Unregistered assessee received SCN

Hey Mohan,

Here’s a breakdown addressing your questions about the unregistered assessee who received the Service Tax Show Cause Notice (SCN):

1. Can the assessee be denied the benefit of basic exemption limit of ₹10 lakh in FY 2015-16?

• No, the assessee is entitled to the basic exemption limit of ₹10 lakh for Service Tax (pre-GST regime).

• The exemption threshold means if the aggregate value of taxable services provided during the financial year is up to ₹10 lakh, no Service Tax is payable.

• However, once the turnover crosses ₹10 lakh, Service Tax registration is mandatory and the tax is payable on the entire taxable turnover of the year, not just the amount above ₹10 lakh.

• So, the assessee cannot deny the tax liability just because they crossed the exemption limit but did not register; the exemption is not a "tax holiday" once crossed—it just means tax applies to full turnover from that year.

• But, the assessee can argue that the basic exemption limit applies and tax calculation should be done accordingly.

2. What defense can the assessee take for non-registration when the turnover in next FY was below exemption limit?

• For the FY following the one where turnover crossed ₹10 lakh but was below exemption, the assessee can argue:

  • The turnover for that FY was below the basic exemption limit, hence no Service Tax was payable, and registration was not mandatory for that year.

  • The Service Tax law requires registration only when taxable turnover exceeds the exemption limit during that FY.

  • Non-registration penalty and interest may be contestable for the FY with turnover below exemption limit since no tax liability existed.

• For the FY in which turnover crossed ₹10 lakh, the assessee should ideally have obtained registration and paid Service Tax. But sometimes genuine ignorance or confusion could be pleaded to minimize penalties.

Practical suggestions:

• File the Service Tax return and pay dues for FY 2015-16, if not done already, with applicable interest and penalties.

• Submit a voluntary compliance application or representation explaining the facts and seeking waiver/reduction of penalties, if applicable.

• Ensure proper registration and compliance going forward.

• If turnover was below exemption in the subsequent year, show evidence and explain accordingly.