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Why we determine point of taxation?

Point of taxation mean the point of time when a service shall be deemed to have been provided. So service provider can pay service tax by the 5th day & 6 th day of month/ quater as the case may be.

Rule 1:

These rules come in to force on the 1st day of april 2011

Rule 2: Definitions

Rule 2a (New inserted)  Date of payment

For purpose of these rules, “date of payment” shall be – date on which payment is entered in the books or date on which payment is credited in the bank account of person liable to pay tax  whichever is earlier 

Special provision:-

The date of payment shall be the  date of credit in  bank account  when -    

1. there is a change in rate of tax        

2. the credit in bank account  is after four working days from the date when there   is change in effective rate of tax      

3. the payment is made by an cheque which is credited to a bank account 

Rule 3 (determination of point of taxation)    

If invoice issued within 30/45* days of completion of service 

Pot= payment date or invoice date which ever is earlier  

If invoice not issued within  30/45*days of completion of  service  

Payment date or completion of service date  whichever is earlier.

# Service provide shall issue invoice with in 30/45 days of date of payment( any payment/ even part payment) or date of service completion. which ever is earlier.

* 45 days in case of banks and financial institutions providing banking and other financial services

Rule 4 (determination of point of taxation in case of change in rate of tax)     

Case a(service provided before change in rate)

1) Invoice issued and payment received after change in rate  

Pot = invoice issued or payment received whichever is earlier  

2)  Invoice issued prior to  change in rate and  payment received after change in rate         

Pot  = date of invoice    

3) Payment received prior to  change in rate and  invoice ssued after change in rate     

Pot = date of payment 

Case b (service provided after change in rate)

1) Invoice issued and payment received before change in rate  

Pot = invoice issued  or payment received whichever is earlier    

2) Invoice issued prior to change in rate and  payment received after change in rate           

Pot  = date of payment    

3) Payment received prior to  change in rate and  invoice issued after change in rate     

Pot = date of invoice 

Rule 5 (payment of tax in case of new services)

If invoice issued and the payment received before such service become taxable then  no tax shall be payable      

If payment is received before the service become taxable and invoice has been issued with in  14 days   of the date when  the service become is taxed for the first time then no tax shall be payable.

Rule 6 is omitted and merged with Rule 3

Rule 7 (determination of pot in case of specified services or persons) -

In case of individuals and partnership firms whose aggregate value of  taxable services provided from one or more premises is Rs 50 lakhs or less in the previous financial year: have option to pay service tax on payment basis.

In case of reverse charge:- The point of taxation  shall be date on which payment is made (but payment with in 6 month of issue of invoice)

Associated enterprises:- Pot is the date of debit in books of accounts of person receiving the service or date of making payment which ever is earlier.

Export of service:- Because benifit allowed as per st rules i.e. need not to pay st if payment received with in time limit prescribed by RBI.

Rule 8 (determination of Pot in case of intellectual property rights services)

When amount of consideration is not ascertainable at time of performance of service and subsequently it gives rise to payment of consideration then it shall be treated as having provided each time, then point of taxation shall be date of invoice issued or payment  received whichever is earlier.    

In case of lump sum payment made then rule 3 will be  applicable rather than rule 8.

Rule 8a (newly inserted)

Where Pot cannot be determined as per these rules as the date of invoice or the date of payment or both is not available, Central excise officer may handle situation by way of best judgment.

Rule 9:-

Before 1.4.11: Pot rules not applicable  

From 1.4.11 to 30.6.11: Optional  

W.e.f 1.7.11: Madatory

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