Negative list of services & Other Issues CA Hemant Jajodia.

Negative list of services & Other Issues

CA Hemant Jajodia

Contents

Understanding Service

Negative List of Services

Declared Services

Exempt Services

Bundled Services

Liability of service recipient

Valuation of Service Portion

Place of provision of service

Point of taxation

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Understanding Service

Taxation of services based on negative listA case for negative list?

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Positive List

• Detailed description of taxable services

• Unspecified services not liable to tax

• Neither conducive from point of tax administration nor tax compliance

• Legal disputes

• Possibilites of overlap amongst definitions

• Service definition useful for Import /Export of services, POT,CCR

Negative List

• Overwhelming support as consonance with International Taxation

• Views and suggestions of stakeholders taken into account

• Independent appraisal of services sector prior to introduction of GST

• Smooth transition and significantly ease challenges on GST

• Clarity to reduce quantum of tax controversy

• Expectation of seamless credit mechanism

Negative list based service tax approach may lead to significant jump in tax revenues as services hitherto not taxed come under tax net

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Basic Understanding of the Law

• Taxation of services based on negative list.

• Shift from a selective system of taxing services to a comprehensive system.

• Effective from July 1, 2012.

• Service to be taxed in the jurisdiction of consumption.

• Finance Act, 2012 has defined:

‒ Activity qualifying as service‒ 17 services stated in the Negative List of services – Section 66D‒ 9 services as ‘declared services’ – Section 66E‒ Exemptions

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What is ‘service’

• Not defined• Includes act

done, deed done, work done, operation carried out, execution of act, provision of facility

Activity

• Not defined• Definition

under the Indian Contract Act, 1872, could be adopted

For Conside-

-ration

• Self-service excluded, such as, by one branch to another or HO

• Exception to this outlined in Explanation 2 to clause 44 of Section 65B

Carried out by a person

for another

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Are you providing a service?

• Doing an activity for another person.

• Doing such activity for consideration (Tourist information no consideration)

• Contractual Obligation

Excludes : I M A G E

• Activity does not consist only of transfer of title in goods or immovable property by way of sale, gift or in any other manner.

• Activity does not consist of a transaction in money or actionable claim.

• Consideration for activity is not in the nature of court fees for a court or tribunal.

• Activity is not in the nature of service provided by an employee of such person in the course of employment.

• Deemed sales

Finance Act 2012 - Service Tax8

To determine whether you are providing a service?

S.No.

Question Answer

1 Am I doing an activity (including declared service) for another person? Yes

2 Am I doing such activity for a consideration? Yes

3 Does this activity consist only of transfer of title in goods or immovable property by way of sale, gift or in any other manner?

No

4 Does this activity constitute only a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution?

No

5 Does this activity consist only of a transaction in money or actionable claim? No

6 Is the consideration for the activity in the nature of court fees for a court or a tribunal? No

7 Is such an activity in the nature of a service provided by an employee of such person in the course of employment?

No

8 Is services in the capacity of M.P., Member of State legislature and Member of other local authorities etc. No


To determine whether service provided by you is taxable and tax is payable ?

If you are providing a ‘service’ (Step 1) and then pose the following questions to yourself-

S.No.

Question Answer

1 Have I provided or agreed to provide the service? Yes

2 Have I provided or agreed to provide the service in the taxable territory? Yes

3 Is this activity entirely covered in any of the services described in the negative list of services specified in section 66D of the Act or otherwise exempted by MEGA Notification

No


Consideration

Monetary or Non monetary Damages for longer duration of use i.e. demurrage charges:

Related to provision of service: Taxable e.g. containers retained beyond permissible period

Subsidies :

Taxable when influence the unit price: price must change proportionate to amount given Deficit subsidies not taxable

Accidental damages:

Not related to provision of service: not taxable e.g. damages to a rented property


Employer – Employee - Taxability

Services provided outside the terms of employment will be taxable

Non-compete agreement taxable

Expenses recovered from employees for private use of company facilities taxable -

Canteen charges (usually exempt unless AC and alcoholic liquor being served)

To and fro transportation will be taxable;

Stay in guest house Rs 1000 per day or more taxable

Charges for private use of official car: taxable unless “right to use”


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Service Tax – Negative List

• Negative List effective from July 1, 2012

‒ Sectors covered in the negative list are:

Negative Listfor

Sectors (exhaustive)

Entertainment and Amusement Government or Local authorities

Agriculture and Animal Husbandry

Education

Financial Sector

Public Transportation Specified persons

Trading of goods Miscellaneous


Services by Government or a Local Authority EXCEPT for services: by Posts Department by way of speed post, life insurance & agency services to Non-Govt. Entity; in relation to Vessel/Aircraft; transport of Goods/Passengers; & support Services to Business entities.

