal noted that the appellant's turnover exceeded Rs. 10 lakh in the relevant financial years, amounting to Rs. 11.51 lakh in 2012–13 and Rs. 10.45 lakh in 2013–14. As a result, the appellant did not qualify for exemption under Notification No. 25/2012-ST.

The Bench further held that once the appellant did not qualify for the exemption, the refund claim could not succeed. It also relied on the law laid down in Mafatlal Industries Ltd. regarding limitation and refund claims.

Accordingly, the CESTAT found no infirmity in the order rejecting the refund claim and dismissed the appeal.

Appearance for the Appellant: Shri Sanjiv Agarwal, Chartered Accountant

Present for the Respondent: Ms. Jaya Kumari, Authorised Representative