Point of Taxation Rule

8/3/2019 Point of Taxation Rule

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Rabish Chandra

Coimbatore III B Range,COIMBATORE III DIVISION

COIMBATORE COMMISSIONERATE


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Notification No. 18/2011 Service Tax,dated 1st March, 2011

Point of Taxation Rules, 2011

shall come into force on the 1st day ofApril, 2011

Amendment - Notification No.25/2011 Service Tax, dated 31st March, 2011


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Definitions

(a) Act means the Finance Act, 1994 (32 of

1994);(b) associated enterprises shall have the

meaning assigned to it in section 92A of the

Income Tax Act, 1961 (43 of 1961);


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(c) continuous supply of service meansany service which is provided, or to beprovided continuously, under a contract,

for a period exceeding three months, orwhere the Central Government, by anotification in the Official Gazette,prescribes provision of a particular service

to be a continuous supply of service,whether or not subject to any condition;


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(d) invoice means the invoice referred to inrule 4A of the Service Tax Rules, 1994 andshall include any document as referred to inthe said rule;

(e) point of taxation means the point intime when a service shall be deemed to havebeen provided;

(f) taxable service means a service whichis subjected to service tax, whether or notthe same is fully exempt by the CentralGovernment under Section 93 of the Act;


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For the purposes of these rules, unless otherwiseprovided, point of taxation shall be,-

(a) the time when the invoice for the service provided orto be provided is issued:

Provided that where the invoice is not issued withinfourteen days of the completion of the provision ofthe service, the point of taxation shall be date ofsuch completion.

(b) in a case, where the person providing the service,receives a payment before the time specified in clause(a), the time, when he receives such payment, to theextent of such payment.

*Amended - Point of Taxation (Amendment) Rules, 2011, Notification No.25/2011 Service Tax, dated 31st March, 2011


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Explanation .- For the purpose of this rule,wherever any advance by whatever nameknown, is received by the service providertowards the provision of taxable service, the

point of taxation shall be the date of receiptof each such advance.


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Notwithstanding anything contained in rule 3, thepoint of taxation in cases where there is a * changein effective rate of tax in respect of a service, shallbe 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 rateof tax , the point of taxation shall be date of payment orissuing of invoice, whichever is earlier; or

*Substituted - Point of Taxation (Amendment) Rules, 2011, Notification No.25/2011 Service Tax , dated 31st March, 2011


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(ii) where the invoice has also been issued prior tochange 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 ofinvoice; or

(iii) where the payment is also received before the

change in effective rate of tax , but the invoice forthe same has been issued after the change ineffective rate of tax , the point of taxation shall bethe date of payment;


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

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

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

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


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Explanation.- For the purposes of this rule,change in effective rate of tax shall include achange in the portion of value on which tax is

payable in terms of a notification issued underthe provisions of Finance Act, 1994 or rulesmade thereunder..


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Where a service, not being a servicecovered by rule 6, is taxed for the firsttime, then,

(a) no tax shall be payable to the extent the

invoice has been issued and the paymentreceived against such invoice before suchservice became taxable;

(b) no tax shall be payable if the payment hasbeen received before the service becomestaxable and invoice has been issued within theperiod referred to in rule 4A of the Service TaxRules, 1994.


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Notwithstanding anything contained in rules 3,4 or8, in case of continuous supply of service, the `pointof taxation shall be,-

(a) the time when the invoice for the service providedor to be provided is issued:

Provided that where the invoice is not issued withinfourteen days of the completion of the provision of

the service, the point of taxation shall be date ofsuch completion.

*Amended - Point of Taxation (Amendment) Rules, 2011, NotificationNo.25/2011 Service Tax , dated 31st March, 2011


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(b) in a case, where the person providing the service,receives a payment before the time specified in clause(a), the time, when he receives such payment, to theextent of such payment.

Explanation 1. For the purpose of this rule, wherethe provision of the whole or part of the service is

determined periodically on the completion of anevent in terms of a contract, which requires theservice receiver to make any payment to serviceprovider, the date of completion of each such eventas specified in the contract shall be deemed to be the

date of completion of provision of service.


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Explanation 2.- For the purpose of this rule,wherever any advance, by whatever nameknown, is received by the service providertowards the provision of taxable service, thepoint of taxation shall be the date of receipt ofeach such advance..


