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The judgment has stated that “Circular No.154 when it states that invoices issued on or before 31.3.2012 shall continue to be governed by Rule 7 as it stood before 01.04.2012 is erroneous because on and from 01.04.2012, the old Rule 7 was no longer in existence, having been replaced by new Rule 7”. According to me, the circular is not erroneous as the new Rule 7 has no relevance and does not comes into the picture for service rendered on or before 31-03-12.


Hon’ble High Court of Delhi, in the case of Delhi Chartered Accountants Society (Regd.) V/s Union of India & Others, C.M.No.9237/2012, has quashed Circular No. 154/5/2012 ST dated 28-03-2012 and Circular No. 158/9/2012 ST dated 08-05-2012 as being contrary to the Finance Act, 1994 and the Point of Taxation Rules, 2011.


What would be the rate of tax where (a) the service is provided by the chartered accountants prior to 01.04.2012; (b) the invoice is issued by the chartered accountants prior to 01.04.2012 but (c) the payment is received after 01.04.2012. 


There is no dispute that all the services were rendered before 01.04.2012 and even the invoices were raised before that date and it was only that the payment was received after the said date. In such a case, according to the petitioner, Rule 4(a)(ii) of the Point of Taxation Rules, 2011, applies and the point of taxation shall be the date of issuance of the invoice. The service tax authorities however rely on two circulars issued by the Tax Research Unit of the CBEC –Circular No. 154 dated 28.03.2012 and Circular No. 158 dated 08.05.2012 and which say that, In case of 8 specified services provided by individuals or proprietary firms or partnership firms and in case of services wherein tax is required to be paid on reverse charge by the service receiver, if the payment is received or made, as the case maybe, on or after 1st April 2012, the service tax @12% needs to be paid. 


Where the services of the chartered accountants were actually rendered before 01.04.2012 and the invoices were also issued before that date, but the payment was received after the said date, the rate of tax will be 10% and not 12%.

The judgment has been pronounced specifically for services of chartered accountants, but is equally applicable to below mentioned 8 specified services provided by individuals or proprietary firms or partnership firms: Consulting Engineer, Architect, Interior Decorator, Practicing Chartered Accountant, Practicing Cost Accountant, Practicing Company Secretary, Scientific or Technical Consultancy & Legal Services.

The circulars in question have not taken note of this aspect, and as noted earlier have proceeded on the erroneous assumption that the old Rule 7 continued to govern the case notwithstanding the introduction of the new Rule 7 which does not provide for the contingency that has arisen in the present case.


Point of taxation shall be the date of issuance of invoice and hence tax to paid @ 10% instead of @ 12% as provided in the quashed circular, it will adversely affect the CA’s and other 7 specified service providers. If the date of invoice is the point of taxation, then the due date for payment of tax to the exchequer for all invoices issued against service provided on or before 31-03-2012 shall be 31-03-2012. It seems unintended that when the payment of tax is on receipt basis, due to this judgment, it is on accrual basis up to 31-03-12, for the above situation and subsequently again on receipt basis.


Old Rule 7 says that notwithstanding anything contained in rule 4 or any other rules, in respect of Chartered Accountants providing the taxable service of chartered accountancy, the point of taxation for the purposes of determining the rate of tax and collection thereof shall be the date on which payment is received. In respect of services provided before 31-03-2012, the point of taxation is certainly and finally determined as the date of payment and subsequent amendment to rule 7 or any other rule should not affect its taxability. Even if the invoice is also issued after 31-03-12, the position of law would be the same. The taxable event is the rendering of service and law in force at the time of rendering of service is relevant and not at the time of payment. It is not necessary that on the date of payment, the same rule 7 should be in force!

It is also important to mention that this judgment has, in no way, affected the applicability of point of taxation in case of services wherein tax is required to be paid on reverse charges by the service provider, which were covered under old Rule 7 and also under new Rule 7,except per se quashing of the said circulars.

NAME: SAVAN R. SOMANI, Designation: Corporate Manager Taxation,

Kamat Hotels (India) Limited,


Address: Khil House, 70-C Nehru Road, Vile Parle East, Mumbai

CAclubindia's WhatsApp Groups Link

Published by

Savan Somani
(Corporate Manager)
Category Service Tax   Report

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