Section 67A – Analysis with respect to Point of Taxation Rules, 2011
Clause 143(H) of Chapter V of the Finance Act, 2012 reads as under:
(H) After section 67, the following section shall be inserted, namely:-
“67A. The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.
Explanation.— For the purposes of this section, "rate of exchange" means the rate of exchange service and referred to in the Explanation to section 14 of the Customs Act, 1962.”
The above new section comes into effect from 28-05-2012 when the Finance Act, 2012 received the assent of the President.
A doubt has arisen in the minds of many that the above section has limited the scope of Point of Taxation Rules, 2011 (POT Rules). It is well settled law that the provisions contained in the Act has overriding effect over the provisions contained in the Rules made there under. It is being interpreted that as per section 67A, rate in force or the rate of service tax on the date of completion of provision of service shall be the applicable rate of service tax and the POT Rules are relevant only for the purpose of determining the due date of payment of tax.
WHAT IS THE CORRECT INTERPRETATION?
The most important factor for determining the rate of service tax, value of a taxable service and rate of exchange, if any, is the point in time when the service has been provided or agreed to be provided. The powers to make rules to determine the point in time has been conferred on the Central Government under section 94 of the Act as under:
94. Power to make rules.-
(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Chapter.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:-
(a) collection and recovery of service tax under sections 66B and 68;
…
…
(hhh) the date for determination of rate of service tax and the place of provision of taxable service under section 66C;
In exercise of the powers conferred as above, under section 94(2)(a) and (hhh), the Central Government has issued Notification No. 18/2011 dated 01-03-2011 which is known as Point of Taxation Rules, 2011 and is made effective from 01-04-2011.
Under Rule 2(e) of POT Rules, the 'Point of Taxation' means the point in time when a service SHALL be DEEMED to have been provided.
So, after the insertion of Section 67A, the scope of the POT Rules has in fact, been extended, as they become relevant to determine the rate of service tax, value of taxable service and rate of exchange, if any. The phrase appearing in section 67A, ‘as applicable at the time when the taxable service has been provided or agreed to be provided’ means the point in time when a service shall be deemed to have been provided after applying the relevant rules of the POT Rules.
Last but not the least, the purpose of inserting section 67A is made clear by reading Explanatory Memorandum to Union Budget 2012-13 under Service Tax Point III (1) which says "A new section 67A is being inserted to prescribe that the value of taxable service (particularly in the case of import and export of taxable services) and the rate of tax shall be determined in terms of Point of Taxation Rules, 2011.
Thus, section 67A has extended the scope of the Point of Taxation Rules, 2011 which shall now be relevant for determining the rate of service tax, value of taxable service and rate of exchange, if any and also for determining the due date for payment of service tax.
The author is a Service Tax Consultant. Comments are welcome.
You can email me at manoj_agarwal76@yahoo.com
CAclubindia
