Issue of Supplementary Invoice - Consequent to Changes in Finance Bill, 2012
With effect from April 1, 2012, Notification No. 4/2012 ST dated 17.03.2012 has brought a change which affects all the service providers who have been working on cash basis in the last year. Now, the service providers who would have billed their clients @ 10.3% and rendered the services prior to 01.04.2012 need to collect and pay service tax @ 12.36% on realization of the consideration post 31.03.2012.
An advisable procedure to issue supplementary invoice as set out under Rule 4A of Service Tax Rules, 1994 is explained here.
“Every person providing taxable service shall not later than thirty days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier shall issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorized by him in respect of such taxable service provided or to be provided and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely:
(i) The name, address and the registration number of such person;
(ii) The name and address of the person receiving taxable service;
(iii) Description, classification and value of taxable service provided or to be provided; and
(iv) The service tax payable thereon.
In order to determine ‘the service tax payable thereon’ reference needs to be made to Rule 5B of the Service Tax Rules, 1994.
The rate of tax in case of services provided, or to be provided, shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard”.
Is the date of issue of invoice, POT?
Normally, the date of issue of invoice is considered as the time when services are deemed to have been provided or POT for determination of rate of duty. One such exception to this has been erstwhile Rule 7 of the Point of Taxation Rules, 2011. As per erstwhile Rule 7(c) in case of specified individuals, proprietary concerns and partnership firms point of taxation was the date of receipt of payment. Chartered Accountants were one amongst the eight such specified persons under Rule 7(c).
With effect from 01.04.2012, Rule 7 has been substituted with a new rule vide Notification No. 4/2012 ST dated 17.03.2012 to the effect that the exception provided by this rule has been withdrawn.
In the present scenario, where there has been a change in the rate of service tax this issue is of prime concern. Say, in case of a client Mr. A, service is rendered prior to 01.04.2012 and invoice has also been raised prior to 01.04.2012 wherein service tax is charged @ 10.30% (inclusive of cess) but Mr. A pays the consideration only on say, 05.04.2012.
Applying Rule 7 of POT Rules and Rule 5B of Service Tax Rules, 1994, service tax will have to be paid @12.36%. The issue however, is whether the service provider shall be entitled to recover the excess of service tax over 10.30% from the client. Service tax being an indirect tax, the burden of the same is to be on the receiver of service and legally should be reimbursed unless an all inclusive amount including taxes has been agreed.
It may be noted that this situation arises only in case of the eight specific service providers mentioned in rule 7 and services on which service tax is paid under reverse charge since, rule 7 starts with a non-obstantate clause,“Notwithstanding anything contained in these rules”. For other services rule 4 of the Point of Taxation Rules, 2011 deals with the determination of point of taxation in case of change in effective rate of tax.
Recently, Board has issued Circular No. 158/9/2012-ST dated 8th May 2012, clarifying that in such cases the specified service provider may issue a supplementary invoice to reflect the rate of 12.36% (inclusive of Cess) and recover the differential amount.
Note: This may not be practically possible and therefore an acceptable procedure is provided hereunder:
Impact on Service Recipients with respect to CENVAT Credit Rules, 2004
According to rule 9 of the CENVAT Credit Rules, 2004, CENVAT credit shall be taken by the provider of output service on the basis of supplementary invoice, bill, or challan issued by provider of input service in terms of provisions of Service Tax Rules, 1994 subject to certain conditions and limitations where there is an intent to evade service tax payment.
In addition to details required in case of original invoice, the supplementary invoices may be raised providing reference to the previous invoice.
Mr. A, who is a client of M/s XYZ, Chartered Accountants, has an outstanding balance of Rs.10,000 as on 31.03.2012. A bill was raised prior to 31.03.2012 for Rs.11030 levying service tax at 10.30%. Subsequently, Mr. A has paid the entire bill on 10.06.2012.
Case 1: Mr. A is willing to pay the differential service tax of 2.06% (Including Cess)
Raise a supplementary invoice for the differential amount.
Case 2: Mr. A is unwilling to pay the differential amount of service tax.
In such a situation, raise a supplementary invoice reflecting rate of 12.36% by making back calculations.
Consideration - Rs.9816.66
Service Tax @12.36% - Rs.1213.34
In such situation, a revised supplementary invoice has to be raised to pass on the appropriate CENVAT credit.