OVERVIEW
Point of Taxation Rules, 2011 has been made
vide Notification No. 18/2011 dated 01.03.2011 and on recommendations and
suggestions of industry suitably amended by Notification No. 25/2011 dated
31.03.2011, Notification No. 28/2011 dated 01.04.2011 and Notification No.
41/2011 dated 27.06.2011.
Why need of Point of Taxation Rules, 2011?
Ans.Before
the applicability of these rules, service tax was payable on receipt of payment
in respect of taxable services provided. So there is more chance of revenue
loss to the government. So with the introduction of Point of Taxation Rules,
2011, now service tax will be paid on accrual
basis except in certain specified cases.
Rule 1– Short title and commencement
1. These
rules shall be called the Point of Taxation Rules, 2011.
2. They shall
come into force on the 1st day of April, 2011.
Rule 2– Definition
In these rules, unless the context otherwise requires,-
(a)
“Act”‖ means the Finance Act, 1994 (32 of
1994);
(ba) “Change in effective rate of tax”‖ shall
include a change in the portion of value on
Which tax is payable in terms of a
notification issued in the Official Gazette under
The
provisions of the Act, or rules madethereunder;
(b)
“continuous supply of service”‖ means any
service which is provided, or to be provided continuously or on recurrent
basis, under a contract, for a period exceeding three months with the
obligation for payment periodically or from time to time, or where the Central
Government, by a notification in the Official Gazette, prescribes provision of
a particular service to be a continuous supply of service, whether or not
subject to any condition;
(c)
“Invoice”‖ means the invoice referred to in
rule 4A of the Service Tax Rules, 1994 and shall include any document as
referred to in the said rule;
(d)
“point of taxation”‖ means the point in time
when a service shall be deemed to have been provided;
Rule 2A– Date of payment
For the purposes of these rules, ―date of payment‖
shall be the earlier of the dates on which the payment is entered in the books
of accounts or is credited to the bank account of the person liable to pay tax:
Provided that —
(A)
the date of payment shall be the
date of credit in the bank account when —
(i)
there is a change in effective
rate of tax or when a service is taxed for the first time during the period
between such entry in books of accounts and its credit in the bank account; and
(ii)
the credit in the bank account is
after four working days from the date when there is change in effective rate of
tax or a service is taxed for the first time; and
(iii)
the payment is made by way of an
instrument which is credited to a bank account,
(B)
if any rule requires determination
of the time or date of payment received, the expression ―date of payment shall
be construed to mean such date on which the payment is received
Rule 3 - Determination of Point of Taxation (General Provision)
For the purposes of these rules, unless otherwise
provided, point of taxation shall be-
(a). the
time when the invoice for the service provided or agreed to be provided is
issued :
“Provided that where the invoice is not issued within the time period specified
in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the
date of completion of provision of the service”;
(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 the extent
of such payment.
“Provided that for the
purposes of clauses (a) and (b), —
(i).
in case of continuous supply of service where
the provision of thewhole or part of the service is determined periodically on
thecompletion of an event in terms of a contract, which requires thereceiver of
service to make any payment to service provider, thedate of completion of each
such event as specified in the contractshall be deemed to be the date of
completion of provision ofservice;
(ii). Wherever
the provider of taxable service receives a payment up torupees one thousand in
excess of the amount indicated in theinvoice, the point of taxation to the
extent of suchexcess amount,at the option of the provider of taxable service,
shall be determinedin accordance with the provisions of clause (a).”
Explanation — For the purpose of
this rule, wherever any advance by whatever name known, is received by the
service provider towards the provision of taxable service, the point of taxation
shall be the date of receipt of each such advance.
ANALYSIS of
Clause (a) & (b): -
As a summary, point of taxation for a service
performed is determined as per Rule 3 as follows:
1. Date
of invoice or payment, whichever is earlier (if the invoice is issued within
the prescribed period of 30 days*from the date of completion of the
provision of service)
2.
Date of completion of the provision of service
or payment, whichever is earlier (if the invoice is not issued within the
prescribed period as above.)