For support services provided by the Govt. to business entities, other than by way of renting of immovable property, ST would be payable by the service recipient i.e. the business entities under Reverse Charge Mechanism. However, services which are provided by Govt. in terms of their sovereign right to business entities are not support services

Services by RBI;

Services by a foreign diplomatic mission located in India;

Services relating to Agriculture or Agricultural Produce;

Trading of goods [including future contracts in commodities]



Any process amounting to manufacture or production of goods;

Selling of space/time slots for advertisements EXCEPT advertisements broadcast by radio or television;

Sale of space or time for advertisement in print media, bill boards, buildings, cell phones, internet, ATM, aerial advertising are not taxable. However, services provided by advertisement agencies for preparing advertisements are taxable.

Services by way of access to a road or a bridge on payment of toll charges;

Betting, gambling or lottery;

Admission to Entertainment Events or access to Amusement Facilities;

Transmission or distribution of electricity by an electrical transmission or distribution authority;

Services by way of education - (i) pre-school education & education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognized by law & (iii) education as a part of an approved vocational education course;



Services by way of renting of residential dwelling for use as residence;

Services by way of (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount & (ii) inter-se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers;

Service by way of transportation of passengers, with or without accompanied belongings, by (i) a stage carriage; (ii) railways [except for first class & air conditioner coach]; (iii) metro, monorail or tramway; (iv) inland waterways; (v) public transport, other than predominantly for tourism purpose, in a vessel between places located in India & (vi) metered cabs, radio taxis or auto rickshaws;

Service by way of transportation of goods by (i) road except for goods transportation agency & courier agency; (ii) an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or (iii) by inland waterways;

Funeral, burial, crematorium or mortuary services including transportation of the deceased.


Declared Services

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Declared Services

• Declared services means any activity carried out by a person for another person for a consideration.

• Following activities are declared services under Section 66 E:

‒ Renting of immovable property subject to Municipal Tax deduction

‒ Construction of a complex, building, civil structure or part thereof exclude where consideration is received after issuance of completion certificate by competent authority

‒ Temporary transfer or permitting use of any IPR excludes copyright

‒ Development, design, adaptation, implementation, etc. of information technology software

• A mere license to use such canned software, which is not transfer of “right to use” is a provision of service

• On-site development of software is service

• Internet downloads also service

• Sale of pre-packaged or canned software is sale of goods

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Declared Services

• Agreeing to the obligation to refrain from an act or tolerate an act or situation or to do an act

• Transfer of goods by way of hiring, leasing, licensing without transfer of right to use such goods

• Activities in relation to delivery of goods on hire purchase or any system of payment by installments

• Service portion in the execution of works contract

• Service portion in an activity wherein food or any other article of consumption or any drink is supplied

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Exempt Services

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Wholly Exempt Services

• Notification No. 25/2012-ST, dated June 20, 2012, effective from July 1, 2012

‒ Sectors covered in Wholly Exempt Services are:

Wholly Exempt

Services forSectors

(exhaustive)

Health

Transport of specified goods

Education

Hospitality Job work

Business Exhibition

Erection/ Construction/ Maintenance/ Repair/ Renovation Services for specified purposes

Miscellaneous Copyright

Exemption

Medical Services

Clinical Establishment, an authorised Medical Practitioner or Para-Medics; Veterinary clinic in relation to health care of animals or birds; & Approved Clinical Research Organisation engaged in technical testing or analysis of

new drugs on human participants

Religious & Charitable Services

Charitable activities by an entity registered u/s 12AA of Income Tax Act; & Renting of precincts of religious place meant for general public or conducting of

religious ceremony.

Art & Culture

Training or coaching in recreational activities in arts or culture; & Performance by artist in folk or classical art forms of music, dance, or theatre

excluding services provided by such artist as a brand ambassador.


