The point of taxation rules is quite complex. Extract of an article has been pasted for perusal. This may create more doubts posibly.
Point of Taxation Rules, 2011:
All of the above were proposed to be modified/ changed with the introduction of Point of Taxation Rules, 2001.
The main intention of the new rules appears to ensure transition from cash system to accrual system like Central Excise and Sales Tax/VAT. Point of Taxation Rules, 2011 deals with the following types of transactions, namely service provided or to be provided & continuous supply of service along with treatment in case of change in rate of tax. However prior to analysing the implications of these rules, it would be relevant to understand some of the new terms defined in the said Rules.
Definitions/Meaning
The term “continuous supply of service” is defined to mean any service which is provided, or 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;
The term “point of taxation” means the point in time when a service shall be deemed to have been provided;
Point of Taxation in Single Supply Service/other than continuous Supply Service
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Sl. No.
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Scenario
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Point of Taxation
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1.
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Invoice Issued within 14 days from the completion of service
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Date of Invoice
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2.
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Service Completed, but invoice not issued within 14 days
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Date of Completion of Service
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3.
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Advance Received before completion
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Date of receipt to the extent of advance received.
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4.
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Invoice issued before completion of service
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Date of Invoice
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Point of Taxation in case of Continuous Supply Service
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Sl. No.
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Scenario
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Point of Taxation
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1.
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Invoice Issued within 14 days from the completion of mile stone for payment
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Date of Invoice
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2.
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Invoice NOT issued within 14 days from the completion of milestone for payment.
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Date of milestone for payment
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3.
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Advance Received before completion of milestone for payment
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Date of receipt to the extent of such advance.
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4.
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Invoice issued before completion of milestone for payment
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Date of Invoice
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5.
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No milestone for payment agreed in the contract and no amount received till completion of service and Invoice raised with 14 days from completion
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Date of invoice
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6.
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No milestone for payment agreed in the contract and no amount received till completion of service and Invoice not issued
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Date of completion of service
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7.
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No milestone for payment and part amount received before completion
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Date of such receipt to the extent of amount received.
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Service Tax Payment on receipt basis continues in specified cases:
Point of Taxation considered as date of receipt or payment of consideration in case of following :
i. Services listed in 3(1) of Export of Service Rules, 2005 if the amount are realized within the date prescribed by RBI. However if it is not realised within that period, then general rule of completion of service or date of issue of invoice would be applicable. If advance was received, to that extent the date of receipt of advance would become taxable.
ii. Person liable to pay service tax under reverse charge mechanism (GTA, Sponsorship and import of service) if the payment has been made before 6 months from the date of Invoice. However if the payment is not made within six months of the date of invoice, the general rule as explained above would be applicable. In case of associated enterprises date of credit in the books of accounts or making payment whichever is earlier.
iii. Individual/proprietor/firms providing the following service
i. Architect
ii. Interior Decorator
iii. Chartered Accountant
iv. Cost Accountants
v. Company Secretary
vi. Scientific or technical consultancy
vii. Legal Consultancy Service
This Rule has been inserted as per the representations made by the Institute of Chartered Accountants of India.
Here it should be noted that the exemption from collecting Service Tax vide notification No. 25/2006 granted to Chartered Accountants for professional representation before statutory authorities has been withdrawn from 1st May 2011 vide notification No. 32/2011 dated 25th April 2011.
Corresponding Changes in Service Tax Rules, 2002
a. The invoice, bill or challan shall be issued within 14 days from the date of completion of service.
b. In case of continuous supply of service, it requires that an invoice, bill or challan, as the case may be, within fourteen days from the milestone date for payment mentioned in the contract.
c. If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. It is not covering bad debts. Further Board Clarification clearly says that this concession is not available for bad debts.
Point of taxation where there is a change in rate of Taxes-Rule 4
Rule 4 states that point of taxation as stated in Rule 3 shall not be applicable for determination of date(point of taxation) in cases where there is change of rate of tax in respect of a particular service.
