Point of Taxation Rules - Applicability of New or Old rate of Service Tax

CENTRAL Board of Excise and Customs (CBEC) has issued clarification vides Circular No. 158/9/ 2012–ST dated. 8th May, 2012 on the rate of service tax applicable wherein invoices were raised before 1st April 2012 and the payments shall be after 1st April 2012 in case of the 8 specified services provided by individuals or proprietary firms or partnership firms, to which Rule 7 of Point of Taxation Rules 2011 was applicable and services on which tax is paid under reverse charge under section 68(2) of the Finance Act.

Issue: What would be the rate of service tax applicable wherein invoices were raised before 1st April 2012 and the payments shall be after 1st April 2012 for both cases?

Clarification: Clarification vide Circular No. 158/9/ 2012–ST provided that in case of the 8 specified services and services wherein tax is required to be paid on reverse charge by the service receiver, the point of taxation is the date of payment.

In this regard, Circular No 154/5/2012 – ST dated 28th March 2012 has also issued clarifying the same.

Thus in case of such 8 specified services provided by individuals or proprietary firms or partnership firms and in case of services wherein tax is required to be paid on reverse charge by the service receiver, if the payment is received or made, as the case maybe, on or after 1st April 2012, the service tax needs to be paid @12%.

Hence, the invoices issued before 1st April 2012 may reflect the previous rate of tax (10% and cess). In case of need, supplementary invoices may be issued to reflect the new rate of tax (12% and cess) and recover the differential amount. In case of reverse charge, the service receiver pays the tax and takes the credit on the basis of the tax payment Challan. Cenvat credit can be availed on such supplementary invoices and tax payment Challans, subject to other restrictions and conditions as provided in the Cenvat Credit Rules 2004.

Further, this clarification is important to further Determine the point of taxation in case of change in effective rate of tax which is reproduced here in below:-

Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of tax in respect of a service, shall be determined in the following manner, namely,:-

(a) in case a taxable service has been provided before the change in effective rate of tax –

(i) where the invoice for the same has been issued and the payment received after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii) where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or

(iii) where the payment is also received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment;

(b) in case a taxable service has been provided after the change in effective rate of tax,-

(i) where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or

(ii) where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii) where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice."

For ease of your understanding, a table is created for total understanding of Rule 4 of the Point of Taxation Rules, considering different Date of completion of Service, Date of Invoice and Date of Payment when taxable services provided before or after the change in effective rate of tax:-

Open Issues even after clarifications:-

++ Is interest payable on differential payment of Service tax....answer seems Yes, but why said Circular is Silent.

++ Moot Question -> a What is the taxable event under service tax? Relevant for the applicability of Rule 4(a)(i) of the Point of Taxation Rules 2011.

•  Can there be service tax even before rendering the services?

•  Why new rate would be applicable when service is rendered before change in effective rate of Service tax?

•  'Tax on services Vs. Tax on Advances'

The Hon'ble Supreme Court in the case of "All India Federation of Tax Practitioners Vs. UOI 2007-149-SC-ST” held that “tax on things or goods can only be with reference to a taxable event” and same contention is upheld also in the case of "Association of Leasing & Financial Service Companies vs. UOI 2010-87-SC-ST-LB" that Taxable Event is Rendering of Service

Thanks & Best Regards

Bimal Jain

FCA, ACS, LLB, B.Com (Hons)

Email: bimaljain@hotmail.com