Point of Taxation Rules, 2011

Point of Taxation Rules, 2011

Rule 1:                   Short Title and Commencement.

Rule 2:                   Definitions.

Rule 2A:                Date of Payment (FA2012).

Rule3:                    Determination of Point of Taxation.

Rule4:                    Determination of Point of Taxation in case of change in effective rate of tax.

Rule5:                    Payment of tax in case of new services.

Rule6:                    Determination of Point of Taxation in case continuous services.

Rule7:                    Determination of Point of Taxation in case of associated enterprises

Rule8:                    Determination of Point of Taxation in case of copyrights etc.

Rule8A:                 Determination of Point of Taxation in other cases.

Rule9:                    Savings.

Analysis

Rule1:    Short Title & 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.

That is this rules is applicable from 1/4/2011.

Rule 2: Definition (bare Act)

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); Deleted from Finance Act 2012.

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 made there under; Inserted by finance Act 2012

c) “continuous supply of service” means any service which is provided, or to be provided continuously, under a contract, for a period exceeding three months, 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; Word substituted by FA 2012

d) “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;

e) “point of taxation” means the point in time when a service shall be deemed to have been provided;

f) “taxable service” means a service which is subjected to service tax, whether or not the same is fully exempt by the Central Government under Section 93 of the Act;

Rule2A: Date of payment

Bare Act
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;‟.

Rule3:    Determination of Point of Taxation

Bare Act

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 to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion.

“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”; Word substituted by FA 2012

    (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.

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.”

“Provided that for the purposes of clauses (a) and (b), —
    i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;
   ii) wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).” Inserted by finance Act 2012

Summary: General Rule

Now question is arises at which point of time the service is to be termed as completed??????

1.        In case of Single Service Contract e.g. construction contract of house - As per Circular 144/13/2011 CBEC clarify that point of time when all physical and auxiliary activity is completed.

2.        In case of Continuous Service Contract e.g. telephone mobile service – on completion of an event in terms of contract.

Examples

Construction Contact     when the certificate of completion is obtained (auxiliary activity).

Mobile Service                   when the billing circle is completed (event).

Now second question is arises if the service receiver paid amount in excess of the amount indicated in the invoice. For example mobile bill is raised by mobile operator on you for 715/- and you paid 750/-.

         In general “clause b” is applicable in this case i.e. advance received but the service provider also can opt “clause a” if the amount so received is less than Rs.1000/- 

Rule4:    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.Explanation - For the purposes of this rule, “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 under the provisions of Finance Act, 1994 or rules made thereunder. Deleted from Finance Act 2012.

Rule5:    Payment of tax in case of new services

Where a service, not being a service covered by rule 6, 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 the period referred to in rule 4A of the Service Tax Rules, 1994. Fourteen days of the date when the service is taxed for the first time. Word substituted by FA 2012

Summery 

Rule6:    Determination of Point of Taxation in case continuous services.

Notwithstanding anything contained in rules 3,4 or 8, in case of continuous supply of service, the `point of taxation’ shall be,-
      a) the time when the invoice for the service provided or to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such 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 the extent of such payment.
Explanation 1 – For the purpose of this rule, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.

Explanation 2 - 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. Deleted from Finance Act 2012.

Rule7:    Determination of Point of Taxation in case of associated enterprises

Notwithstanding anything contained in these rules, the point of taxation in respect of,-
    a) the services covered by sub-rule (1) of rule 3 of Export   of Services Rules, 2005;
    b) 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;
   c) individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 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 received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist.

Provided further that in case of services referred to in clause (b) where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist.

Provided also 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 credit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

New Rule 7

Determination of point of taxation in case of specified services or persons.— Notwithstanding anything contained in these rules, 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 sub-section (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 six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist:

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.‟ Substituted by FA 2012

Rule8:    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.




Rule8A: Determination of Point of Taxation in other cases.

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.

Rule9: Savings

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 here the invoices are issued upto 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.


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Key amendment introduced by Finance Act 2012

Key amendment introduced by Finance Act, 2012 in the finance Act, 1994 (amendment in Service Tax). 

Summery of key amendments are as follow:

• Applicable Tax rate:
• Service Tax @ 12%
• EC @ 2%
• SHEC @ 1%

Note: Service Tax rate is being restored at statutory rate of 12% from 10% from this Finance Act.

• Composition Rates--
• For life insurance: 3% for the first year premiums , @1.5% for the subsequent years(restoring full Cenvat credit);
• Money changing: raising the existing rates proportionately by 20%;
• Distributor or selling agent of lotteries: Raising the specified amounts proportionately and suitably rounded off to Rs 7,000 and 11,000;
• For works contracts from 4% to 4.8%.

• The charging section is replaced by new section 66B. Now Every Service is chargeable to service tax @12% except the service specified in the negative list.

• The old definitions containing in section 65 is replaced by the new definition by inserting the new section 65B. 

• 
  

Amendments in detail (Area Wise):

a)   In finance Act 1994.

b)   In STR rules

c)   In Point of Taxation Rules.

d)  In Cenvat Rules 2004.

1) In finance Act, 1994

This finance act replaced some old section by the new section. The list of the newly inserted section and deleted section are as under: 7A

Sections introduced by the Finance Act 2012.

Sections Deleted by the Finance Act 2012.

Earlier to the finance Act, 2012 service tax is levied on specified services (i.e. cover under 65(105)) through charging section Section 66 or 66A of finance act, 1994. Charging Section Section 66 covers the three area/matters which deal with the levy of service tax. 

First is rate i.e. Service Tax will be levied @ 12%. 

Second is levy of service tax i.e. levied on the value of taxable service specified in section 65(105). 

Third is collection of service tax i.e. collected in such manner as may be prescribed. 

And section 66A tells about the taxability in case of import of service. Through finance act 2012 this two sections is deleted and a new section 66B is introduced in place of this. Now section 66B is charging section under service tax. This new section also covers all the three area which was covered by the old section i.e. rate, levy, collection.

According to new Section 66B “There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed”

This new section also talks about three matters. 

First is Rate i.e. Service Tax will be levied @ 12%. 

Second is levy i.e. levy on the value of all service provided and agreed to be provided in the taxable territory by one person to another person. 

Third is collection i.e should be collected in prescribed manner.

Note the service specified above should be the other than the service specified in the negative list.

Now the question arise, what do you mean by the Service. Because earlier the definition of service is not given in the service tax act. That way the new definitions are introduced under section 65B in place of section 65 and 65A and sub section 44 of this section define the meaning of the service. As per section 65B(44) ""service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a)      an activity which constitutes merely,––

(i)      a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii)      a transaction in money or actionable claim;

(b)      a provision of service by an employee to the employer in the course of or in relation to his employment;

(c)      fees taken in any Court or tribunal established under any law for the time being in force.

Explanation 1.— For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,––

(A)     the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or

(B)     the duties performed by any person who holds any post in pursuance of the Provisions of the Constitution in that capacity; or

(C)     the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.

Explanation 2.–– For the purposes of this Chapter,—

(a)      an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;

(b)      an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.

Explanation 3.— A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an establishment in that territory;"

Still cont...........

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