Analysis | Point of Taxation Rules, 2011

Rule 1 Short title and commencement

Short Title  Point of Taxation Rules, 2011

Commencement  1^st April, 2011

Rule 2 Definitions

Act  means the Finance Act, 1994

Associated Enterprises - meaning same as defined in section 92A of the Income Tax Act, 1961.

Continuous supply of service  means any service which is provided, to be provided continuously, under a contract, for a period exceeding three months OR

where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition.

Presently the following services have been notified as continuous supply of service.

-Commercial or Industrial Construction Service (zzq)

-Complex Construction Service (zzzh)

-Telecommunication Service (zzzx)

-Internet Telecommunication/Telephony Service (zzzu)

-Services in Execution of Work Contract Service (zzzza)

Invoice  means, as referred in Rule 4A of the Service Tax Rules, 1994 and any documents as referred in the said    rule.

Point of Taxation  means the point in time when a service shall be deemed to have been provided.

Taxable Service - means a service which is subjected to service tax, whether or not the same is fully exempt by the Central Government under Section 93 of the Act;

Rule 3 - Determination of point of taxation

Point of taxation shall be in below manner unless otherwise stated.

(a)     Point of taxation shall be, at the time when invoice has been issued for the services provided or to be provided.

Q. When the invoices can be issued?

Ans. Invoices can be issued either after completion of services of before completion of services.

Proviso of (a) - if the invoice is not issued within 14 days of the completion of service, point of taxation shall be such date of completion.

(b)     in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

(Explanation of this rule) 

  If the payment receives in advance,

(i).   point of taxation shall be - the date of such advance receives

(ii).  assessable value (on which the Service Tax shall be calculated from the effective rate of tax) such advance amount

Rule 4. Determination of point of taxation in case of change in effective rate of tax.

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.

Case I where the taxable services has been provided BEFORE change in effective rate of tax.

-   Invoice is issued and payment is made after change in effective rate of tax , point of taxation shall be

a)Date of payment or

b)Date of issuing invoice, whichever is earlier.

-   Where the invoice is issued before change in effective rate of tax but payment is made after change in effective rate of tax, point of taxation shall be

Date of issuing of invoice.

-Where the payment is made before change in effective rate of tax but invoice is issued after change in effective rate of tax, point of taxation shall be

Date of payment.

Case II  where the taxable services has been provided AFTER change in effective rate of tax.

-Invoice is issued and payment is made before change in effective rate of tax , point of taxation shall be

c) Date of payment or

d) Date of issuing invoice, whichever is earlier.

-Where the invoice is issued before change in effective rate of tax but payment is made after change in effective rate of tax, point of taxation shall be

Date of payment.

-Where the payment is made before change in effective rate of tax but invoice is issued after change in effective rate of tax, point of taxation shall be

Date of issuing of invoice.

Scope of this rule has been widening due to this explanation: - change in effective rate of tax shall include a value on which tax is payable in terms of notification issued under this Act and rules. (Other words change in the %age of abatement).

Rule 5. Payment of tax in cases of new services.

Where a service, not being a service covered by rule 6, is taxed for the first time, then,

(a)     no tax shall be payable on the amount which has been invoiced AND received against such invoice before such service became taxable;

Example- Applicability date of new service 01.07.2011

Invoice issued before 01.07.2011 Rs.1,00,000/-

Amount received up to 30.06.2011- Rs.70,000/-

In this case Rs.70,000/- shall be exempt and Rs.30,000.- shall be taxable.

(b) no tax shall be payable on the amount which has been received AND invoice has been issued within the period referred to in rule 4A of the Service Tax Rules, 1994.

Example- Applicability date of new service 01.07.2011

Date of completion of service 30.06.2011

Invoice issued up to 30.06.2011 Rs.1,00,000/-

Invoice issued up to 14.07.2011 Rs.60,000/-

Amount received up to 30.06.2011- Rs.1,60,000/-

In this case Rs.1,60,000/- shall be exempt.

Rule 6. Determination of point of taxation in case of continuous supply of service.

Notwithstanding anything contained in rules 3,4 or 8, in case of continuous supply of service, the `point of taxation shall be,-

(a)     Point of taxation shall be, at the time when invoice has been issued for the services provided or to be provided.

Proviso of (a) - if the invoice is not issued within 14 days of the completion of service, point of taxation shall be such date of completion.

(b)     in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

(Explanation 2 of this rule) 

-   If the payment receives in advance,

(i)  Point of taxation shall be - the date of such advance receives

(ii)  Assessable value (on which the Service Tax shall be calculated from the effective rate of tax) such advance amount

(Explanation 1 of this rule)

For the purpose of this rule, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.

Rule 7. Determination of point of taxation in case of specified services or persons.

Notwithstanding anything contained in these rules, the point of taxation in respect of,-

(a)     In respect of the export of services which are falling under sub-rule (1) of rule 3 of Export of Services Rules, 2005, the provisions of this rule shall be applied only when, the payment is received against these services within the period specified by the Reserve Bank of India.

Otherwise point of taxation shall be the date on which payment is received.

(b)     In respect of import of services which have been notified under sub-section (2) of section 68 of the Act, the provisions of this rule shall be applied only when, the payment is received against these services within six month of date of invoice.

Otherwise point of taxation shall be the date on which payment is made.

(c)   Individuals or proprietary firms or partnership firms providing the following taxable services, the point of taxation shall be the date on which payment is received.

o    Architects Services (p)

o    Interior Decorators Service (q)

o    Practicing Chartered Accountants Services (s)

o    Practicing Cost Accountants Services (t)

o    Practicing Company Secretarys Services (u)

o    Scientific and Technical Consultancy Service (za)

o    Legal Consultancy Services (zzzzm)

Rule 8. Determination of point of taxation in case of copyrights, etc. . - In respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit isreceived by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.

Rule 9. Transitional Provisions.

 - Nothing contained in this sub-rule shall be applicable,

(i) where the provision of service is completed; or

(ii) Where invoices are issued

prior to the date on which these rules come into force.

Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued upto the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be.