The change of rate means not only the change of rate by amendment in the Act, but also covers change of rate by amendment in exemption notification. Further also it cover a change in abatement rate or value on which the duty needs to be computed.
When there is change of tax rate for a particular service the point of taxation shall be decided in accordance with Rule 4 as under:
Transition provision
The point of Taxation Rules would not apply to services provided or invoices raised prior to 01.04.2011.
Further it is said that for the services provided or invoice raised before 30th June 2011 the assessee may at their option continue to follow the existing system i.e. payment of service tax on receipt basis.
Changes in the time of availment of CENVAT Credit and value of trading service
a. The Cenvat Credit on input services can be availed on receipt of invoice. However the payment has to be made within three months. This is effective from 01.04.2011 irrespective of the fact that the service provider may be continuing to pay service tax on payment basis.
b. In case of service tax paid by the recipient of service on reverse charge basis, the credit can be taken on making payment to the service provider and also making payment of service tax to the Government.
c. If the payment is not made within three months, then the credit availed has to be reversed/paid. However the same can be taken back as credit on making payment.
d. If subsequent to payment made or invoice received, a amount is received back or credit note is received, when the value of service is renegotiated or altered for any reason the credit availed to that extent requires to be reversed/paid.
e. Credit on the invoices issued prior to 01.04.2011 by the service provider would continue to be eligible only on payment basis and not on receipt of invoice.
a. Supplementary invoice, bill or challan issued by a provider of output service, which should be in terms of the Service Tax Rules, 1994 is also added as one of the documents on which credit can be availed. However if such invoice is raised by the service provider in cases where such additional amount of tax became payable by him on account of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment of service tax, then it would not be considered as eligible document for credit.
Amendment to Service Tax Rules 2002:
d. The provision for issuing of an invoice, bill or challan within 14 days from the date of completion is restored.
e. In case of continuous supply of service, it requires that an invoice, bill or challan, as the case may be, within fourteen days of the date of milestone for payment in the contract is completed.
a. Adjustment for non-provision of service: In case of assessee who has issued an invoice/ received payment towards a service to be provided and has not provided service (in full or part), he is eligible to take the credit of excess ST paid by him if he:
i. Refunded the payment along with the ST to the receiver of service or
ii. Issued a credit note for the value of service not so provided to the person to whom he has issued invoice.
b. Enhancement of the adjustment limit: In case where the assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability, can be adjusted in the subsequent period subject to a monetary limit which has enhanced from Rs. 1,00,000/- to Rs. 2,00,000/-.
f. If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. It is not covering bad debts. Further Board Clarification clearly says that this concession is not available for bad debts. This may require to be represented as it was agreed to be examined.
A. Changes in the time of availment of CENVAT Credit and value of trading service
a. The Cenvat Credit on input services can be availed on receipt of invoice. However the payment has to be made within three months. This is effective from 01.04.2011 irrespective of the fact that the service provider may be continuing to pay service tax on payment basis. This may result in the reduction in period for payment for the service providers where the input service credit availer does not wish to reverse the credit.
b. In case of service tax paid by the recipient of service on reverse charge basis, the credit can be taken on making payment to the service provider and also making payment of service tax to the Government.
c. If the payment is not made within three months, then the credit availed has to be reversed/paid. However the same can be taken back as credit on making payment.
d. If subsequent to payment made or invoice received, an amount is received back or credit note is received, when the value of service is renegotiated or altered for any reason the credit availed to that extent requires to be reversed/paid.
e. Credit on the invoices issued prior to 01.04.2011 by the service provider would continue to be eligible only on payment basis and not on receipt of invoice.
b. Supplementary invoice, bill or challan issued by a provider of output service, which should be in terms of the Service Tax Rules, 1994 is also added as one of the documents on which credit can be availed. However if such invoice is raised by the service provider in cases where such additional amount of tax became payable by him on account of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment of service tax, then it would not be considered as eligible document for credit.
c. As regards to computation of proportionate credit or payment of 5% pertaining to trading goods the rules is amended to say that the value of exempted service will be difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever is more.
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