SERVICE TAX NOW PAYABLE ON DUE INVOICE PAYMENT BASIS

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It is a pertinent question in the context of taxation of services as to when a service is said to be provided so that it becomes taxable at that point of time. A service provider may consider a particular service being provided at a particular point of time whereas the revenue may have different opinion leading to conflict of opinion. Currently the service tax is required to be paid as and when the payment for the service is received. It includes taxation on advance payment also though the service for which advance is received is yet to be provided. However, this provision may seem to be simple and straight forward, but still under certain situations there is lack of clarity and certainty in the matter of levy and collection of service tax. Further, the provision of taxing a service on receipt basis is at odds with regime in force in Central Excise and VAT laws implemented by the states. With a view to bring more clarity as to the point of time when a service need to be taxed, draft point of taxation rules were earlier circulated for public comments. Now, a step has been put forward on the auspicious occasion of budget session to notify Point of Taxation Rules, 2011 through issuing Notification No. 18/2011-ST, dated 1-3-2011. It is provided that these Rules shall be effective from 1-4-2011 and therefore, nothing contained in the present rules shall be applicable in case of invoices issued prior to 1-4-2011.

Meaning of Point of Taxation

Point of taxation means the point in time when a service shall be deemed to have been provided. Rule 3 enumerates the manner in which the ‘point of taxation’ shall be determined. The basic mandate is that a provision of service shall be treated as having taken place at the time when service is provided. However, since the words ‘to be provided’ have also been used, the taxable event shall be pre-poned in case of future provision of service. In other words, a taxable service, even though promised to be provided at a future date, shall also be taxable before its actual execution.

The above provision as to the ‘point of taxation’ will get amended where the service provider issues an invoice or receives any payment before providing service; and in such a case the service, to the extent of the amount mentioned in the invoice, or the amount of payment, shall be deemed to have been provided. This provision makes the service provider liable to pay the service tax calculated according to the amount mentioned in invoice, or the payment received, even if the service has not been provided at that point of time.

An analysis of Rule 3 leads to the general rule that the time of provision of service will be the earliest of the following dates:

(i) date on which service is provided (or to be provided)

(ii) date of invoice

(iii) date of payment received

For the purpose of section 66A which makes provision for charge of service tax if services are imported and resorts to ‘reverse charge’ method by which service receiver in India becomes liable to pay service tax for the service so imported, the point of taxation shall be the date on which the invoice is received, or the payment is made, as the case may be, whichever is earlier.

Change of Rate of Tax and Point of Taxation

Rule 4 considers the determination of ‘point of taxation’ when there is a change of rate of service tax in respect of a service. The following situations have been perceived under this rule:

(i) Where taxable service has been provided before the change of rate:

In such a situation the ‘point of taxation’ shall depend upon the issue of invoice and receipt of payment. In case where the invoice for the provision of service has been issued and the payment received after the change of rate, the point of taxation shall be the earliest date of payment or issuing of invoice. In case where the invoice for the provision of service has been issued prior to change in tax rate but the payment is received after the change of rate, the point of taxation shall be the date of issuing of invoice. In case where the payment for the provision of service is received before the change of rate, but the invoice for the same has been issued after the change of rate, the point of taxation shall be the date of payment.

(ii) Where a taxable service has been provided after the change of rate:

As in the (i) above, in such a situation also, the ‘point of taxation’ shall depend upon the issue of invoice and receipt of payment. Thus, where the payment for the invoice issued in respect of provision of service, is also made after the change in tax rate but the invoice has been issued prior to the change of tax rate, the point of taxation shall be the date of payment. In case where the invoice has been issued and the payment for the invoice received before the change of tax rate, the point of taxation shall be earliest of the date of receipt of payment or the date of issuance of invoice. In case where the invoice has also been raised after the change of rate but the payment has been received before the change of rate, the point of taxation shall be date of issuing of invoice.

Thus, Rule 4 prescribes the applicable rate of tax in the cases where the tax rate changes between the occurrence of different events, viz., provision of service, issuance of invoice, and receipt of payment. The provisions explained above can be tabulated as shown below:
. No.
Provision of service
Issue of invoice
Receipt of payment
Point of taxation
1.
Before the change of rate
After the change of rate
After the change of rate
Date of invoice or payment, whichever is earlier
2.
Before the change of rate
Before the change of rate
After the change of rate
Date of invoice
3.
Before the change of rate
After the change of rate
Before the change of rate
Date of payment
4.
After the change of rate
Before the change of rate
After the change of rate
Date of payment
5.
After the change of rate
Before the change of rate
Before the change of rate
Date of invoice or payment, whichever is earlier
6.
After the change of rate
After the change of rate
Before the change of rate
Date of invoice


Continuous Supply of Service and Point of Taxation

“Continuous supply of service” means any service which is provided, or to be provided continuously, under a contract, for a period exceeding three months. Further, “continuous supply of service” will also include a situation where the Central Government, by notification prescribes provision of a particular service to be a continuous supply of service.

