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Determination of Date of which rate of service tax to be taken

PUNEET GOYAL 
on 31 March 2012

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PRECAUTION TO BE TAKEN FOR TAKING RATE OF SERVICE W.E.F 01.04.2012 (Either 10% or 12%)

(Before proceeding further please read the disclaimer at the bottom of this write up)

With effect from 01.04.2012, rate of service tax has been increased from 10% to 12%. Now number of question arises as to which rate to be taken and of which date rate to be taken. In this article, I tried my best to analysis the same in the light of relevant provisions and amendment made by Finance Bill 2012. Here important provisions are given in Point of Taxation Rules, 2011. I have discussed relevant provision of POT Rules, 2011 which are useful for better understanding of above questions.

Rule 2A of Point of Taxation Rules, 2011 has been inserted w.e.f 01.04.2012 by NN 04 2012 ST dated 17.03.2012 and it defines date of payment.

1. Date of payment means earlier of following:

I. Dates on which the payment is entered in the books of accounts or

II. Dates on which the payment is credited to the bank account of the person liable to pay tax.

However date of payment shall be the date of credited to the bank account if the following conditions are satisfied:

I. There is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and

II. The credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and

III. The payment is made by way of an instrument which is credited to a bank account.

Relevance of date of payment:

Now question is that why we need to know the meaning of date of payment. It is required because as per point of taxation rules, in normal situation, point in time when a service shall be deemed to have been provided shall be earlier of the following:

I. Date of invoice or payment, whichever is earlier.

(if the invoice is issued within the prescribed period of 30 days from the date of completion of the provision of service.)

II. Date of completion of the provision of service or payment, whichever is earlier. (if the invoice is not issued within the prescribed period as above.)

III. Date of receipt of advance payment.

Before the insertion of meaning of date of payment there was confusion that what should be taken as date of receipt of payment either date of receipt of cheque or date of entry in books of account or date of credit in bank account or date of deposit of cheque in bank. Now it is resolved.

Important Issue:

Of which date rate of service tax shall to be taken it is still not clear?

Reply:

Section 67A has been inserted which provides that date of determination of rate of tax, value of taxable service and rate of exchange will be the time when taxable services has been provided or agreed to be provided. Here also it is not clear that what is to be considered as AGREED TO BE PROVIDED either date of receipt of advance or date of entering into agreement or any other date. However, this section would be applicable from the date on which Finance Bill 2012 receives the assent of the President. Before that which date should be considered for the same.

As per my analysis this date should be the date on which services has been provided because under service tax act taxable event is rendering of taxable services and accordingly rate of service tax shall be taken of the date when services has been provided. POT Rules, 2011 provides provision to ascertain when a service shall be deemed to be provided. Accordingly rate of service tax shall be taken of the date when services shall be deemed to be provided as per POT Rules, 2011.

2. Precaution to be taken to save tax liability due to increase in tax rate from 10% to 12% w.e.f 01.04.2012.

Here important rule is Rule 4 of POT Rules, 2011 which provides for determination of POT in case of change in rate of tax. This rule determines various POT in given two situations:

i. Rate of service tax is 10% up to 31.03.2012

ii. Rate of service tax is 12% w.e.f. 01.04.2012

1. In case a taxable service has been provided before the change of rate. POT and date of rate of service tax shall be determined as under:

S. No.

Date of completion of service

Date of invoice

Date on which payment recd.

Point of Taxation

Date of which rate of tax shall be taken as per author before applicability of section 67A

1

31.03.2012

14.04.2012

30.04. 2012

14.04.2012

14.04.2012 (12%) i.e.,  of the date when POT is determined

2

31.03.2012

31.03.2012

30.04.2012

31.03.2012

31.03.2012 (10%) i.e.,  of the date when POT is determined

3

31.03.2012

14.04.2012

31.03.2012

31.03.2012

31.03.2012(10%) i.e.,  of the date when POT is determined

 

Conclusion: If services have been provided prior to change in rate of tax then POT shall be determine of the date of issue of invoice or payment which happen before change of rate of tax. However if both the dates falls after the date of change of rate then earlier of them shall be taken to determine point of taxation.

2. In case a taxable service has been provided after the change of rate.

S. No.

Date of completion of service

Date of invoice

Date on which payment recd.

Point of Taxation

Date of which rate of tax shall be taken as per author before applicability of section 67A

1

15.04.2012

30.03.2012

30.04. 2012

30.04. 2012

30.04. 2012 (12%) i.e.,  of the date when POT is determined

2

15.04.2012

30.03.2012

31.03. 2012

30.03.2012

30.03.2012 (10%) i.e.,  of the date when POT is determined

3

15.04.2012

30.04.2012

31.03.2012

30.04.2012

30.04.2012(12%) i.e.,  of the date when POT is determined

Conclusion: If services have been provided after change in rate of tax then POT shall be determine of the date of issue of invoice or payment which happen after change of rate of tax. However if both the dates falls before the date of change of rate then earlier of them shall be taken to determine point of taxation.

According to me, in the above case rate of tax shall be taken of the date on which point of taxation is determined because taxable event under service tax act is providing of taxable services and point of taxation means the point in time when a service shall be deemed to have been provided.

On the basis of above provisions and analysis, it can be concluded that, in case change of tax rate, if payment is received after 4 working days from the date when there is change in effective rate of tax then date of payment will be the date of credit in bank account. Accordingly if this date will fall after 05.04.2012 and POT is the date of payment then service tax has to be deposited with higher rate of 12%. Therefore assessee is required to make all effort to deposit cheques received up to 31.03.2011 and get them cleared up to 05.04.2011.

(Disclaimer: The above write up has been compiled from various provisions of Finance Act 1994 and amendment made by Finance Bill 2012 and notifications issued there under. The illustrative examples have been drafted based on these provisions and amendments proposed by the Finance Bill 2012. The compilation may not be entirely correct for reader to reader due to different interpretations by different readers. The readers are advised to take into the consideration the prevailing legal position before acting on any of the comments in this write up. Readers are also requested to convey the correct position as per their interpretation of the provisions of Finance Act 1994 and amendment made by Finance Bill 2012 which shall be most welcome for correcting this write up.)

With Warm Regards

CA Puneet Goyal

Email: capuneetgoyal.delhi@gmail.com




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