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Determination of point of taxation in case of person liable to pay service tax under reverse charge or in case of associated enterprises [Rule 7]

Determination of point of taxation in case of person liable to pay service tax under reverse charge or in case of associated enterprises [Rule 7] :

Notwithstanding anything contained in rules 3, 4, and 8, the point of taxation in respect of 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 shall be the date on which payment is made.

However, 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.

Moreover, 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.

Associated enterprise shall have the meaning assigned to it in section 92A of the Income-tax Act, 1961 [Section 65B(13)].

ANALYSIS

(i) Point of taxation in case of services taxed under reverse charge mechanism: In respect of the persons liable to pay service tax under reverse charge mechanism, the point of taxation shall be the date on which payment is made subject to the condition that the payment is made within a period of three months of the date of invoice.

However, if the payment is NOT made within a period of three months of the date of invoice, point of taxation will be the first day that occurs immediately after the expiry of said three months. In other words, point of taxation in respect of services taxed under reverse charge will be the payment date or the first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier.

(ii) Point of taxation in case of import of services by “associated enterprises” In case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be:-

(a) the date of debit in the books of account of the person receiving the service or

(b) date of making the payment

whichever is earlier.

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