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Notwithstanding anything contained in these rules, thepoint of taxation in respect of,-

(a) the services covered by sub-rule (1) of rule 3 ofExport of Services Rules, 2005;

(b) the persons required to pay tax as recipients underthe rules made in this regard in respect of servicesnotified under sub-section (2) of section 68 of theFinance Act, 1994;

*Amended - Point of Taxation (Amendment) Rules, 2011, NotificationNo.25/2011 Service Tax , dated 31st March, 2011


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(c) individuals or proprietary firms orpartnership firms providing taxable services

referred to in sub-clauses (p), (q), (s), (t),(u), (za), (zzzzm) of clause (105) of section65 of the Finance Act, 1994,

shall be the date on which payment is

received or made, as the case may be:Provided that in case of services referred to

in clause (a), where payment is not receivedwithin the period specified by the ReserveBank of India, the point of taxation shall bedetermined, as if this rule does not exist.


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Provided further that in case of servicesreferred to in clause (b) where the payment

is not made within a period of six months ofthe date of invoice, the point of taxationshall be determined as if this rule does notexist.

Provided also that in case of associatedenterprises, where the person providing theservice is located outside India, the point of

taxation shall be the date of credit in thebooks of account of the person receiving theservice or date of making the paymentwhichever is earlier.


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In respect of royalties and payments pertainingto copyrights, trademarks, designs or patents,

where the whole amount of the consideration for theprovision of service is not ascertainable at the timewhen service was performed,

and subsequently the use or the benefit of theseservices by a person other than the provider gives riseto any payment of consideration,

the service shall be treated as having been provided

each time when a payment in respect of such use orthe benefit is received by the provider in respectthereof,

or an invoice is issued by the provider, whichever is

earlier.


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Nothing contained in this sub-rule shall be

applicable,- (i) where the provision of service is completed; or

(ii) where invoices are issued

prior to the date on which these rules come into force. Provided that services for which provision is completed on

or before 30th day of June, 2011 or where the invoices areissued upto the 30th day of June, 2011, the point of taxationshall, at the option of the taxpayer, be the date on which

the payment is received or made as the case may be.

*Amended - Point of Taxation (Amendment) Rules, 2011,Notification No.25/2011 Service Tax , dated 31st March,

2011


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F.No.341/34/2010-TRU

The Point of Taxation Rules (PTR) were formulated vide

Notification No.18/2011-ST dated 01.03.2011. Based on thefeedback, certain amendments are being carried out in theserules vide Notification No. 25/2011-ST dated 31.03.2011.

The highlights of the changes are discussed in the followingparagraphs.

While the rules shall come into force from 01.04.2011, anoption has been given in rule 9 to pay tax on payment basis,as at present, till 30.06.2011.

Rule 3 has been amended to provide that the point of taxationshall be as follows:

(a) Date of invoice or payment, whichever is earlier, if theinvoice is issued within the prescribed period of 14 days fromthe date of completion of the provision of service.

(b) Date of completion of the provision of service orpayment, if the invoice is not issued within the prescribedperiod as above.


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Rule 4 has been amended to clarify that change in theeffective rate of tax shall also include change in that portionof value on which tax is payable in terms of an exemption

notification or rules made in this regard.

It may be noted that an exemption has been granted in valuefor various services vide Notification No. 1/2006-ST dated01.03.2006 which has the effect of payment of tax only on apart of the value.

Similarly either the values or the rates at which tax is payableare provided under rule 6(7, 7A, 7B or 7C) of the Service TaxRules, 1994 as well as the Works Contract (CompositionScheme for Payment of Service Tax) Rules, 2007.

Thus, whenever these values or the composition rates arechanged, it would have the same effect as the change in therate of duty. It is hereby further clarified that the rate of taxshall also include any other notification which is issued,rescinded or amended and has the effect of altering thetaxability of any service.


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Rule 6 relating to continuous supply of service hasbeen aligned with the revised rule 3 and the dateof completion of continuous service has beendefined within the rule.

This date shall be the date of completion of thespecified event stated in the contract whichobligates payment in part or whole for the

contract. For example, in the case of constructionservices if the payments are linked to stage-by-stage completion of construction, the provision ofservice shall be deemed to be completed in partwhen each such stage of construction is

completed.

Moreover, it has been provided that this rule willhave primacy over rules 3, 4 and 8.


