Point of Taxation
(Praveen Kumar Pandey)
Vide Notification 18/2001 ST Dated 01.03.2001, a new Point of Taxation Rules, 2011 has been notified, which shall be effective from 1st April 2011. This rule is going to be the magna carta to decide when service tax has to be paid and how the change in service tax rates have to be applied.
Hitherto, service tax is payable on realization basis, except in cases of transactions between associated enterprises. This has been given a go by in the new Rules. References in Rule 6 of Service Tax Rules, 1994 requiring payment of service tax on receipt of payments have been replaced with the requirement that service tax has to be paid when the service is deemed to be provided as per the Point of Taxation Rules. Such amendments in Rule 6 have been carried out vide Notification 3/2011 ST Dated 01.03.2011 and Notification 25/2011 ST dated 31.03.2011.
The term “point of taxation” is defined in Rule 2 (e) as point of taxation means the time when a service shall be deemed to have been provided.
When the service is deemed to be provided?
In a normal situation as per Rule 3 (a), point of taxation will be time when the invoice for the service provided or to be provided is issued but where invoice had not been issued within fourteen days of completion of service, date of such completion of service will be point of taxation.
As per Rule 3 (b) if any payment is received by the service provider before the points mentioned in Rule 3 (a), time of receipt of such payment, shall be the “point of taxation”. It has been further explained receipt of advance shall be taxable upon receipt of such advance.
Further, for the purposes of Section 66 A (reverse charge) date on which payment is received or made, will be point of taxation as the case may be.
In case of export of service specified in sub-clauses (d), (m), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz), (zzzza) & (zzzzm) of clause (105) of section 65 of the Finance Act, provided in relation to an immovable property situated outside India, where payment is not received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist.
For any other service under reverse charge method where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist.
How Point of taxation to be determined in case of change in rates of service tax?
When taxable service has been provided before the change of rate
Let us assume that rate undergoes a change on 1st July 2011. Let us see different situations. Service has already been provided before 1st July 2011. But by application of the Point of taxation, service tax has not yet been paid.
Even though the service has been provided before the change of rate, i.e. before 1st July 2011, if no invoice has been raised or no payment is received before 1st July 2011, the point of taxation shall be the date of raising of invoice or date of receipt of payment, whichever is earlier.
If invoice has been raised before the change of rate, i.e. before 1st July 2011 but the payment is received after the said date, the point of taxation shall be the date of issue of invoice.
If the payment has been received before the change of rate, i.e. before 1st July 2011 but the invoice is raised after the said date, the point of taxation shall be the date of payment.
In other words, for the services provided before the change of rate, if any one of the event (issue of invoice or receipt of payment) has happened before the change of rate, old rates will apply. If both the events occur after the change of rate, the new rates will apply. Whichever event out of the two, happens first, will be the point of taxation.
When taxable service has been provided after the change of rate
If the payment is received after the change of rate, though invoice is raised prior to change of rate, point of taxation shall be the date of payment.
If the invoice has been raised and the payment has also been received before the change of rate, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier.
If the invoice is raised after the change of rate, but payment has been received before the change, the point of taxation shall be the date of issue of invoice.
In other words, if the services are provided after the change of rate, the old rates will apply only if both the events (issue of invoice and receipt of payment) have occurred before the change of rate. If any one of these events occurs after the change, only the new rates will apply.
As per Rule 5, no service tax is payable in case of new taxable services taxed for the first time, in respect of the invoices issued prior to the date on which the service tax made taxable or invoices issued within the time limit under Rule 4 A of the Service Tax Rules, 1994 (though such date may fall after the service was made taxable) and the payments are also received before the service was taxable.
Continuous supply of service
In a normal situation as per Rule 6 (a), point of taxation will be time when the invoice for the service provided or to be provided is issued but where invoice had not been issued within fourteen days of completion of service, date of such completion of service will be point of taxation.
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.
As per Rule 6 (b) if any payment is received by the service provider before the points mentioned in Rule 6 (a), time of receipt of such payment, shall be the “point of taxation”. It has been further explained receipt of advance shall be taxable upon receipt of such advance.
For the purpose of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.
Associated enterprises
In case of transactions between associated enterprises the point of taxation shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier.
Intellectual Property Right
In case of IPR, service shall be treated as having been provided each time when a payment in respect of use of such right or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.
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.
