Point of Taxation

Service tax will be paid on accrual basis except in certain specified cases.

1. Earlier service tax was payable on receipt of payment in respect of taxable services provided.

2. But with the introduction of Point of Taxation Rules, 2011, Service tax will be paid on accrual basis except in certain specified cases.

IMPORTANT PROVISIONS

A. Date on which service tax to be deposited.

B. Date of which rate of service tax to be taken.

C. Meaning of point of taxation.

D. Date from which point of taxation rules, 2011 are applicable.

E. Meaning of Date of Payment.

A. Date on which service tax to be deposited

As Per Rule 6 of Service Tax Rules, 1994:

a. The service tax shall be paid to the credit of the Central Government,-

I. By the 6th day of the month, if the duty is deposited electronically through internet banking; and

II. By the 5th day of the month, in any other case, immediately following the calendar month or quarter, as the case may be, in which the service is deemed to be provided as per the rules framed in this regard.

b. 3rd Proviso of rule 6 of Service Tax Rules, 1994, has been inserted w.e.f. 01.04.2012 vide NN 03/2012 ST dated 17.03.2012 and as per this proviso

In case of export of services under Rule 3(1) of Export of Services Rules, 2005, payment is need not to be made as required under Rule 6 if payment in respect of export of services received within the time limit specified by RBI. Thus, service providers exporting taxable services are not required to pay service tax if payments in respect of export of services are received within the time limit specified by RBI.

c. 4th Proviso of rule 6 of Service Tax Rules, 1994 has been inserted wef 01.04.2012 vide NN 03/2012 st dated 17.03.2012 and it provides option to pay service tax on receipt basis to all individuals and partnership firms as under:

B. DATE OF WHICH RATE OF SERVICE TAX TO BE TAKEN

1. Determination of date of rate of service tax upto 31.03.2011 there were no provisions under Finance Act, 1994 and rules made there under.

2. Provisions in respect of same are first introduced by inserting Rule 5B of Service Tax Rules, 1994 w.e.f. 01.04.2011 and now Finance Bill 2012 has introduced new section i.e. (Section 67A) for determination of same and it would be effective when the Finance Bill get the assent of President of India.

3. These provisions are as under:

a. Section 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.

b. Rule 5B - Date for determination of rate- The rate of tax in case of services provided, or to be provided, shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard.

c. POT Rules, 2011 provides provision to ascertain when a service shall be deemed to be provided. Accordingly rate of service tax shall be taken of the date when services shall be deemed to be provided as per POT Rules, 2011.

C. MEANING OF POINT OF TAXATION

Point of taxation - means the point in time when a service shall be deemed to have been provided.

D. Date from which point of taxation rules, 2011 are applicable

a. These rules came into force from 1st day of April, 2011.

b. But the assessee has been given an option, under rule 9 of above said rules, to pay service tax on payment basis up to 30.06.2011.

E. MEANING OF DATE OF PAYMENT

Rule 2A has been inserted in POT, Rules, 2011 vide NN 04/2012 ST dated 17.03.2012 and it defines the date of payment as under: Date of payment means earlier of following:

I. Dates on which the payment is entered in the books of accounts or

II. Dates on which the payment is credited to the bank account of the person liable to pay tax.

However date of payment shall be the date of credited to the bank account if the following conditions are satisfied:

i. There is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and

ii. The credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and

iii. The payment is made by way of an instrument which is credited to a bank account.

Note: Before the insertion of meaning of date of payment there was confusion that what should be taken as date of receipt of payment either date of receipt of cheque or date of entry in books of account or date of credit in bank account or date of deposit of cheque in bank. Now it is resolved.

Analysis of Rules

Point of Taxation Rules, 2011

Rule 3 - Determination of Point of Taxation

I. Determination of Point of Taxation Under Normal Circumstances

As per rule 3 of POT Rules, 2011, point of taxation (point in time when a service shall be deemed to have been provided) under normal situation shall be earlier of the following dates:

i. Date of invoice or payment, whichever is earlier (if the invoice is issued within the prescribed period of 30 days (up to 31.03.2012 it was 14 days) from the date of completion of the provision of service.)

ii. Date of completion of the provision of service or payment, whichever is earlier (if the invoice is not issued within the prescribed period as above)

iii. Date of receipt of advance payment

Thus, it is evident from the above analysis that even though Govt. is saying service tax will be charged on accrual basis but if the assessee received payment in advance then service tax liability will arise on payment basis and service will be deemed to have been provided on the date when advance payment received.

II. Determination of Point of Taxation In Case Of Continuous Supply Of Services

Continuous Supply of Service - Rule 2 (c) of POT Rules, 2011

Continuous supply of service means any service which is provided, or to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time to time, 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.

Under above rules, the Central Government, vide NN 28/2011 st dated 01.04.2011, notifies the following services as continuous supply of service, for the purpose of the said rules:

a. Commercial or Industrial Construction Services [Section 65(105) (zzq]

b. Complex Construction Services [Section 65(105) (zzzh)]

c. Telecommunication Services [Section 65(105) (zzzx)]

d. Internet Telecommunication Services [Section 65(105)(zzzv] e. Services in Execution of Works Contract [Section 65(105)(zzzza)]

Therefore it is clear on the basis of above provision that in respect of services which has been notified by Central Govt. as continuous supply of service it is not necessary that these services provided or to be provided continuously for a period exceeding three months.

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