Exemption

Sports

Training or coaching in recreational activities in sports; Services by individual [as player, referee, umpire, coach or team manager] or a

recognised sports body to another recognized sports body; & Sponsoring of sporting events of specified organization or federation.

Educational Services

Services to or by an educational institution in respect of education exempted from service tax, by way of (a) Auxiliary educational services or (b) renting of immovable property; &

Public libraries by way of lending of books & publications.

Hospitality Services

Renting of hotel, inn, guest house, club or other commercial places meant for residential or lodging purposes having declared tariff < ` 1,000/day &

Serving of food or beverages by restaurant, eating joint or mess provided it is not air-conditioned AND do not hold licence to serve alcohol.


Exemption

Construction Services Construction, erection, repair, maintenance, renovation or alteration of: For Government , Local Authority & Government Authority Civil structure meant for use other than for business or profession; Structure meant for use as educational/clinical/cultural establishment; Canal, dam, any other irrigation works or pipeline; & Residential complex meant for self-use or employees or other persons specified in

Explanation 1 to Section 65B(44).

For any person Road, bridge, tunnel, or terminal for road transportation for use by general public; Civil Structure pertaining to specified scheme; Building of Registered entity [12AA of IT Act ] & used for religious purpose by general public; Pollution control or effluent treatment plant [except when located as a part of factory]; Airport, port or railways, including monorail or metro [except for repair & maintenance];Single residential unit other than a part of a residential complex; Post-harvest storage (incl. cold storage) for agricultural produce & mechanised food grain handling system for agricultural produce as food stuff excluding alcoholic beverages.


Exemption Transportation Services

Transportation by Rail or Vessel within India Petroleum & petroleum products, chemical fertilizer and oilcakes; Relief materials for victims of natural or man-made disasters; Newspaper, defence equipments, mail bags & household effects; Railway equipments & agricultural produce & foodstuff (excl. alcoholic beverages).

Transportation by Goods Transport Agency Fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; or Other Goods [amount charged in single carriage ≤ ` 1,500 or all goods for single consignee ≤ ` 750].

Transport of passengers through (a) Air [embarking from or terminating in an airport located in North-Eastern State or Bagdogra, West Bengal]; (b) Contract carriage; & (c) ropeway or cable car or tramway;

Service by way of hire (a) to a state transport undertaking motor vehicle for carrying > 12 passengers or (b) vehicle meant for transportation of goods to a goods transport agency;

Service by way of vehicle parking to general public except leasing of space for parking facility.


Exemption Intermediary Services

Services by (a) sub-broker or an authorised person to a stock broker………; Sub-contractor providing services by way of works contract to another

contractor providing works contract services which are exempt; Job working in relation to (a) agriculture, printing or textile processing; ……..; goods on which appropriate duty is payable by principal manufacturer….

International Services

Services by organiser towards business exhibition held outside India; Services by Service Provider located in a non-taxable territory to:-(a) Government/individual for purpose except for business or profession; (b) Registered Entity [Section 12AA] or (c) Person in a non-taxable territory.

Public Utility Services Services to Government for (a) carrying out activity ordinarily entrusted on municipality

- public health, sanitation etc. (b) Repair of a vessel or an aircraft; Services by departmentally run public telephone or free telephone at airport/hospital; Providing of public conveniences like public toilets, lavatories , urinals etc.


Exemption

Other Services

• Services provided to UN or a specified international organization;

• Services provided by (a) an arbitral tribunal or (b) an advocate or firm of advocates by legal services to (i) person except business entity or (ii) business entity with turnover < ` 10 Lakh in Preceding FY;

• Services provided by an advocate or firm of advocates by legal services to similar entities;

• Temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, artistic works or cinematograph films;

• Services by way of collecting or providing news;

• Services of general insurance business provided under specified schemes;

• Services provided by an incubatee up to turnover of ` 50 Lakh subject to the certain conditions;

• Service by an unincorporated body or a non- profit entity to its own members by way of reimbursement of charges or share of contribution (a) as trade union ; (b) for carrying out exempt services or (c) up to ` 5000 /month;


©2012 Deloitte Touche Tohmatsu India Private Limited

Partially Exempt Services(NN 26/2012-ST, dated June 20, 2012 effective from July 1, 2012)

Hospitality Services

Particulars Taxable % Conditions

Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function together with renting of such premises

