Your efforts may fail, but never fail to make an effort

CPE Study Circle Meeting on 03.08.2011 at ICAI Bangalore

Who am

SERVICE TAX

Point of Taxation Rules, 2011

SERVICE TAX
POINT OF TAXATION RULES, 2011
Background:
There was lack of clarity as to the date from which the changed rate or a levy of service tax on new services becomes applicable The provisions were not explicit. Similar uncertainty prevailed with regard to cases of Continuous Supply of Services. The above issues were addressed by CBEC through clarificatory circulars. A need has been felt to put the regulatory Framework on a transparent, clear and durable basis

Thus, these rules

SERVICE TAX
POINT OF TAXATION RULES, 2011
What is my business?
To provide points of taxation in various circumstances - including

New services Change in rate of tax Continuous supply of services Intellectual property services Assist the Service Tax rules to find out the due date for issuance of invoice/bill/challan Assist the Service Tax Rules to find out the due date for payment of service tax

SERVICE TAX
POINT OF TAXATION RULES, 2011
Who are my predecessors?

Service Tax Rules, 1994

What was the point of Taxation according to them?

Receipt of consideration, except in the case of Associated Enterprises

SERVICE TAX
POINT OF TAXATION RULES, 2011
Types of services that can be inferred
1.Continuous supply of services 2.Other than continuous supply of services

What is Continuous supply of service?

Continuous Supply of service (CSS) is defined to mean any service provided or to be provided continuously, under a contract, for a period exceeding three months or those services which are notified by the Central Government Notified Continuous Supply of Services (a)Telecommunication service (b) Internet Telecommunication Service (c) Construction of residential complex service (d) Commercial or industrial construction service (e) Works contract service

SERVICE TAX
POINT OF TAXATION RULES, 2011
Few for thought:

Whether a contract is essential even for services specified by the Govt?

Whether continuous provision of services for more than 3 months is essential in the case of services specified by Central Govt?

Whether renting for more than 3 months a continuous service?

SERVICE TAX
POINT OF TAXATION RULES, 2011

How do I deal with?

In the case of Non CSS other than IPR Point of Taxation = The time when the services are deemed to have been provided

Which is earliest of the following Date of Invoice Where the invoice has not been issued within 14 days of completion of provision of service, then the date of such completion Receipt of advance or receipt of money before raising the invoices towards the services provided

SERVICE TAX
POINT OF TAXATION RULES, 2011
Illustration for non CSS scenario
Service Provided Value of Payment services Received Due date for Invoice issuing Invoice issued on Point of Taxation Due date for payment of Service Tax

20.07.2011 1,00,000 Rs.50,000 on 29.07.2011 for 29.09.2011 15.07.2011 for 5th or 6th of 15.07.2011 Rs.50,000 and Rs.50,000 and August 2011 and 03.08.2011 for 20.07.2011 for Rs.50,000 on Rs.50,000 or Rs.50,000 20.07.2011 between 20.07.2011 to 29.07.2011 for 1,00,000 th th 20.07.2011 1,00,000 Nil 03.08.2011 10.07.201 10.07.2011 5 or 6 of 1 August 2011 th th Nil 1,00,000 Nil 01.07.201 01.07.2011 5 or 6 of 1 August 2011
31.07.2011 1,00,000 Nil 14.08.2011 Not issued 31.07.2011 5 or 6 of August 2011
th th

SERVICE TAX
POINT OF TAXATION RULES, 2011
In the case of Non CSS other than IPR

Any

for thought process?

SERVICE TAX
POINT OF TAXATION RULES, 2011

In the case of Continuous Supply of Services

Situation Point of Taxation

Invoice issued, whether service provided or yet to be provided The date of invoice Provided, Invoice is raised within 14 days of provision of services and payment not received Service provided and Invoice not raised within 14 days of Date of completion of provision of completion of provision of service service Services provided and 14 days time to raise the invoice is not elapsed. However, the amount is received after Date of receipt of such money completion of services and issuance of invoice When the advance is received Date of receipt of such advance

Where an event, specified in the contract, determines the Date of completion of such event stage of provision of service wholly or partly

SERVICE TAX
POINT OF TAXATION RULES, 2011
Illustration for CSS scenario
expected completion Actual Value of Advance or due date for Invoice Point of due date for Date of event, Date of services Payment issuing issued on Taxation payment of ST mentioned in the completi Received Invoice contract on of

31.07.11

15.07.11 1,00,000

31.07.11
31.07.11 Not mentioned Not mentioned Not mentioned Not mentioned

15.07.11 1,00,000
01.08.11 1,00,000 15.07.11 1,00,000 15.07.11 1,00,000 01.08.11 1,00,000 01.08.11 1,00,000

29.07.11 29.07.11 15.07.11 5th or 6th August-11 Nil 29.07.11 30.07.11 15.07.11 5th or 6th August-11 Nil 15.08.11 14.08.11 01.08.11 5th or 6th Sept- 2011 Nil 29.07.11 29.07.11 15.07.11 5th or 6th August-11 Nil 29.07.11 30.07.11 15.07.11 5th or 6th of August-11 Nil 15.08.11 14.08.11 01.08.11 5th or 6th of Sept-11 15.07.11 29.07.11 14.08.11 15.07.11 5th or 6th of August- 2011