3. Date
of receipt of advance payment
*Note: - 45 days in case
of banking company or a financial institutions including non-banking financial
institutions
The applicability of the rule will be clear from the
illustrations in the following table:
No.
|
Condition
|
Date
of Completion of Service
|
Date
of Invoice
|
Date
of Receipt of Payment
|
Point
of Taxation
|
|
1
|
Invoice
issued in 30 days and before receipt of payment
|
April 10 2014
|
April 20 2014
|
April 30 2014
|
April 20 2014
|
|
2
|
Invoice issued in 30
days and after receipt of payment
|
April 10 2014
|
April 20 2014
|
April 15 2014
|
April 15 2014
|
|
3
|
Invoice
issued in 30
days
but payment received before completion of service
|
April 10 2014
|
April 20 2014
|
April 5 2014
|
April 5 2014
|
|
4
|
Invoice issued after 30
days and before receipt of payment
|
April 10 2014
|
May 15 2014
|
May 20 2014
|
April 10 2014
|
|
5
|
Invoice
issued after 30 days and after receipt of payment
|
April 10 2014
|
May 15 2014
|
May 10 2014
|
April 10 2014
|
|
6
|
Invoice issued in 30
days but payment
received before completion of service
|
April 10 2014
|
May 15 2014
|
April 5 2014
|
April 5 2014
|
|
7
|
Invoice
not issued in 30 days. Part payment before completion , remaining later
|
50%
|
April 20 2014
|
May 25 2014
|
April 10 2014
|
April 10 2014
|
50%
|
April 20 2014
|
May 25 2014
|
April 30 2014
|
April 20 2014
|
||
ANALYSIS of
Proviso (i): -
As per Rule 2 (c) of Point of Taxation Rules, 2011, a
continuous supply of service means:
·
Any service provided orto be provided
continuously by a service provider under
a contract for a period more than 3 months
or
·
Such services which the central government
prescribes by a notification to be issued in the nature of continuous supply of
services.
As per Notification No.28/2011, the following services will
fall under continuous supply of service:
1.
Commercial or industrial construction service – Clause (zzq) of section 65(105)
2.
Construction of complex clause – Clause (zzzh) of section 65(105)
3.
By the telegraph authority in relation
to telecommunication service – Clause
(zzzx) of section 65(105)
4.
In relation to internet telecommunication
services– Clause (zzzu) of section
65(105)
5.
Works contract service – Clause (zzzza) of section 65(105)
In case of continuous supply of service, the Point of
Taxation is the‘specified date’ or date of issue of invoice or date of receipt
of payment whichever is earlier.
“Specified date”
would be the date specified in the contract, as to when the payment is liable
to be paid by the service receiver in case of continuous supply of service, the
whole or part of which is determined or payable periodically or from time to
time. If there is no specified date, then the Point of Taxation would be the
earliest of the following dates:
(i).
Date of issue of invoice or
(ii). Date
of receipt of payment
Illustration: -
There is service of Construction which is included in the
continuous supply of service as notified by the Government. As per contact of
service, some dates are specified as
the date of part payment for the part performance of service. Following table
determines the Point of taxation of such service at different intervals: -
Specified Date as per Contract
|
Date of Invoice
|
Date of Payment
|
POT
|
Part provision of service
|
25 April 2014
|
30 April 2014
|
5 May 2014
|
25 April 2014
|
25%
|
31 May 2014
|
25 May 2014
|
6 June 2014
|
25 May 2014
|
50%
|
30 June 2014
|
5 July 2014
|
26 June 2014
|
26 June 2014
|
75%
|
-
|
1 August 2014
|
5 August 2014
|
1 August 2014
|
100%
|
ANALYSIS of
Proviso (ii): -
Let us
take an example:
An ISP (Internet Service Provider) issue a bill/invoice to its
customer of Rs.1559, but the
customer paid Rs.1600 (as round
off). Now the point of taxation of the advance paid by him of Rs.41 (1600-1559) would be determined
in accordance with Proviso to Rule 3 of Point of Taxation Rules, 2011.
In accordance of the proviso, service provider has two options to
determine the point of taxation of such advance up to a limit of Rs.1000: -
1.