70 No CENVAT credit on goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act

Fair Market value of all goods and services should be included

Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes

60 No CENVAT credit on inputs and capital goods

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Transport Services


Transport of passengers by air, with or without accompanied belongings

40 No CENVAT credit on inputs and capital goods

Transport of goods by road by Goods Transport Agency 25 No CENVAT credit on inputs, capital goods and input services

Renting of any motor vehicle designed to carry passengers

40 Same as above

Transport of goods in a vessel 50 Same as above



Tour Operator Services


Services by a tour operator in relation to a package tour

25 (i) No CENVAT credit on inputs, capital goods and input services(ii) The bill is inclusive of charges for such tour

Services by a tour operator in relation to a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

10 (i) No CENVAT credit on inputs, capital goods and input services(ii) Invoice indicates that charges are towards accommodation(iii) Exemption not apply if invoice only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation

Services, other than services specified above, provided or to be provided to any person, by a tour operator in relation to a tour

40 (i) No CENVAT credit on inputs, capital goods and input services(ii)Invoice indicates that amount charged in the bill is the gross amount charged for such tour

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Construction Services


Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

25 (i) No CENVAT credit on inputs(ii) The value of land is indicated in the amount charged from the service receiver

Fair Market value of all goods and services should be included

Leasing /Hire purchase


Services in relation to financial leasing including hire purchase

10 (i) Payable on interest portion

(ii) On lease management fee, processing fee, documentation charges and administrative fee, service tax is payable on 100% value

Bundled Services

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Bundled Services

Meaning‘Bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.’

Determination of service category• Reference to a service not to include reference to a service used for providing main service.• Specific description to be preferred over general description.• If various elements of service are naturally bundled in the ordinary course of business – service

which gives the essential character.• If various elements of service are NOT naturally bundled in the ordinary course of business –

service which gives the highest service tax liability.

Naturally bundled Meals and air/rail travel: Air travel is the service Breakfast and hotel accommodation: Hotel accommodation is the service Meeting, accommodation, food - Convention services

Unnatural bundled• Renting for both commercial and residential – Service Tax liability ?


Liability of Service Recipient

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Service Recipient – Liability

S.No

Particulars Percentage of service tax payable

by the person providing service

Percentage of service tax

payable by the person receiving

the service

1. Services by an insurance agent to any person carrying on insurance business

NIL 100%

2. Transportation of goods by road services by a goods transport agency to a factory, society, co-operative society, dealer registered under central excise, any company and partnership firms

NIL 100%

3. Sponsorship to any body corporate or any partnership firm located in the taxable territory

NIL 100%

4. Services by an arbitral tribunal to any business entity located in the taxable territory

NIL 100%

5. Services by an individual/ firm of advocate to any business entity located in the taxable territory

NIL 100%

6. Support service by Government or local authority to any business entity located in the taxable territory excluding renting, transport of goods/passenger, services in relation to aircraft or vessel

NIL 100%

7. *Supply of manpower for any purpose 25% 75%

NN 30/2012 –ST dated, June 20, 2012, effective from July 1, 2012

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Service Recipient – Liability

S.No

Particulars Percentage of service tax

payable by the person

providing service

Percentage of service tax payable

by the person receiving the

service

8. *Renting or hiring any motor vehicle designed to carry passenger to any person who is not engaged in similar line of business:(a) on abated value(b) on non abated value

NIL60%

100%40%

9. *Works contract services 50% 50%

10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

NIL 100%

11. *Security services (effective 7th August, 2012) 25% 75%

12. Services by Director (effective 7th August, 2012) NIL 100%


* These services should be provided by individual, HUF, proprietary firm, partnership firm to any Company or business entity located in taxable territory

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Issues under reverse charge mechanism

• Additional burden of compliance and keeping records

• In case of services such as Man power recruitment, Security, Works contract and Rent-a-cab service, knowledge of status of service provider and service recipient is required to ascertain service tax liability.

• As per explanation – II to Notification 30/2012, in case of works contract, service receiver and service provider can avail different valuation options.

• A lot of hazels can arise in a case of works contract, where service receiver and service provider opt for different valuation options.

• As per rule 7 of POTR, date of payment will be point of taxation in case of service, where service recipient is liable to pay service tax.

• If payment not made within six months the point of taxation shall be invoice date

• In case of partial reverse charge, Cenvat credit of service tax paid by service provider and service receiver is eligible to avail on different occasions.