Rule 6 prescribes that in case of continuous supply of service, the whole or part of which is determined or payable periodically or from time to time, shall be treated as separately provided at the date on which the payment is liable to be made by the service receiver, if such date is specified in the contract. Thus, the rate of tax will be the rate applicable on the date the payment becomes due as per the contract.

If, before the time specified for payment as above, the service provider issues an invoice or receives a payment, the service shall, to the extent covered by the invoice or the payment made thereof, be deemed to have been provided at the earliest of the time the invoice was issued or the payment was received.

In case of advance payment, the point of taxation shall be the date of receipt of such advance.

For the purpose of section 66A which prescribes resorting to ‘reverse charge’ method by which service receiver in India becomes liable to pay service tax for the imported services, the point of taxation shall be the date on which the invoice is received, or the payment is made, as the case may be, whichever is earlier.

Associated Enterprises and Point of Taxation

Rule 7 describes the determination of point of taxation in case of associated enterprises (as defined in section 92A of the Income-tax Act). The point of taxation in such a case shall be earliest of the following:

(i) the date on which the payment has been made, or

(ii) the date on which invoice under rule 4A of the ST Rules, 1994 has been issued, or

(iii) the date of debit or credit in books of accounts of the person liable to pay service tax

Payment of royalties etc. and Point of Taxation

Rule 8 prescribes the determination of point of taxation in respect of royalties and payments pertaining to copyrights, trademarks, designs or patents.

Thus, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time at the earliest of the following:

(i) when a payment in respect of such use or the benefit is received by the provider in respect thereof, or

(ii) an invoice is issued by the provider.

New Services

Rule 5 describes payment of service tax in case of new services not falling under the category of continuous supply of service.

In case invoice has been issued and the payment received against such invoice before such service became taxable, no tax shall be payable to the extent of amount so received, though service was rendered after it became taxable. This provision ensures that a financial transaction which has achieved finality before a service became taxable shall not be reopened for recovery of tax.

Further, no tax shall be payable if the payment has been received before the service becomes taxable and the invoice has been issued within the period referred to in rule 4A of the Service Tax Rules, 1994 i.e. within 14 days.

Consequential changes in ST Rules, 1994

Consequential changes, emanating from the promulgation of ‘Point of Taxation Rules’ have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.

Conclusion

Point of Taxation Rules, 2011 broadly following the lines of best international practices and paving way for the GST regime, have been framed for the purpose of determining the point in time when the services shall be deemed to be provided for the purpose of charging of service tax on taxable services. Keeping in view the different situations, like a situation where the rate of tax is changed or a situation where associated enterprise is involved or a situation where there is continuous supply of service or a situation where a new service becomes taxable for the first time, the provisions have been made by framing rules for determination of point of taxation. The major change proposed to be brought about through these rules is to link the payment of tax to the provision of service, raising of the invoice or payment for service provided or to be provided, whichever is the earliest. Thus a departure has been made from the current provision where the payment of service tax is linked to receipt of payment for the service. Though manipulations are still possible but on a whole, it is hoped that both the tax payers as well as the tax officials would not face any uncertainty regarding charging of service tax under different situations.
by:Ashhok Saxena B.Com (Hons), CAIIB, AICWA, FCS