First: Either to
determine point of taxation of such advance as per clause (b) of Rule 3. That
is, taxing the advance in the receipt basis.
2.
Second: Or to
determine point of taxation of such advance as per clause (a) of Rule 3. That
is, taxing the advance on accrual basis till its invoice is issued in next
billing cycle.
Rule 4- Determination of Point of Taxation in case of change in effective rate of tax
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.
ANALYSIS: -
The applicability of the rule will be clear from the
illustrations in the following tables: -
a. In
case a taxable service has been provided before the change of rate
(assumed April 13 2014)
S.
No.
|
Date
of Completion of Service
|
Date
of Invoice
|
Date
of Receipt of Payment
|
Point
of Taxation
|
Effective
rate (Before April 13)
|
Effective
rate (After April 13)
|
Applicable
Rate
|
1
|
April 10 2014
|
April 15 2014
|
April 20 2014
|
April 15 2014
|
10%
|
12%
|
12%
|
2
|
April 10 2014
|
April 12 2014
|
April 20 2014
|
April 12 2014
|
10%
|
12%
|
10%
|
3
|
April 10 2014
|
April 20 2014
|
April 12 2014
|
April 12
 2014 |
10%
|
12%
|
10%
|
b. In
case a taxable service has been provided after the change of rate
(assumed as April 13 2014)
S.
No.
|
Date
of Completion of Service
|
Date
of Invoice
|
Date
of Receipt of Payment
|
Point
of Taxation
|
Effective
rate (Before April 13)
|
Effective
rate (After April 13)
|
Applicable
Rate
|
1
|
April 15 2014
|
April 10 2014
|
April 20 2014
|
April 20 2014
|
10%
|
12%
|
12%
|
2
|
April 15 2014
|
April 5 2014
|
April 10 2014
|
April 5 2014
|
10%
|
12%
|
10%
|
3
|
April 15 2014
|
April 20 2014
|
April 10 2014
|
April 10 2014
|
10%
|
12%
|
10%
|
Rule 5– Payment of tax in case of new service
Where a service is taxed for the first
time, then,—
a)
No tax shall be payable to the extent the
invoice has been issued and the payment received against such invoice before
such service became taxable;
b)
No tax shall be payable if the payment has
been received before the service becomes taxable and invoice has been issued
within fourteen days of the date when the service is taxed for the
first time.
“Parking
Services” is one of the services which is taxable for the first time after
1 July, 2012. Its Point of taxation would be determine in accordance to Rule 5
of Point of Taxation Rules, 2011
Rule 7– Determination of point of taxation in case of specified services or persons
Notwithstanding anything contained in
rule 3,4 and 8, the point of taxation in respect of the persons required to pay
tax as recipients of service under the rules made in this regard in respect of
services notified under subsection (2) of section 68 of the Act, shall be the
date on which payment is made.
Provided
that where the payment is not made
within a period of three months of the date of invoice, the point of taxation
shall be the date immediately following the said period of three months
Provided further that 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.
“Associate Enterprise” means an enterprise—
(a). which participates,
directly or indirectly, or through one or more intermediaries, in the
management or control or capital of the other enterprise; or
(b). In respect of which one or
more persons who participate, directly or indirectly, or through one or more intermediaries,
in its management or control or capital, are the same persons who participate,
directly or indirectly, or through one or more intermediaries, in the
management or control or capital of the other enterprise.
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.
Since royalty payment to the author is
not ascertainable. In such case, date on which payment of consideration to
service provider is made, is deemed as the date of service provided. So point
of taxation in such service is determined on the following basis: -
Rule 8A– Determination of point of taxation in other case (Best Judgment)
Where the point of taxation cannot be
determined as per these rules as the date of invoice or the date of payment or
both are not available, the Central Excise officer, may, require the concerned
person to produce such accounts, documents or other evidence as he may deem
necessary and after taking into account such material and the effective rate of
tax prevalent at different points of time, shall, by an order in writing, after
giving an opportunity of being heard, determine the point of taxation to the
best of his judgment.
Rule 9– Transitional Provisions
Nothing contained in [these rules]
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 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. Know more about information: CA In Delhi and Income Tax Consultants
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