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Valuation

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Valuation

• Service tax is payable on the gross amount charged

• Cum Tax benefit in case of contract inclusive of service tax

• gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise

• 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.

• Rate of exchange should be as per Customs

• Where value of service cannot be determined, comparable value for providing similar service should be adopted.

• If comparable value not available, then taxable value cannot be less than the cost of provision of such taxable service

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Valuation

• Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

• The expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service

• The amount realised as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service shall be included for the purpose of payment of service tax.

Following expenses are not to be included in the value of taxable service:-

• interest on delayed payment of any consideration for the provision of services or sale of property, whether movable or immovable;

• accidental damages due to unforeseen actions not relatable to the provision of service;

• subsidies and grants disbursed by the Government, not directly affecting the value of service.

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Valuation of Service Portion in a Works Contract

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Valuation of Service Portion – Works contract

Where actual value of goods transferred in the execution of works contract is available with the Company

Value of service is:

Gross amount charged for the works contract (excluding value added tax charged)

less

actual value of property in goods transferred in the execution of the works contract.


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Valuation of Service Portion – Works contract

Where actual value of goods transferred in the execution of works contract is not available with the Company

Value of service is:

Total Amount = Gross amount charged for the works contract + Fair market value of all goods and services supplied in or in relation to the execution of works contract - amount charged for such goods or services - Value added tax or sales tax

“ ‘original works’ means-

(i) all new constructions;

(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;”

In the case of works contract entered into for execution of original work

40% of total amount charged for works contract

In the case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods

70% of total amount charged for works contract

In the case of any other type of works contract 60% of total amount charged for works contract


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Valuation of Service Portion in a Restaurant or as an outdoor catering

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Valuation of Service Portion in a Works Contract

Sl. No. Description Percentage of the total amount on

which tax payable (1) (2) (3)1. Service portion in an activity wherein goods, being food or any

other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant

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2. Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering

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Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering:-

Total Amount = Gross amount charged + Fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink- amount charged for such goods or services - Value added tax or sales tax

Provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985

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Place of Provision of Service

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Determination of place of provision of service

• The Place of provision of Service Rules, 2012 (POPOS Rules) is effective from 1 July 2012

• Power given to the Central Government to make rules for determination of place of provision of service under Section 66C of the Act

• POPOS Rules are also applicable to a situation where the service provider or service receiver or both are located outside the taxable territory

• Export of Service Rules, 2005 and Taxation of Services (Provided from outside India and received in India) Rules, 2006 superseded

• The POPOS Rules determine the exact place of provision of services on the basis of their consumption

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Place of provision of service is required to be determined by application of following Rules:

Rules Place of provision of service

R 3 Location of the service receiver – Default rule to be applied in case the place of provision of service is not determinable under below Rules

Location of service receiver (Example Intellectual Property Rights)

R 4 Performance based services Location where the services are actually performed (courier, repair, storage, cargo handling, technical testing, dry cleaning, beauty treatment, training)

R 5 Location of immovable property Location of immovable property (leasing of building, construction, maintenance, architect, security)

R 6 Services related to events Place where event is actually held (conferences, exhibitions, fairs, seminar, weeding, sports)

R 7 Part performance of a service at different locations Location in the taxable territory where the greatest proportion of service is provided

Even if the services are partly performed in India then also it is taxable

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Place of provision of service is required to be determined by application of following Rules:

• Where more than one Rule merits equal consideration, the later Rule shall apply

• Central Government retains power to notify place of provision of service on the basis of place of effective enjoyment of service

Rules Place of provision of service

R 8 Services where the provider as well as receiver is located in taxable territory

Location of service receiver – Repair undertaken outside India but both service provider and recipient located in India

R 9 Specified services (Services provided by banking company or a financial institution or a NBFC to account holder, Online information and database access or retrieval services, intermediary services, services consisting of hiring of means of transport, up to a period of one month)

Location of service provider (social networking sites, trade statistics, online newspaper and journal, tour operator

R 10 Service of transportation of goods (air, vessel, rail or GTA is covered)

Place of destination of goods For GTA - Location of person liable to pay tax

R 11 Passenger transportation services Place where passenger embarks on the conveyance for continuous journey

R 12 Services provided on board conveyances First scheduled point of departure of that conveyance for journey – Movie on demand on a Delhi – Bangkok flight

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Point of Taxation

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Point of Taxation

RULE 3 – General Rule

Determination of point of taxation. — “point of taxation” shall be earlier of -

(a) the time when the invoice for the service provided or agreed to be provided is issued;

(b) The time when the person providing the service receives a payment, to the extent of

such payment;

Exception:

(i) If invoice not issued within specified time, the point of taxation will be date of completion

of service or payment receipt whichever is earlier.

