POINT OF TAXATION:

POT Rules,2011:

Rule 2 (e ) ‘Point of Taxation’ means the point in time when a service shall be deemed to have been provided.

Prior t o1-4-2011, rule 6(1) of the Service Tax Rules provided that the service tax shall be paid to the credit of the Central Government by the 6^th/5^th day of the month immediately following the calendar month in which payments are received towards the value of taxable service, In effect , the person liable for paying the service tax had to remit the tax to government’s account on ‘cash’ basis, without reference to amounts receivable as per the invoice/bill/challan issued by such person. Consequently, the remittance of a portion of the service tax legally due to Government got deferred, sometimes indefinitely. While presenting the Budget proposals for the financial year 2011-12 , the finance Minister announced that ‘in order to ‘achieve a closer fit between the present service tax to Government’s account by the person liable to pay the service tax need not depend on whether he has actually received (either in part or in full) the payment for the services provided , but must depend upon the date of completion of the provision of service, or at best the date of issue of invoice/bill/challan, since on that date , the payment ‘accures’ to him.

Therefore, with effect from 1.4.2011 the following amendments to the service tax rules have come into force:

Rule 4A (1 ) is amended so as to prescribe that every service provider shall issue an invoice /bill/challan not later than 30 days (45 days in respect of banking and other financial services ) from the date of completion of any taxable service provided by him

Thus the requirement for payment of service tax has been linked with the ‘invoice’ and deemed date of completion of service ,and has been totally delinked from the payments actually received. However in all cases if money is received in advance ahead of the completion or rendering of  services ,service tax is payable as soon as the advance is received.

Determination of point of taxation :

Rule 3– POT  as amended from 1.4.2012 specifies the time limit for payment of service tax as under-

• If timely invoice issued – Date of invoice or Date of Payment whichever is earlier.
• If timely invoice not issued – Date of completion of service or Date of Payment whichever is earlier.

Note-1. In case of continuous supply of service  the  Date of completion of event is to be replaced for Date of completion of service.

2. As per rule 2 ( c ) of POT Rule ,2011 “Continuous supply of service” means any service provided or to be provided continuously OR ON RECURRENT BASIS  under a contract for a period exceeding 3 months with the obligation for payment periodically or from time to time.

Further , as per rule 2  (c ) continuous supply of service includes  any service where the central government by a notification ,prescribes provision of a particular service  to be a continuous supply of service ,whether or not subject to any condition. In this regard ,CG has notified that provision of telecommunication services  and works contract services shall be treated as continuous supply of service irrespective  of the period for which the service has been rendered.

 

Rule-7 POT (Applicable for services under Reverse charge mechanism ) :

Point of taxation prescribed for service receivers is the date on which payment for services  is made to the service providers but if the payment is not made within a period of 3 months of the date of invoice ,POT will be the date immediately following the said period of 3 months. Hence ,date of payment of service tax shall be 6^th day of the month immediately  following the said month (POT month )

Note- With effect from 1.10.2014 e-payment is mandatory  for all assesses. Hence , 6^th day of the month immediately following the said quarter/month as the case may be shall be due date for payment of service tax.

Further , Rule 7 related to Associated Enterprise is as under :

• Service rendered by a associated enterprises outside India to  its Indian associate  is taxable in the hands of the Indian Enterprise even if  no invoice  are issued. The POT shall be date of debit in books or date of payment whichever is earlier.
• Service rendered by a Indian associated enterprise to its associate in India , POT shall be as per normal rule 3 as discussed herein above.

 

Rule-8 POT : Point of taxation for Patents ,Copyright, Trademark ,Designs which fulfill the following two conditions namely (i) Total amount of consideration not ascertainable at the time of provision of service and (ii) Use  or benefit of these services  by a person other than service provider ,then POT shall be  -Date of invoice or Date of Payment whichever is earlier

Rule-5 :  There will be no service tax for new services if (i) Both the  invoice issued  and payment already  received before service become taxable (ii) Payment  received prior to service become taxable  and  invoice issued within 14 days of service become taxable.

So, in a case where invoice is issued before service become taxable but if the payment of the invoice is received after the date the service is taxed for the first time ,there will be a service tax liability in such a case.

Rule 6 of the service tax rules,1994  provides an option to service providers which are Individuals  and Partnership firms including LLP  whose aggregate value of taxable services  provided from one or more premises is  fifty lakhs rupees or less  in the previous  financial year , to pay tax on taxable service provided or agreed to be provided by him up to a total of rupees fifty lakhs in the current financial year on receipt basis.