Nil

SERVICE TAX
POINT OF TAXATION RULES, 2011
In the case of Change in effective Rate of Tax ( Includes change in the portion of value on which tax is payable in terms of an exemption notification or rules made in this regard ).
Service Invoice provided raised Payment received Point of taxation

Before Before Before After

After Before After Before

After After Before After

Date of Invoice or Payment which ever is earlier Date of Invoice Date of payment Date of payment Date of Invoice or Payment which ever is earlier Date of Invoice

After After

Before After

Before Before

SERVICE TAX
POINT OF TAXATION RULES, 2011
In the case of change in effective rate of tax To Sum up:

If
Two of the three events mentioned in the table have occurred before the change in ERT, then the old rate would be applicable

Two of the three events have occurred after ERT then the new rate be applicable

SERVICE TAX
POINT OF TAXATION RULES, 2011
New Services
Invoice Raised Payment Received Point of Taxation

Before taxability within 14 days After 14 days Before taxability

Before taxability Not taxable Before taxability Not taxable Before taxability Taxable After taxability ???? ( not taxable) Rule 3 is applicable

SERVICE TAX
POINT OF TAXATION RULES, 2011
In the case of specified services and persons
Specified services/Persons Nature of services Point of Taxation Remarks

Export of services

Any

Date of payment received

This facility will not be available, if the payment is not received as per RBI guidelines

Individuals /Proprietary or Partnership Firms Providing taxable services

Architect, Interior decorator, CAs, Cost Accountants, Company Secretaries, Scientific or Technical Consultant, Legal consultancy services & Consulting Engineer. Why not MBC? Associated Enterprises Any situated outside India

Date of payment received

Services on which liability arises on reverse charge mechanism

Date of credit in books or receipt whichever is earlier Specified services under Rule Date of payment 2(1)(d) of Service Tax Rules,1994 made

This facility will not be available, if the payment is not made within 6 months of

SERVICE TAX
POINT OF TAXATION RULES, 2011
In the case of Taxable Intellectual Property Rights Services
Situation Point of Taxation

When the whole consideration is determinable at the As applicable in the general situation time of transfer of rights When the whole consideration is not determinable at Such payment or issuance of invoice the time of transfer of rights and the payments received which ever is earlier in at several points of time thereafter
Notes:

POT Rules are w.e.f. 01.04.201. However, where the provision of service is completed or invoices issued on or before 30.06.2011, 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..

SERVICE TAX
POINT OF TAXATION RULES, 2011

Still any

for thought process?

SERVICE TAX
INVOICE/BILL/CHALLAN AND PAYMENT OF SERVICE TAX
What is the due date for issuing invoice/challan/bill?
Within 14 days from the date of completion of taxable service or receipt of money Whether u need to issue an invoice within 14 days if u provide exempt services? Yes What do you do, If you have practical problems in issuing an invoice/challan/bill? CBEC Circular No.144/13/2011-ST Dated July 18, 2011 guides you

What is the due date for payment of service tax?

On or before 5 or 6 days from the end of the month in which the point of taxation arises other than the Individuals, partnership firms In the case of Partnership firms/individuals on or before 5 or 6 days form the end of the quarter in which the Point of Taxation arises

SERVICE TAX
PROSECUTION
Typically, the following are the situations under which the prosecution would be initiated

Provision of service without issuance of an appropriate invoice as provided under the Act or Rules; Availment and utilization of CENVAT credit without actual receipt of inputs or input services; Maintaining false books of accounts or failure to supply any information or submitting false information; Fails to pay the service tax collected in to the Govt Account beyond six months from its due date

Consequences : If the impact of offence exceeds Rs.50 Lacs, imprisonment up to 3 years other cases, imprisonment up to one year Very Important: The approval of Chief Commissioner is very essential to initiate the prosecution

SERVICE TAX
POINT OF TAXATION RULES, 2011
Way forward:
Examine the existing contracts and redraft, if required, to determine the point of completion of service or milestone points of payment and carefully ascertain/specify such points of tax to comply with PoT Rules. To avoid disputes with the authorities, it is advisable to, specifically, agree in the contract as to how completion of service is understood between the contracting parties

Requires significant investment of time and efforts from the businesses to keep unwanted service tax proceedings at bay.

SERVICE TAX
POINT OF TAXATION RULES, 2011
Way forward:
Serious review of existing business processes and systems related to the tax payment and compliance As non- issuance of invoice is no longer a procedural error but triggers initiation of prosecution proceedings by the tax authorities, invoices should be issued in time

SERVICE TAX
Last chance

The views expressed and the information provided in this presentation are of general nature and is not intended to address the circumstances of any particular individual or entity. The content, symbols or the photos used in this presentation are only for the purpose of explaining the subject without any commercial benefit out of them and does not amount to any infringement nor used with such intention. The above content should neither be regarded as comprehensive nor sufficient for making decisions. No one should act on the information or views provided in this presentation without appropriate professional advise from the author of the presentation. It should be noted that no assurance is given for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. This is meant for private circulation only

LAKSHMINARAYAN.G - B.COM, ACA

DATE: 03.08.2011 PLACE: BANGALORE ag.lakshminarayan@gmail.com Mob:9880423839