(ii) in case of continuous supply of service 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 receiver of service 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;

(iii) date of payment” shall be the earlier of the dates on which the payment is entered in the books of account or is credited to the bank account of the person liable to pay tax.

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Point of TaxationRule 4 - Determination of point of taxation in case of change in rate of tax -

Relevant

Rules

Date – Before change in rate

(10%)

Date – After change in rate (12%)

Effective Rate

Point of Taxation

4(a)(i) Service Provided Invoice RaisedPayment Received [WEE]

12% Earlier of date of invoice or payment

4(a)(ii) Service ProvidedInvoice Raised

Payment Received 10% Date of issuing invoice

4(a)(iii) Service Provided Payment Received

Invoice Raised 10% Date of payment

4(b)(i) Invoice Raised Service Provided Payment Received

12% Date of payment

4(b)(ii) Invoice RaisedPayment Received [WEE]

Service Provided 10% Earlier of date of invoice or payment

4(b)(iii) Payment Received Service ProvidedInvoice Raised

12% Date of issuing invoice

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Point of TaxationRULE 5 - Payment of tax in case of new services i.e. where a service is taxed for

the first time say Directors Services

RULE 7 - Determination of point of taxation in case of specified services or persons.• In case of Section 68(2) services i.e. where service recipient is liable to pay tax under reverse

charge, the point of taxation shall be the date of payment

• Where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined on the basis of date of invoice

• In case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

Sl. No.

Situation Tax/No Tax

A Invoice issued & payment received prior to service became taxable No Tax

B Payment received prior to service became taxable and invoice issued within 14 days of the date when service is taxed for the first time

No Tax

C Others Tax


Point of Taxation ………..

Service Payment Invoice Service Completion

Point of Taxation

Remarks

Taxable services 20.3.2012 1.4.2012 10.4.2012 20.3.2012 20th March being earlier of three events - Rule 3

Taxable Work contract with no effective rate change

20.6.2012 1.7.2012 10.7.2012 20.6.2012 20th June being earlier of three events - Rule 3

Taxable Works contract with effective rate change

20.6.2012 1.7.2012 10.7.2012 1.7.2012 Here service provided after change in rate of tax and invoice also issued after change in rate of tax , so POT is 1st July, 2012 - Rule 4(b) (iii)

Newly Taxed Service

20.6.2012 1.7.2012 10.7.2012 No Tax Payment received before service became taxable and invoice also issued

within 14 days so no tax [Rule 5(B)]

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Point of Taxation

RULE 8. Determination of point of taxation in case of copyrights, etc. — In respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.

RULE 8A. Determination of point of taxation in other cases. — Residual rule empowers the Central Excise officer to determine the point of taxation to the best of his judgment if date of invoice or date of payment or both are not available

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Issues in CENVAT Credit Rules

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Broad overview of the changesCENVAT Credit Rules

• Dumpers and tippers included in definition of capital goods w.e.f. 1-7-2012

• Duty on removal of capital goods after use or cleared as waste & scrap to be paid at higher of CENVAT credit as reduced by specified percentage or duty on transaction value w.e.f. 17-3-2012

• Credit of inputs and capital goods without bringing them into premises allowed to service provider subject to maintenance of documentary evidence (Rule 4)

• Amendment to Rule 6(3) wherein the rate of payment increased to 6% for the manufacturer/service provider who does not maintain separate accounts w.e.f. 1-4-2012

• Credit allowed on the basis of tax payment challan for Service Tax paid under reverse charge

• Rules relating to distribution of credit of input services by ISD amended (Rule 7)

• Interest not applicable where credit has been wrongly availed but reversed prior to utilisation (Rule 14)

• Unutilized credit of SAD at the end of each quarter can be transferred to another factory of the manufacturer (Rule 10A)

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Negative list of services & Other Issues CA Hemant Jajodia.

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