Point of Taxation Rules 2011

Notification 18/2011 dated 1st March 2011 brought stringent provisions of service tax to get early revenue to the government by introducing “Pont of Taxation Rules, 2011”. The purpose of rule is to set out as to when service tax to be paid by the service provider and determination of effective rate of service tax.

From 1st April 2011 the rule is came into effect but through notification no.25/2011 it is effectively applicable from 1st July 2011.

What is the “Point of Taxation”?

“Point of Taxation” means the point in time when a service shall be deemed to have been provided so that tax to be paid to government. This is for the purpose of Collection of Service Tax.

The following are the Point of Taxation:-

Situation

Point of Taxation

If Service Provided

Date of Invoice (If Invoice not raised within 14 days of provision of Service then date of completion of service) or Date of amount received whichever is earlier

Before provision of service Invoice raised and payment received

Date of Invoice or Date of payment received whichever is earlier

If advance received towards provision of service

Date of Advance received

In case of Service provided BEFORE the “Change in effective Rate”:

S.No

Before Change

After Change

Point of Taxation

1

Invoice Raised

Payment Received

Date of Issuing of Invoice

2

Payment Received

Invoice Raised

Date of Payment

3

Invoice Raised & Payment Received

-

Date of receipt of payment or date of issue of Invoice whichever is earlier

4

-

Invoice Raised & Payment Received

Date of receipt of payment or date of issue of Invoice whichever is earlier

In case of Service provided AFTER the “Change in effective of Rate”:

S.No

Before Change

After Change

Point of Taxation

1

Invoice Raised

Payment Received

Date of Payment

2

Payment Received

Invoice Raised

Date of issuance of Invoice

3

Invoice Raised & Payment Received

-

Date of receipt of payment or date of issue of Invoice whichever is earlier

4

-

Invoice Raised & Payment Received

Date of receipt of payment or date of issue of Invoice whichever is earlier

5. Payment of Tax in cases of new Services other than Services Covered under Rule 6:-

Situation

Taxability

Invoice Raised and Payment received BEFORE such service become Taxable

No tax shall be payable

Payment received BEFORE such service become taxable but Invoice raised after such service become taxable but WITHIN 14 days period referred in Rule 4A of the Service Tax Rules, 1994

No tax shall be payable

Payment received BEFORE such service become taxable but Invoice raised after such service become taxable but NOT within 14 days period referred in Rule 4A of the Service Tax Rules, 1994

Taxable

Determination of Point of Taxation in case of “Continuous Supply of Service”:-

“Continuous Supply of Service” means any service provided or to be provided for a continuous period exceeding three months under a contract.

Situation

Point of Taxation

If Invoice Raised within 14 days of completion of Service

The time when the invoice for the service provided or to be provided is issued.

If Invoice NOT Raised within 14 days of completion of Service

Date of Completion of Service

If, before the time specified above the service provider receives a payment.

Date of receipt of Payment

If advance received (in all cases)

Date of receipt of each such advance

Date of Completion: 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

Determination of Point of Taxation in case of Specified Services or Persons:-

S.No

Specified Persons

Point of Taxation

1

The services covered by sub-rule (1) of rule 3 of Export of Services Rules, 2005

Date on which Payment Received

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

2

The persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994 [Notified by Central Govt.]

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.

3

Individuals or proprietary firms or partnership firms providing taxable services

1. Architect

2. Interior Decorator

3. Consulting Engineer

4. Chartered Accountant

5. Cost Accountant

6. Company Secretary

7. Scientific & Technical Consultancy

8. Legal Consultancy

The point of taxation in respect of associated enterprises:- Where the person providing the service is located outside India, 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. Associated enterprises means as set out under Section 92A of the Income-tax Act, 1961.

Determination of Point of Taxation in case of copyrights etc:-

In respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, the point of taxation is as follows.

Situation When

Point of Taxation

The whole amount of consideration for provision of service is ascertainable at the time when service was performed

Date of issuance of Invoice or date of receipt of payment whichever is earlier

The whole amount of consideration for provision of service is NOT ascertainable at the time when service was performed. But Subsequently ascertained in part or otherwise.

Each time- Date of invoice or date of receipt of payment whichever is earlier

This point of taxation rules are not applicable for Provision of service completed or invoices issued prior to 1st July 2011. In Case of Services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued up to 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.

Amendments in CENVAT Credit Rules, 2004:

1. CENVAT Credit rules has been amended to allow service receiver take credit of service tax payable or paid based on invoice received.

2. In case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice.

3. In case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier.

4. If any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited.

Relevant Notifications & Circulars:

1. Notification No.18/2011 dated 1st March 2011

2. Notification No.25/2011 dated 31st March 2011

3. Notification No.28/2011 dated 1st April 2011

4. Notification No.41/2011 dated 27th June 2011

5. Circular No.144/13/2011—ST dated 18th July 2011

6. Notification No. 13/2011-Central Excise (N.T.) dated 31st March 2011