1 preamble presentation covers the major amendments in service tax legislation through the finance...
TRANSCRIPT
1
Preamble
Presentation covers the major amendments in Service tax legislation
through the Finance Act, 2012 in respect of:
• Point of Taxation Rules, 2011
• Service Tax Rules, 2004
Amendments effective from dates mentioned in Finance Act / Notification:
• Enactment date – 28.05.2012
• Notified date – 01.07.2012
• Commencement of F.Y. – 01.04.2012
Reference to following in presentation would mean:
• Act – Finance Act, 1994
• STR – Service Tax Rules, 1994
• POTR – Point of Taxation Rules, 2011
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POINT OF TAXATION RULES, 2011 (‘POTR’) AS
AMENDED BY NOTIFICATION NO.4/2012-
SERVICE TAX DATED 17 MARCH,2012
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POTR – Basics
“Point of Taxation Rules” (‘POTR’) prescribes the point of taxation
“Point of Taxation” (‘POT’) means the point of time when service shall be
deemed to have been provided (occurrence of taxable event) [Rule 2(e)]
Due date for tax payment linked with POT (Rule 6(1) of Service Tax Rules)
Pre POTR, tax obligation was on realization of consideration (Cash basis)
Post POTR, tax obligation generally arises on accrual or realization of
consideration, whichever is earlier (subject to few exceptions)
Does POTR is in consonance with legislative intent to bring it at par with
VAT or Excise Duty in view of impending GST enactment?
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POT – Reverse Charge Mechanism (Rule 7)
POT for following services in respect of which service recipient is obliged to
pay tax under reverse charge mechanism U/s 68(2) / Rule 2(1)(d) shall be
the date of payment:
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Nature of Service Service provider Service recipient
Insurance auxiliary business
Insurance agent Any person carrying on insurance business
GTA services Goods transport agent Specified persons paying freight
Sponsorship Services
Any person Any body corporate or partnership firm located in taxable territory
Arbitration services Arbitral tribunal Business entity located in taxable territory
Legal services Individual advocate / firm of advocates
Business entity located in taxable territory
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POT – Reverse Charge Mechanism (Rule 7)
Where payment for service is not made within period of 6 months of date of
invoice, POT shall be determined as per General Rule (Rule 3)
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Nature of Service Service provider Service recipient
Support services excluding (1) renting of immovable
property(2) Postal services(3) Services in relation to
an aircraft or vessel(4) Transport of goods or
passengers
Government or local authority
Business entity located in taxable territory
Rent-a-cab Any individual, HUF, firm or partnership firm including AOP located in taxable territory
Business entity registered as a body corporate
Supply of manpower for any purpose
Works contract
Any service (popularly known - Import of service)
Person in non-taxable territory
Person in taxable territory
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POT–Transaction with Associated Enterprises (Rule 7)
In case where service provider is located outside India and is an associated
enterprise of service recipient, POT will be earlier of (Proviso to Rule 7):
• Date of payment
• Date of debit in books of account of person liable to pay tax
This Proviso does not apply to an Indian service provider providing service
to associated enterprise located in or outside India
‘Associated Enterprise’ has the meaning assigned to it in Section 92A of
Income Tax Act, 1961 (Section 65(7b) of Act)
Relationship to be seen on which date?
Rule 7 overrides all other Rules of POTR
• Rule 3–General Rule (discussed in slide 8)
• Rule 8–Royalty, Patents, Copyright, Trademarks (discussed in slide 7)
• Rule 4-Change in tax rate (discussed in slide 14)
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POT – Copyright etc. (Rule 8)
This exception is carved out for
What about Franchise services?
This Rule applies where:
• Whole consideration not ascertainable when services performed; and
• Usage by / benefit to service recipient gives rise to payment obligation
In above referred cases, POT would be earlier of [Rule 8]:
• Date of issue of invoice
• Date of receipt of consideration by service provider
Whether this Rule will be redundant in case where service provider is
associated enterprise?