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Moreover, the following services have been notifiedas continuous supply of services in terms of clause 2(c)of the rules vide notification No. 28/ST-2011 dated

01.04.2011:

(a) Telecommunication service [65(105)(zzzx)]

(b) Commercial or industrial construction [65(105)(zzq)]

(c) Construction of residential complex [65(105)(zzzh)]

(d) Internet Telecommunication Service [65(105)(zzzu)]

(e) Works contract service [65(105)(zzzza)]

Thus these services will constitute continuous supply ofservices irrespective of the period for which they areprovided or agreed to be provided. Other services willbe considered continuous supply only if they areprovided or agreed to be provided continuously for aperiod exceeding three months.


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Rule 7 relating to associated enterprises hasbeen deleted.

Now that the date of completion of the provision ofservice is an important criterion in the determinationof point of taxation, it shall take care of most of thedealings between the associated enterprises.

Thus in case of failure to issue the invoice within theprescribed period, the date of completion ofprovision of service shall come into effect even ifpayment is not made.


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Rule 7 has thus been replaced by a new provisionwhereby the point of taxation shall be the date of making orreceiving the payment, as the case may be. This provisionshall apply to the following:

(i) Export of services;

(ii) Persons, where the obligation to pay tax is on the

service recipient in terms of rule 2(1)(d) of the ServiceTax Rules, 1994 in respect of services notified undersection 68(2) of the Finance Act, 1994.

(iii) Individuals, proprietorships and partnership firmsproviding specified services (Chartered Accountant, Cost

Accountant, Company Secretary, Architect, InteriorDecorator, Legal, Scientific and Technical consultancyservices). The benefit shall not be available in case ofany other service also supplied by the person concernedalong with the specified services.


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Export of services is exempt subject, inter alia,to the condition that the payment should bereceived in convertible foreign exchange. Untilthe payment is received, the provision ofservice, even if all other conditions are met,would not constitute export.

In order to remove the hardship that will be

caused due to accrual method, the point oftaxation has been changed to the date ofpayment.

However, if the payment is not received withinthe period prescribed by RBI, the point of

taxation shall be determined in the absence ofthis rule.


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In the case of services where the recipient isobligated to pay service tax under rule 2 (1)(d) of

Service Tax Rules i.e. on reverse charge basis, thepoint of taxation shall be the date of making thepayment. However, if the payment is not madewithin six months of the date of invoice, the point

of taxation shall be determined as if this rule doesnot exist.

Moreover, in the case of associated enterprises,when the service provider is outside India, the

point of taxation will be the earlier of the date ofcredit in the books of account of the servicereceiver or the date of making the payment.


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Changes have also been made in theService Tax Rules, 1994 vide notification No.26/2011-ST dated 31.03.2011 and have a close

relationship with the Point of Taxation Rules asfollows:

(i) The obligation to issue invoice shall be within 14days of completion of service and not provision ofservice.

(ii) If the amount of invoice is renegotiated due todeficient provision or in any other way changed interms of conditions of the contract (e.g. contingent onthe happening or non-happening of a future event),the tax will be payable on the revised amount

provided the excess amount is either refunded or asuitable credit note is issued to the service receiver.However, concession is not available for bad debts.


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The credit of input services under rule 4 (7) of the CenvatCredit Rules has also been liberalized vide notification No.13/2011-CE (NT) dated 31.03.2011 and the same shall beavailable on receipt of invoice (except in cases of reversecharge) as long as the payment is made within threemonths. Even specified persons required to pay tax oncash basis will be able to avail credit on receipt of invoice.

Suitable changes have also been made for reversal ofcredit or payment when the value of service is renegotiated

or altered for any reason by refund or issue of a credit noteby the service provider.

Amendment has also been made in Rule 9 of Cenvat CreditRules, 2004 by allowing credit on supplementary invoice,except in non-bonafide cases, which may becomenecessary in certain situations e.g. where the point of tax is

the date of payment while the invoice had already beenissued e.g. rule 4(b)(i) of Point of Taxation Rules.


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It is further clarified that the transitional provisionswill apply to all invoices issued before 31.03.2011 in so

far as taxpayers who switch over to the new rules on01.04.2011.

Those assessees who like to shift to the new rules on01.07.2011 would have similar protection in respect ofinvoices issued before the date they switch over to the

new rules. The benefit has also been extended toservices when provision has been completed before01.04.2011 or 01.07.2011, as the case may be.

It is also clarified that the payments received before the

new rules come into force do not require any transitionalprovisions as they are already required to pay tax onpayment basis.


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Rabish ChandraE-mail:

[email protected]: 9245600799

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Point of Taxation Rule

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