We all know that there are several rules in Service tax like the Service Tax Rules,The Cenvat Credit Rules,Valuation Rules,Place of Provision rules.Likewise we have Point of Taxation Rules which define the point in time when a service shall be deemed to be provided and the service tax shall be paid accordindly.
As per Rule 6 of the Service Tax Rules, 1994 the service tax liability is required to be discharged by the service provider by 5th or 6th (electronically) of the month immediately Following the calendar month/quarter in which the service is deemed to be provided as per the Point of Taxation Rules,2011.
Therfore we need to know the point of taxation rules at first place to pay service tax as per Rule 6.
In my article I have tried to discuss the same in a simplified manner in the form of question answer to enable better understansding.
Question1: What is the Point of taxation as determined by the Point of Taxation Rules,2011?
Answer: As per Rule 3 of the Point of Taxation Rules,2011,point of taxation shall be
(a) The time when the INVOICE for the service provided or agreed to be provided is issued OR
(b) If the Invoice is not issued within prescribed time period specified in Rule4A of Service Tax Rules 1994 (i.e. within 30 days or in some cases within 45 days of completion of service) ,then the date of completion of service shall be point of taxation OR
(c) The date of receipt of payment where the payment is received before issuance of invoice or completion of service
Suppose the date of invoice is 02.09.2014 whereas the payment for same was already made on 28.08.2014,in this case the point of taxation shall be 28.08.2014.Accordingly service tax shall be paid by 6th of September 2014 electronically or 5th otherwise.
Question2: What is the point of taxation in case of continuous supply of services?
Answer: Continuous supply of service mean
• Any Service which is provided or agreed to be provided CONTINUOUSLY
• Or on Recurrent Basis
• Under a Contract
• For a period exceeding 3 months
• With obligation for payment periodically or from time to time
• Or any service declared by central government in official gazette
As per proviso to Rule 3,as far as date of completion of provision of service is concerned –the date of completion of each event as specified at which receiver is required to make any payment to service provider shall deemed to be date of completion. Point of taxation shall be same as in answer 1.
Just for Information: Wide notification no.38/2012 dated 20.06.2012,the following two services were declared to be in category of continuous supply of service:
(i) Telecommunication Services
(ii) Service portion in execution of work contract
Question3: What is the point of taxation in case of advance given towards provision of service?
Answer: The point of taxation shall be the date of receipt of such advance.
Suppose a service was agrred to be provided in September,2014 but the advance payment for same was received on 30.08.2014.In this case ,the point of taxation shall be the date of advance i.e. 30.08.2014.Service tax shall be required to be paid by 6th September,2014.
Question4: What is the point of taxation in case of services where the service receiver is required to pay service tax i.e. under reverse charge.
Answer: As per Rule 7 of the Point of Taxation Rules as amended by Service tax Budget 2014 w.e. f 01.10.2014, the point of taxation in case of reverse charge shall be earlier of: a. Date of payment of invoice
b. Where the payment is not made within 3 months from the date of invoice, the first day that occurs immediately after the period of 3 months.
Suppose, the invoice of a GTA is dated 02.10.2014. The service receiver is a specified person and is required to pay service tax under reverse charge. The date of payment of invoice is 05.10.2014.The point of taxation shall be 05.10.2014. Service tax shall be required to be paid by 6th November, 2014.
Please note: Rule 10 is inserted by Notification no.13/2014 dated 11.07.2014 It says where the invoice has been issued before 01.10.2014 and payment has not been made upto 30.09.2014, then the point of taxation will be in following manner:
When payment is made within 6 months of date of invoice ,in that case point of taxation shall be the date of Payment
When payment is not made within 6 months of date of invoice,in that case point of taxation shall be date of Invoice
Qusetion 5: What is the Point Of Taxation in case of change in effective rate of Tax?
Answer: First lets know what is change in effective tax rate, by change in effective rate of tax we mean change in the portion of value on which tax is payable . As per Rule 4 of Point Of Taxation Rules
(a) In case a taxable service is provided BEFORE CHANGE in effective rate of tax:
Lets assume four short forms:
1. Date of Invoice:DOI
2. Date of Change in Rate:DOC
3. Date of Payment :DOP
4. Point of Taxtion:POT
CaseI: DOI and DOP after DOC Then POT is earlier of DOI or DOP
CaseII: DOI Before DOC but DOP after DOC Then POT shall be DOI
Case III: DOI after DOC but DOP before DOC Then POT shall be DOP
(Thumbrule in case of taxable service provided before change is that POT is earlier of DOP or DOI)
(b) In case a taxable service is provided AFTER CHANGE in effective rate of tax:
Case I: DOP after DOC but DOI before DOC Then POT shall be DOP
Case II: DOP before DOC but DOI after DOC Then POT shall be DOI
CaseIII: DOP and DOI Before DOC Then POT is earlier of DOI or DOP
(Thumbrule in case of taxable service provided after change is that POT is ( DOP or DOI) whichever is after DOC is valid.
Question 5(a): All this while we have been talking about change in effective rate, are there some practical examples of same?
Answer: Yes there are some valid examples.Remember that change in effective rate means only for services which were taxable earlier also ,only the effective rate of tax has changed. It has been clarified by the CBEC vide their Letter F.No. 341 /34/2010-TRU dated 31st March, 2011 that change in rate of abatement or any other notification issued, altered, or amended and which has the effect of change in taxability, if any, of the service will also be construed as change in effective rate of tax.
Example1.Change in effective rate of taxable portion in case of transport of goods by vessel from 50% to 40% w.e.f 01.10.2014
Example2:Change in effective rate of taxable portion in case of work contract from 60% to 70% we.f. 01.10.2014.
Question 6:What is the POT in case of new services?
Answer: In case of services taxed for the first time:
1. In case of services where the Date of Invoice and Date of Payment are before the date such service becomes taxable –In such case no tax payable.
2. In case payment is received before the service become taxable and invoice issued within 14 days of the day when service is taxed for the first time-In such case no tax payable.
Question 6(a): As there were some examples for change in effective rate, there must be some for new services too?
Answer: Yes,there are few examples of new services being taxed.Some of them are: 1.Service of advertisement on buildings,cell phones,internet websites,bills or tickets,commercial publication or ATM are taxable w.e.f 01.10.2014 (Notification no.18/2014 dated 25.08.2014)
2.Transportation through radio taxis or radio cabs is taxable w.e.f 01.10.2014.
3.In case of services received by educational instituitions ,services other then the specified ones are taxable w.e.f 11.07.2014
4.Technical testing of newly developed drugs ,on human participants by a clinical research organization is taxable w.e.f 11.07.2014.
5.Transportation of passengers by air-conditioned contract carriage is taxable w.e.f 11.07.2014
Conclusion Note: The provisions of these rules are not applicable in case where provision of services is completed or invoices are issued prior to 1st April, 2011
Tags :Service Tax