DUE DATE-POINT OF TAXATION UNDER REVERSE CHARGE (SERVICE TAX )

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Reverse Charge Mechanism has a old history in service tax Act/Rules. Under this mechanism service receiver  is liable to deposit tax instead of Service provider and in few cases Both service provider and service receiver is liable to deposit the tax in prescribed ratio. In this post we are discussing the due date on which service tax is liable to be deposited by the service receiver.

Service tax due date to deposit is directly linked to point of taxation means on which tax is due as per point of taxation rule. If point of taxation is fixed then service tax will be payable on 5th/6th of next month in which point of taxation falls.
Suppose: Point of taxation is fixed on 21 August (in month of August). Then Service tax is payable on 5th of September in case of offline payment and 6th of September in case of online (e-payment). 

However where Service tax payment can be made on quarterly basis , tax due date is 5th/6th of next month after the end of quarter.

Now the point is when Point of taxation falls in case of reverse charge.This has been provided in rule 7 of point of taxation rule.

Rules 7. Determination of point of taxation in case of specified services or persons.—
Notwithstanding anything contained in these rules, the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:
Provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist:
Provided further that in case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.‟



Date of payment By service Recipient is Point of taxation (general rule): As per rule 7 of the point of Taxation Rules 2011(amended ) In case where the service recipient is liable to pay tax , the point of taxation shall be the date of payment against such services.

If payment is not made with in six months(exception) :However , the said rule provides that in case the payment is not made with in 6 months from the date of invoice , then the point of taxation shall be determine , as the rule does not exist . Thus the point of in that case would be as per rule 3.
  1. If the invoice is issued with in the period specified in rule 4A of  service tax rules ,1994(30days wef 01.04.2012 earlier 14 days) from the date of completion of service : Date of issue of invoice or receipt of payment ,which ever is earlier.
  2. If invoice is not issued with in prescribed time: Date of completion of service or receipt of payment (payment date).
Interest is leviable if payment delayed beyond six months :In payment is not made in with in 6 months as given above then Point of taxation is advanced as per point number one and two given above. In such cases recipient would be liable to pay interest on delayed payment of  service tax under section 75 of the Finance act, 1994.

Example: Suppose a Service has been provided by Ram(SP) to Sham Ltd(SR) and date of completion of service is 31.07.2012.
Determine point of taxation if
  1. Payment is made in advance on 15.07.2012(Advance)
  2. Payment is made  on 15.01.2013(with in 6 months)
  3. Payment is made  on 15.03.2013(after  6 months)
    • Bill is raised on 15.08.2012 (with in 30days as prescribed  rule 4A)
    • Bill is raised on 15.09.2012( After 30 days as prescribed in rule 4A) 

Ans: Point of taxation in above case will be as under.
  1. 15.07.2012(date of advance payment)
  2. 15.01.2013(date of Payment)
  3. Rule 7 first proviso read with rule 3
    • 15.08.2012 (date of Invoice)
    • 31.07.2012(date of completion of service)
Update :Point of taxation rules for reverse charge has been changed wef 01.10.2014
Read Details about all services Falls under Reverse Charge Mechanism From 01.07.2012.

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