Point of Taxation Rules, 2011-Changes effect from Apr 1, 2012
1. The time period
for issuance of invoice is being increased to 30 days ordinarily and 45 days
for banks and financial institutions (to reconcile with the business practice
of issuing monthly statement). These changes are being provided in Rule 4A of
Service Tax Rules and the time period so defined is being incorporated in POT Rules.
2. In case of export
of services and eight specified services provided by individuals or firms, the
point of taxation is the date of payment. The special dispensation is being
shifted from the POT Rules to the Service Tax Rules. This would help provide
certainty in the application of rate of tax while retaining the benefit of payment
of tax until payment is received.
3. In case of
exporters, the period extended by the Reserve Bank of India is now explicitly
included in the period for which the tax is allowed to be deferred.
4. The benefit
available to individuals and firms to determine POT on the basis of date of
payment for eight specified services is being extended to all services in a
slightly modified form. The facility will be now available to individuals and partnership firms (including limited liability
partnership) up to a turnover of Rs 50 lakh in a financial year provided the
taxable turnover did not exceed this limit in the previous financial year. For computing
the above limits, the turnover of the whole entity is required to be summed up
and not any single registration.
5. The definition of
continuous supply of service is being amended to capture the concept in a more wholesome
manner, namely the recurrent nature of services and the obligation for payment
periodically or from time-to-time.
6. Since the essence
of the rule in case of continuous supply of service is the same as the main
Rule, the separate rule for continuous supply of service [Rule 6] is 11being
merged with the main rule. Moreover the provisions of rules 4 and 5 relating to
changes in rates or application of tax on new services would also be applicable
to continuous supply of services;
7. In case of a new
levy, no tax is chargeable on services where payment has been received and
invoice issued within a period of 14 days. To provide certainty, clause (b) is
being amended to specify that invoice should be issued within 14 days of the
date of the new levy.
8. The “date of
payment” could be a subject of litigation particularly when effective rate
changes. A new rule has been created: Rule 2A, keeping in view the impending
change in rate effective April 1, 2012 and introduction of Negative List at a
later date. In normal circumstances this date shall be the earlier of the dates
of entry into books of accounts or actual credit in the bank account (when
applicable).
However, when there
is change in effective rate of tax or a new levy between the said two dates,
the date of payment shall be the date of actual credit in the bank account, if
the amount is credited through a banking instrument more than four working days
after the date of such change.
9. This will have no
impact where invoice is the basis for point of taxation. Thus business may be
advised to take steps to deposit all advances received up to March 31, 2012 in
their bank accounts suitably. Any delay in this regard will lead to charging
tax at higher rate.
10. As a measure of
added facilitation, an option has been provided to determine the point of
taxation in respect of small advances up to Rs 1000, in excess of the amount
indicated in the invoice, on the basis of invoice or completion of service
rather than payment. Such provision is expected to address the accounting problems
faced by service providers in telecommunications, credit card businesses who
regularly receive minor excess payments from their customers.
11. A residual rule
has been made by way of best judgement to handle situations where the tax-payer
is unable to furnish one or more of the details needed i.e. date of payment or
date of invoice or both to determine POT.
12. And lastly, the
small scale exemption has also been amended recognizing that the first
clearances up to Rs 10 lakhs will be in terms of invoices and not mere payments
received.
13. These changes
come into effect from April 1, 2012.
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Point of Taxation Rules - Applicability of New or Old rate of Service
Tax
Contributed by Bimal Jain
FCA, ACS, LLB, B.Com (Hons)
CENTRAL Board of
Excise and Customs (CBEC) has issued clarification vides Circular No. 158/9/
2012–ST dated. 8th May, 2012 on the rate of service tax applicable wherein
invoices were raised before 1st April 2012 and the payments shall be after 1st
April 2012 in case of the 8 specified services provided by individuals or
proprietary firms or partnership firms, to which Rule 7 of Point of Taxation
Rules 2011 was applicable and services on which tax is paid under reverse charge
under section 68(2) of the Finance Act.
Issue: What would be the rate of service tax
applicable wherein invoices were raised before 1st April 2012 and the payments
shall be after 1st April 2012 for both cases?
Clarification: Clarification vide Circular No. 158/9/
2012–ST provided that in case of the 8 specified services and services wherein
tax is required to be paid on reverse charge by the service receiver, the point
of taxation is the date of payment.
In this regard, Circular
No 154/5/2012 – ST dated 28th March 2012 has also issued clarifying the same.
Thus in case of such
8 specified services provided by individuals or proprietary firms or
partnership firms and in case of services wherein tax is required to be paid on
reverse charge by the service receiver, if the payment is received or made, as
the case maybe, on or after 1st April 2012, the service tax needs to be paid
@12%.
Hence, the invoices
issued before 1st April 2012 may reflect the previous rate of tax (10% and cess).