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Copyrights Trademarks Designs Patents Royalty
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POT – General Rule (Rule 3)
General rule applies to cases not falling under:
• Rule 4 - Change in tax rate
• Rule 5 - Where the service is taxed for the first time
• Rule 7 - Liability under reverse charge mechanism
- Transactions with associated enterprises
• Rule 8 - Transactions for copyright, patents, trademarks or design
In general, POT would be earlier of [Rule 3]:
• Date of issue of invoice – where invoice is issued within 30 days from
completion of service
• Date of completion of service – where invoice is not issued within 30
days from completion of service
• Date of receipt of consideration (including receipt of advance)
Continuous supply of service falls under General Rule w.e.f. 01.04.2012
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POT – General Rule (Rule 3)
Where service provider receives a payment upto Rs. 1,000/- in excess of
the amount indicated in the invoice, POT for such excess amount, at the
option of the service provider, shall be earlier of
• date of issue of invoice, or
• date of completion of service, where invoice not issued within 30 days
Amendment vide Notification No 37/2012-ST dated 20.06.2012
• Where service provider opting receipt as POTR in respect of an
amount of Rs. 1,000/- in excess of the amount indicated in the invoice,
no invoice is required to be issued to such an extent
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Meaning of Continuous Supply of Service
Continuous supply of service would mean [Rule 2(c) of POTR]:
• Services provided/agreed to be provided continuously, or recurrent basis,
Under a contract
for a period exceeding 3 months
With the obligation for payment periodically or from time to time
• Any service notified as continuous supply of service
Notification No. 28/2011-ST dated 01.04.2011 notifies following services as
“continuous service”:
• Telecommunication Service
• Commercial or Industrial Construction
• Residential Construction
• Internet Telecommunication Service
• Works Contract Service
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Meaning of ‘Completion of Service’
Date of completion of continuous service would be completion of an event
which requires service receiver to make payment as per contract.
‘Completion’ is not defined/explained in POTR except continuous service
In terms of Circular No 144/13/2011-ST dt. 18.07.2011 completion means:
• completion of all other auxiliary / related activities that place the service
provider in a situation to be able to issue an invoice
• Such auxiliary activities could include activities like measurement,
quality testing etc which may be essential pre-requisites for
identification of completion of service
• This interpretation of completion of services also applies to “continuous
supply of service”
Circular puts the caveat that auxiliary activities should not be flimsy or
irrelevant
Circular may not achieve desired purpose due to such caveat
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Circular Explaining General Rule
TRU Circular No.F.No.341/34/2010-TRU dated 31.03.2011 explaining
applicability of POTR in regular cases:
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Completion of service
Invoice date
Payment received
Point of Taxation
Remarks
16.07.11 26.07.11 06.08.11 26.07.11 Invoice issued in 30 days and
before receipt of payment
16.07.11 18.08.11 21.07.11 16.07.11 Invoice not issued within 30 days
and payment received after
invoice date
16.07.11 26.07.11 21.07.11 21.07.11 Invoice issued in 30 days but
payment received before invoice
16.07.11 18.08.11 11.07.11 (part) and 21.07.11 (remaining)
11.07.11 and 16.7.11 for respective. Amounts
Invoice not issued in 30 days.
Part payment before completion,
remaining later.
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POT – New Services (Rule 5)
New services (other than continuous service), not liable to tax if (Rule 5):
• Invoice raised and payment received before effective date; or
• Payment received before effective date and invoice raised within 30
days from effective date
‘Effective date’ would mean notified date on which Services become taxable
Consider following example:
• Hotel Accommodation Service is taxable w.e.f. 01.05.2011.
• Hotel opts for POT from inception (i.e. 01.05.2011)
• A person stays in hotel from 16.04.2011 to 10.05.2011
• Hotel makes bill / guest makes payment on check out (i.e. 10.05.2011)
In terms of above Rule, service tax is payable on entire billing though the
service was not taxable for the period 16.04.2011 to 30.04.2011
Is this proposition legally tenable?
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POT – In case of change in Tax Rate (Rule 4)
Is it fair and legally correct to modify POT in case of change in tax rates?
Circular No 158/9/2012-ST dated 08.05.2012 is in consonance with Rules?
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Provision of service
Date of Invoice Date of payment POT / Effective tax rate on POT date
Before rate change 30.04.2011
After rate change 02.05.2011
After rate change30.05.2012
Invoice date or payment date, whichever is earlier02.05.2011
Before rate change30.04.2011
Before rate change30.04.2011
After rate change30.05.2012
Date of invoice 30.04.2011
Before rate change30.04.2011
After rate change30.09.2011
Before rate change30.04.2011
Date of payment30.04.2011
After rate change30.09.2011
Before rate Change30.04.2011
After rate change30.05.2012
Date of payment30.05.2012
After rate change30.09.2011
Before rate change30.04.2011
Before rate change30.04.2011
Invoice date or payment date, whichever is earlier30.04.2011
After rate change30.09.2011
After rate change30.09.2011
Before rate change30.04.2011
Date of invoice30.09.2011
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Determination Of Tax Rate, Value Of Taxable Services And Exchange Rate [Section 67A] – w.e.f. 28.05.2012
Following prevailing on the date of provision of service / receipt of advance will be relevant for discharging service tax liability:
• Tax rate
• Value of taxable services
• Exchange rate.
Subsequent change in any of above would not alter service tax liability at later date.
