With the Introduction of Point of Taxation Rules (herein referred as POT Rules), 2011, the government has primarily shifted the policy of collection of service tax on the realization of value of taxable services to the point when the service is deemed to have been provided. The Rule 3 of POT Rules, spelt out the provisions when the point of taxation takes place ie. the point in time when a service shall be deemed to have been provided, shall takes place. As per Rule 3 of POT Rules, the date on which service shall be deemed to be provided would be, the date of payment received or invoice issued for the services provided, whichever is earlier, provided the invoice is issued as per Rule 4A of Service Tax Rules, 1994. Rule 4A lays down the prescribed format and time period within which invoice should be issued.
Now, here the question arises that, whether service tax shall become liable incase a draft invoice or letter is issued by the service provider. In reference to this, the ministry of finance examined the issue and issued a Circular No. 166/1/2013 –ST, dated 1st January 2013 where it was clarified that, under Point of Taxation Rules 2011, invoice referred is the invoice issued under Rule 4A of the service tax rules, 1994, therefore, no tax point arises on account of issuance of any reminder letters/notices. This clarification assume a great significance as various service providers send their proposals through letters/communication or with draft invoices, therefore in all such cases no service tax shall be leviable merely on the issuance of such proposal through letters or draft invoices.
Further, also, in the same matter, Life Insurance companies approached to the ministry of finance for seeking their clarification about the applicability of service tax on the basis of reminder notices/letters bring issued to policy holder for renewal of their policy. It was contended that such reminder notices are issued only to solicit business and furtherance of services and only after acceptance by the policy order by making payment of premium, will result into service.
Service Tax Team
Email: vishaljain.tax@gmail.com
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