In case of need, supplementary invoices may be issued to reflect the new rate
of tax (12% and cess) and recover the differential amount. In case of reverse
charge, the service receiver pays the tax and takes the credit on the basis of
the tax payment Challan. Cenvat credit can be availed on such supplementary
invoices and tax payment Challans, subject to other restrictions and conditions
as provided in the Cenvat Credit Rules 2004.
Further, this
clarification is important to further determine the point of taxation in case
of change in effective rate of tax which is reproduced here in below:-
Notwithstanding
anything contained in rule 3, the point of taxation in cases where there is a
change in effective rate of tax in respect of a service, shall be determined in
the following manner, namely,:-
(a) In case a taxable
service has been provided before the change in effective rate of tax –
(i) Where the invoice
for the same has been issued and the payment received after the change in
effective rate of tax, the point of taxation shall be date of payment or
issuing of invoice, whichever is earlier; or
(ii) Where the
invoice has also been issued prior to change in effective rate of tax but the
payment is received after the change in effective rate of tax, the point of
taxation shall be the date of issuing of invoice; or
(iii) Where the
payment is also received before the change in effective rate of tax, but the
invoice for the same has been issued after the change in effective rate of tax,
the point of taxation shall be the date of payment;
(b) In case a taxable
service has been provided after the change in effective rate of tax,-
(i) Where the payment
for the invoice is also made after the change in effective rate of tax but the
invoice has been issued prior to the change in effective rate of tax, the point
of taxation shall be the date of payment; or
(ii) Where the
invoice has been issued and the payment for the invoice received before the
change in effective rate of tax, the point of taxation shall be the date of
receipt of payment or date of issuance of invoice, Whichever is earlier; or
(iii) Where the
invoice has also been raised after the change in effective rate of tax but the
payment has been received before the change in effective rate of tax, the point
of taxation shall be date of issuing of invoice."
For ease of your
understanding, a table is created for total understanding of Rule 4 of the
Point of Taxation Rules, considering different Date of completion of Service,
Date of Invoice and Date of Payment when taxable services provided before or
after the change in effective rate of tax:-
|
Change of Rate:
|
1-4-2012
|
10%.....12%
|
9/4/2012 25/5/2012 12% 9/4/2012
|
25/5/2012 10% 28/3/2012
|
|
Date of Service
|
Date of Invoice
|
Date of Payment
|
Rate of Tax
|
POT
|
|
28/3/2012
|
9/4/2012
|
25/5/2012
|
12%
|
9/4/2012
|
|
28/3/2012
|
25/5/2012
|
10%
|
28/3/2012
|
|
|
9/4/2012
|
26/3/2012
|
10%
|
26/3/2012
|
|
|
10/4/2012
|
28/3/2012
|
25/5/2012
|
12%
|
25/5/2012
|
|
28/3/2012
|
16/3/2012
|
10%
|
16/3/2012
|
|
|
9/4/2012
|
28/3/2012
|
12%
|
9/4/2012
|
Open Issues even after clarifications:-
++ Is interest
payable on differential payment of Service tax....answer seems yes, but why
said Circular is Silent.
++ Moot Question
-> a) what is the taxable event under service tax? Relevant for the
applicability of Rule
4(a)(i) of the Point
of Taxation Rules 2011.
• Can there be
service tax even before rendering the services?
• Why new rate would
be applicable when service is rendered before change in effective rate of
Service tax?
• 'Tax on services
Vs. Tax on Advances'
The Hon'ble Supreme
Court in the case of "All India Federation of Tax Practitioners Vs. UOI
2007-149-
SC-ST” held that “tax
on things or goods can only be with reference to a taxable event” and same
contention is upheld also in the case of "Association of Leasing &
Financial Service Companies vs. UOI 2010-87-SCST-LB" that Taxable Event is
Rendering of Service.
================================================================
Accrual system of taxation in Service Tax
Learning Objectives
1. Shift from cash system to accrual
system – changes in provision of law
2. Meaning of Point of Taxation
3. Applicability of Point of Taxation
Rules, 2011
4. Determination of Point of Taxation
under different situations
5. Impact of Point of Taxation on taxable
event in service tax
6. Applicability of accrual system to
Credit of Service Tax
7. Self Adjustment of Service Tax
Accrual System – Changes in provision of law
Notification No.
03/2011-ST
Amend Service Tax
Rules, 1994
Amendments made
Amendments made
1. Rule 6(1)
2. First proviso to
Rule 6(1)
3. Second proviso to
Rule 6(1) omitted
4. Third proviso to
Rule 6(1)
5. Rule 5B added
These amendments
have following effect.
Liability to pay tax
shall be determined on
date when services
are deemed to be
provided. And then following came into existence Point
of Taxation Rules, 2011
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