COMMENTS

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SECURITIES (MNP) (TDS)2007-08 ` 01.07.12 01.09.2008 01.10.2012 06.07.2009 07.08.2012 1 PERCENT EXCISE ITEMS LIST 1 sep 1% excise 10 year nsc 10(10C) 1000 court cases judgements supplied to ITO 1000 rupee note 11-2008 11-2010 130 items 14.08.2008 15 august 150 Rs coin 15g 15h 18-12-2009 192(1A) 192A 194 I 194A 194c from 01.10.2009 194H 194j 194LC 1981-2007 2% cst 2% excise 2004 2008 2008-09 FY 2010 206AA 234A 234B 234C 234c interest calculator 234E 23AC 23ACA 23B 24C 24q annexure II 25 paisa coin 271(1)(c) 271B 271H 272B 27A 280 280 challan 281 282 283 29 AUGUST 29.04.2010. 29/08/2008 29/2008 service tax 2g meaning use 3 idiots 30 MARCH 31st March 32-2010 33 of 2009 35(2AA) 35(2AB) 3CD 3g meaning use 40(b) 43B 44 AB EXEMPTED INCOME 44AA 44AB AGRICULTURE 44AB new limit 44AB NON RESIDENT 44ad 46/2012 45/2012 49C 5 day week 5 years post office deposit 5/2011 50 paisa coin 54b 54EC 54ee 54f 54gb 5th paycommission punjab 6 % excise 6 crore advance limit 6/2005 69/2010 6th cpc 6TH PAY COMMISSION 70% of pan etds 7th Central Pay Commission 8 tips to save tax 80C 80ccc 80CCD 80cce 80CCF 80CCG 80d 80DDB 80EE 80G 80GG 80GGA 80GGB 80ggc 80tta 80U 85% of pan etds 86/2008 DATED 13-08-2008 87A rebate 89(1) 89(1) relief calculator 9.5 % rate for private epf 92E 95% of pan etds 98 dated 04/01/08 aadhaar aakash tablet aam admi aar Aayakar Sampark Kendra abatement abolished ACCOUNT PAYEE DRAFT Accounting ACCOUNTING CODE accounting code for services ACCOUNTING FOR GOVT GRANTS accounting standards ACES ADD IN Add-Ins additional relief in budget 2010 adjustment of advance FBT with advance Tax advance rullings advance salary ADVANCE TAX CALCULATOR advance tax challan ADVANCE TAX CUT OFF AMOUNT ADVANCE TAX DATES AFFIDAVIT AG Projects Technologies Ltd RT age 80 addition pension aibea wage revision aibea wage revision latest news aiboa aiboc aiboc wage revision AIG AIR airline ticket booking tds airlines all is well allowances allownces alphabet of inspiration alteration on check allowed alternate minimum tax AMENDED 3CD amendment in companies bill 2011 amendment in gratuity act 2010 amendment in registration service tax AMENDMENT IN SERVICE TAX ON RENT amendment to finance Bill 2010 AMNESTY SCHEME 2007 amt Anna Hazare anna hazzare bill vs govt lokpal bill appeal apply for new pan card against old pan card aqb arbitration arrears of salary arrears of sixth pay ARRERS TAX AS-12 ASBA assessee in default ASSESSMENT REOPENING ASSESSMENT YEAR 2008-09 REFUND atm atm 100 per day atm cash without card atm tips atm wrong debit audit cases itr filing audit limit enhanced Audit Questionaire AUDIT REPORT AUS VS IND.INDIA VS SL Automated teller machine AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX ay 2010-11 bad debts Bank Bank account bank audit bank audit 2012 bank charges BANK SALARY bank strike 06/07/09 and 07/07/09 banking law amendment banknotes banks npa provisioning BARE ACT bare rules BASE RATE BY BANKS bcct BIMAL JAIN biometric pan card black and white form not acceptable black money BLOCK PERIOD blogging bobay refund BONUS bonus share book discount BOOK ON EFILING BOOK REVIEW books of accounts BOOMING INDIAN ECONOMY both House rent allowance both hra and house loan Brass Scrap BRIBE CASE BROKER BSE bsnl broadband bsnl broadband usage bsnl land line sms alert BSR CODES BUDGET 2009 budget 2010 budget 2010-11 budget 2011 BUDGET 2012 budget 2013 BUDGET 2014 BUDGET 2014 CONTEST budget expectations BUDGET HIGHLIGHTS budget live on computer budget live telecast budget notification budget on tv budget speech BUDGET SPEECH DOWNLOAD Budget-2014 Budget-2015 BUDGET-2016 BUDGET08 Business BUSINESS AND PROFESSION MEANING BUSINESS COVERED UNDER 44ab BUY HOUSE C FORM CA CAN ONLY AUDIT MVAT CA CLUB INDIA CA GIRISH AHUJA CA NITIN GUPTA CA PARDEEP JAIN CA ROHIT GUPTA ca services CA sudhir Halakhandi CA Swapnil Munot CA Vikas Khandelwal calculate arrear CALCULATE NEW PAY calculate your emi calculation of tax on salary arrears CALCULATOR CALCULATOR REVISED capital asset capital formation huf Capital gain capital gain account scheme 1988 CAPITAL GAIN INDEX capital gain on repayment of loan capital gain on tenancy rights capital goods capital revenue CAPITAL SUBSIDY CAR LOAN RATE INCREASE carry forward of losses in late return cas cash flow statement CASH PAYMENT DIS ALLOWANCE CASH PAYMENTS EXCEEDING 20000 CASH SUBSIDY cbdt cbec CBI ARRESTED centeral sales tax rate CENTRAL PAY COMMISSION CENTRAL PROCESSING CENTER CENTRALISED PROCESSING OF RETURNS Cenvat CENVAT Credit Rules cgas 1988 challan challan 281 CHALLAN 289 challan correction challan Form 17 CHALLAN STATUS INQUIRY change change in cst rate change in excise duty rates CHANGE IN PAN ADDRESS CHANGE IN PAN DATA change in tds rates in budget changes CHANGES IN SERVICE TAX ACT changes in new itr forms CHANGES IN TDS CHARGES ON CASH PAYMENT OF CREDIT CARD BILL charitable organisation check name from PAN check tds deducted online Cheque cheque bounce cheque payment before due date cheque 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