ST : In respect of services provided before 1-4-2012 and invoices issued before that date but payment was made on or after 1-4-2012, prima facie, as per Rule 4(a), service tax rate of 10% would apply; hence, Circular No. 158/9/2012-ST, dated 8-5-2012 appears to be prima facie incorrect.
 24 taxmann.com 62 (Delhi)
HIGH COURT OF DELHI
Delhi Chartered Accountants Society (Regd.)
Union of India*
RAJIV SAHAI ENDLAW, J.
WP (C) NO. 4456 OF 2012
AND CM NO. 9237 OF 2012
JULY 27, 2012
Rule 4 of the Point of Taxation Rules, 2011 - Point of Taxation - Change in Effective Rate of Tax - Increase of service tax rate from 10% to 12% w.e.f. 1-4-2012 - Petitioners challenged Circular No. 158/9/2012-S.T., dated 8-5-2012, which clarified that in respect of services provided before 1-4-2012 and invoices issued before that date but payment was made on or after 1-4-2012, service tax rate of 12% was applicable
HELD : Prima facie, as per Rule 4(a) ibid, in such cases, rate of tax would be 10% and not 12% - Department not to take any coercive action for recovery until final disposal - Stay Granted [Paras 3 and 6] [In favour of petitioners.]
1. It is the contention of the learned counsel for the petitioner that impugned Circular dated 08.05 2012 is ultra vires the Point of Taxation Rules, 2011 and even the provisions of Finance Act, 1994. Learned counsel for the petitioner has drawn our attention to Point of Taxation Rules, 2011. Rule 2(e) whereof defines Point of Taxation as under:
"(e) "point of taxation" means the point in time when a service shall be deemed to have been provided."
2. The determination of point of taxation is provided in Rule 4 in the case of change in effective rate of tax. Sub-rule (a) thereof is relevant for our purpose which reads as under:
"4. 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."
3. The service tax in respect of a category of services was @10% before 31.03.2012 which has been increased to 12% with effect from 1.4.2012. The petitioner has raised the issue in respect of those services which were provided before 01.04.2012 and even invoices were issued before 01.04.2012 and payment is received after 01.04.2012. By impugned circular dated 08.05.2012, it is clarified that even in respect of those services which were provided before 01.04.2012 and invoices issued before that date but payment is received on or before 01.04.2012, the service tax needs to be paid at the rate of 12%.
3A. Prima facie, from the reading of Rule 4, it becomes apparent that in such case, the rate of tax would be 10% and not 12%.
4. Learned counsel for the respondents wants to take instructions in the matter. We also issue formal notice.
5. Learned counsels for the respondents accept notice Counter affidavits, if any, be filed within one week. Rejoinder within one week thereafter.
6. List for final arguments and disposal on 14th August, 2012. it is made clear that since a pure question of law is involved, even if counter affidavits are not filed, the matter shall be heard finally. In the meantime, no coercive action shall be taken for non-payment of differential service tax.
Dasti to counsels for the respondents.CM No. 9238/2012 (for exemption)
Allowed, subject to just exceptions.
The application is disposed of. in favour of petitioners
Circulars and Notifications : Circular No. 158/9/2012-ST, dated 8-5-2012
The Circular No. 158/9/2012-S.T., dated 8-5-2012 clarifies point of taxation in case of 8 specified services and services falling under reverse charge mechanism under Rule 7 of the Point of Taxation Rules, 2011. Rule 7 ibid applies notwithstanding anything contained in the POT Rules, while Rule 4 ibid applies notwithstanding anything contained in Rule 3 and Rule 6 (as it existed prior to 1-4-2012). Thus, Rule 7 ibid has precedence over Rule 4 ibid.
Rule 7 ibid provided that the point of taxation in cases falling thereunder shall be the date on which payment is received or made. Circular No. 154/5/ 2012-ST, dtd. 28-3-2012 clarified that for invoices issued on or before 31st March 2012, the point of taxation shall continue to be governed by the Rule 7 as it stood till the said date.
The aforementioned Circular clarified that in cases of Rule 7 where payment was received/ made on or after 1-4-2012, the point of taxation shall be the date of payment and, accordingly, the rate of service tax of 12% shall apply. The view clarified in the Circular appears, in no way, to be contrary to provisions of Rule 7 ibid.
Source: Taxmann Publications.