Whether Rule 4 of POTR is inconsistent with above referred provision?
The exchange rate would mean the rate of exchange referred to in the Explanation to Section 14 of the Customs Act, 1962.
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Insertion of New Rules – POTR
Vide Notification No 4/2012-ST dated 17.03.2012 w.e.f. 01.04.2012
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RulePre-amendment
PositionPost-amendment Position
Rule 2A – Date of Payment
--- Earlier of:• Date on which payment is entered in
the books of accounts, or• Date on which payment is credited to
the bank account of the person liable to pay tax
Rule 8A – POT in other cases
--- Where POT cannot be determined as the date of invoice or the date of payment or both are not available, the Officer shall by an order in writing, after giving an opportunity of being heard, determine POT to the best of his judgment
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MAJOR AMENDMENTS IN SERVICE
TAX RULES, 1994 THROUGH
NOTIFICATION NO. 3/2012-ST
DATED 17.03.2012 AND 36/2012-ST
DATED 20.06.2012
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Change in Tax Rates w.e.f. 01.04.2012 – Notification 3/2012-ST
Alternate / Optional Rates (excluding education cess)
Service Rule Up to 31.03.2012 From 01.04.2012
Life Insurance - First year Premium - Renewal Premium
6(7A)1.50 %1.50 %
3.00 %1.50 %
Promotion, Marketing and organizing Lottery - Guaranteed Prize
Payout less than 80%
- Guaranteed Prize Payout more than 80%
6(7C)
Rs.6,000 for every Rs. 10,00,000
Rs.9,000 for every Rs. 10,00,000
Rs.7,000 for every Rs. 10,00,000
Rs.11,000 for every Rs. 10,00,000
Air Travel Agents - Domestic bookings - International bookings
Rule 6(7) 0.60%
1.20%0.60%1.20%
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Change in Tax Rates w.e.f. 01.04.2012 – Notification 3/2012-ST
Service Rule Up to 31.03.2012 From 01.04.2012
Foreign Exchange Dealing - Up to Rs.1,00,000 - Rs.1,00,001 to Rs.10,00,000
- Above Rs.10,00,000
6(7B)
0.1% (Minimum of Rs.25)
Rs.100 + 0.05% of excess over Rs.1,00,000
Rs.550 + 0.01% of excess over 10,00,000 (Max of
Rs.5,000)
0.12% (Min. of Rs.30)
Rs. 120 + 0.06% of excess over Rs.1,00,000
Rs.660 + 0.12% of excess over 10,00,000
(Max of Rs.6,000)
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Service Tax Rule 6A and Notification 39/2012-ST
Exporter of Services will be entitled to refund (rebate) of Input service tax
used in providing export of services – Notification No 39/2012-ST dated
20.06.2012
Any service provided/agreed to be provided shall be treated as export of
service when:
• Service provider is located in the taxable territory
• Service recipient is located outside India
• Service is not a service specified in Negative list (i.e. Section 66D)
• Place of provision of the service is outside India
• Consideration for such service is received in convertible foreign
exchange; and
• The service provider and service recipient are not merely
establishments of a distinct person
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Procedural Amendments
Extension of Time limit for issuance of invoice (w.e.f 01.04.2012):
• For banking and financial institutions – 14 days to 45 days
• For other service providers – 14 days to 30 days
Discharge of service tax liability on accrual to realization basis / vice versa
(w.e.f 01.04.2012)
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Individuals / firms and LLP having turnover of taxable services of Rs.50 Lakhs or less in immediately preceding financial year.
Realization basis irrespective of nature of services.
Individuals / firms and LLP having turnover of taxable services of more than Rs.50 Lakhs in immediately preceding financial year.
Accrual basis irrespective of nature of services. Provider of professional services will also be covered.
Service providers other than Individuals / firms and LLP
Accrual basis irrespective of nature of services.
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Procedural Amendments
Adjustment of excess payment of service tax (w.e.f 01.04.2012):
• Monetary limit of Rs.2 Lakhs removed and adjustment allowed without
any monetary limit
• Requirement of intimating such adjustment to jurisdictional
superintendent is omitted
Partnership firm to include Limited Liability Partnership (LLP). This
provides clarity on due date for tax payment and whether to pay service tax
on accrual / realization basis by LLP (w.e.f 01.04.2012)
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Words of Caution
Views expressed are the personal views of faculty based on his
interpretation of law
Application/implications of various provisions will vary on facts of the case
and law prevailing on relevant time
Contents of this presentation should not be construed as legal or
professional advice
This is an educational meeting arranged with clear understanding that
Faculty will not be responsible for any error, omission, commission and
result of any action taken by participant or anyone on the basis of this
presentation
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THANK YOU
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