Urgent query on "Point of taxation"

Pinky Agarwal (Chartered Accountant) (426 Points)
Replied 17 March 2011

Point of taxation rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

i. Date on which service is provided or to be provided

ii. Date of invoice

iii. Date of payment

So in the case were company consider debtors against certain service provided but do not raises any invoice. As applying the above rules time of provision of service will be date on which the service is provided.

Pankaj Arora (Learner) (3134 Points)
Replied 17 March 2011

Whichever will be earlier points given below that time your service tax liability raise from the next f.y. 11-12…

i. Date on which service is provided or to be provided

ii. Date of invoice

iii. Date of payment

Ritesh Jain (CA, CS in Job) (675 Points)
Replied 21 March 2011

"Point of taxation rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

i. Date on which service is provided or to be provided

ii. Date of invoice

iii. Date of payment

So in the case were company consider debtors against certain service provided but do not raises any invoice. As applying the above rules time of provision of service will be date on which the service is provided."

DOUBT 1: How can a service be treated as taxable on the basis of clause (i) i.e "service to be provided" i.e on a future date but taxability arises now only.

DOUBT 2: If one goes through the text of notification it is seen that the word " AND" is used between clause i and ii and not "OR" does that word "AND" has created a dependency clause of (ii) over (i).

Pinky Agarwal (Chartered Accountant) (426 Points)
Replied 21 March 2011

Originally posted by : Ritesh Jain

"Point of taxation rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

i. Date on which service is provided or to be provided

ii. Date of invoice

iii. Date of payment

So in the case were company consider debtors against certain service provided but do not raises any invoice. As applying the above rules time of provision of service will be date on which the service is provided."

DOUBT 1: How can a service be treated as taxable on the basis of clause (i) i.e "service to be provided" i.e on a future date but taxability arises now only.

DOUBT 2: If one goes through the text of notification it is seen that the word " AND" is used between clause i and ii and not "OR" does that word "AND" has created a dependency clause of (ii) over (i).

Your first doubt is regarding very disputed issue and the same is not clear to me that how can taxability arise on "service to be provided"??

And regarding your second doubt, as far as my understanding clause (ii) depends on clause (i) as in any situation our service is "service to be provided" and it attaracts the service tax on it. As if we raise any invoice then it is already service to be proivided then only we raise invoice and the same is in case of payment receive.

So, it is highly disputed issue.

Plzz correct if i m wrong nd wait for experts comment on it..

Regards,

Pinky Agarwal

Ritesh Jain (CA, CS in Job) (675 Points)
Replied 21 March 2011

Originally posted by : Pinky agarwal
	Originally posted by : Ritesh Jain "Point of taxation rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates: i. Date on which service is provided or to be provided ii. Date of invoice iii. Date of payment So in the case were company consider debtors against certain service provided but do not raises any invoice. As applying the above rules time of provision of service will be date on which the service is provided." DOUBT 1: How can a service be treated as taxable on the basis of clause (i) i.e "service to be provided" i.e on a future date but taxability arises now only. DOUBT 2: If one goes through the text of notification it is seen that the word " AND" is used between clause i and ii and not "OR" does that word "AND" has created a dependency clause of (ii) over (i). Your first doubt is regarding very disputed issue and the same is not clear to me that how can taxability arise on "service to be provided"?? And regarding your second doubt, as far as my understanding clause (ii) depends on clause (i) as in any situation our service is "service to be provided" and it attaracts the service tax on it. As if we raise any invoice then it is already service to be proivided then only we raise invoice and the same is in case of payment receive. So, it is highly disputed issue. Plzz correct if i m wrong nd wait for experts comment on it.. Regards, Pinky Agarwal

In the old service tax regime also the words "service is provided or to be provided" where used to arrest the taxability of a service i.e you can say event but the laibility of service tax arose only at the time of receipt of payment.

Now under the rule of point of taxation the taxability and its liability is made under the events which occur earlier. But the essense of the word " service to be provided" is not clear in the present context.

Regarding Doubt II ,I personally understand that clause ii is dependent on clause i but I have gone through experts interpretation of the same and according to all of them all the 3 conditions are mutually exclusive and doesnot depend upon each other.

At last I want to say that inpterpretation is a person view and it could change by person to person.

Nevertheless more expert advice is needed.

Regards,

RJ

Rajesh Sharma (Practicing CA) (150 Points)
Replied 21 March 2011

According to me, both the points are dependent i.e. the general principle is to tax the services only after the same has been provided, however, because of any reason either the invoice is issued earlier or payment is received before the provision of services, the same shall be taxable at happening of any of the event i.e. raising of invoice, receipt of payment or provision of service. Further, the words 'to be provided' is being used to tax the advance receipt against the services to be provided.

sheetal (CA) (105 Points)
Replied 21 March 2011

Pints of taxation rules w.e. f 1.4.2011

What about the sales bills raised before 1.4.2011 and payment not recd in apr 2011 i.e. still outstanding still we have to pay service tax on outstanding sales bills ?

Rajesh Sharma (Practicing CA) (150 Points)
Replied 21 March 2011

Hi Sheetal,

In respect of your query regarding sales bills issued before April 01, 2011 and payment not received before apr 2011, it is pertinent to refer Rule 9 of the rules which says that the rules are not applicable to invoices issued before April 01, 2011. Accordingly for invoices raised before April 01, 2011 the tax would be payable on receipt basis only