point of taxation
DESCRIPTION
The Service Tax was payable on receipt basis i.e. on receipt of amount of the invoice or bill from the customer or receipt of advance, whichever is earlier. With the introduction of POT Rules, general rule for the time of provision of service would be the earliest of the following dates:a) Date on which service is provided or to be providedb) Date of invoicec) Date of paymentTRANSCRIPT
CVO Chartered &CVO Chartered &
POINT OF Presented by
CA Paras K Savla5 July 11
& Cost Accountants Association& Cost Accountants Association
TAXATION
Legislative historyLegislative history2
The Service Tax was payable on rethe invoice or bill from the customearlier.
Service tax was payable only whenthe fact whether service is provide
The Draft Point of Taxation Rules is basic purpose to bring Rules is to
and collection of service tax in certa will synchronize liability to pay serv will synchronize liability to pay serv
Excise Act and VAT rather than on re
Point of Taxation
eceipt basis i.e. on receipt of amount ofmer or receipt of advance, whichever is
n payment was received irrespective ofed or not.ssued in August, 2010 stated thatbring clarity and certainty in matter of levyain situations.vice tax on accrual concept as in the Centralvice tax on accrual concept as in the Centraleceipt basis as per the current provisions.
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Legislative historyLegislative history3
However there were certain uncecase change in rate of service tax,
It is provided in the Letter F. No.the general rule for the time of proof the following dates: Date on which service is provided o Date of invoice Date of payment
Point of Taxation
ertainties which trigger litigation eg: inwhat would be the rate of service tax?34/3/2011‐TRU dated 28‐2‐2011 thatovision of service would be the earliest
r to be provided
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Point of taxation 4Considering international practiceService Tax. However provisions far
e Point of taxation has been introduced underr exceeds the intentions of introduction.
Point of taxationPoint of taxation5
From 01‐04‐2011 with the introduService Tax will not be payable on
POT rules provides: Provisions for payment of service t Specifies the date relevant for dete
POT rules not applicable: Where services are completed or i
Option provided to the service pro Point of taxation would be date of p
30th June 2011.
POT l il i i POT rules are silent on existing undebtors.
Point of Taxation
uction of Point of Taxation (POT) Rules, n receipt basis.
tax on accrual basis ermination of service tax.
nvoices are issued prior to 1st April 2011
ovider –payment in respect of invoices issued up to
id i l i inpaid service tax amount lying in
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Point of taxationPoint of taxation6
Point of taxation ie the point in tibe have been provided, would be When invoice1 is issued within the
of completion of the provision of sef ( l d Date of invoice or payment (including
When invoice is not issued within th Date of completion of the provision of Date of completion of the provision of
Non issue of timely invoice woprovider. However this would npCENVAT credit.
Due date of payment of service tp yservice which is deemed to be pro
1 Invoice or bill to be raised within 14 days from the date of completion ofinvoice may lead to imprisonment upto 3 years.
Point of Taxation
me when a service shall be deemed to–prescribed period of 14 days from the date
ervice.d ) h h ladvance), whichever is earlier
he prescribed periodf service or payment (including advance)f service or payment (including advance)
ould prepone tax liability of servicenot entitle service receiver to claim
tax to be reckoned with respect to thepovided as per the POT rules.f taxable service or receipt of any payment which ever is earlier. Non issue of
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IllustrationIllustration7
S. No.
Date of completion
Date of invoice
Date on which
Point
of service payment received
1. June 10, 2011 June 20, 2011
June 30, 2011 June 202011
2. June 10, 2011 June 26, 2011
June 30, 2011 June 10
3. June 10, 2011 June 20, 2011
June 15, 2011 June 15
4. June 10, 2011 June 26, 2011
June 5, 2011 (part) andJune 25, 2011(remaining)
June 5, 10, 201respect
5 J 30 2011 J l 15 J l 1 2011 J 305. June 30, 2011 July 15, 2011
July 1, 2011 June 30
Point of Taxation
of Taxation Payment Due Date
Remarks
0, 2011 July 5, 2011 Invoice issued beforereceipt of bill amount withinreceipt of bill amount within14 days
0, 2011 July 5, 2011 Invoice not issued within 14days and payment receivedafter completion of serviceafter completion of service
5, 2011 July 5, 2011 Invoice issued in 14 days butpayment received beforeissue of invoice
2011 and June 1 for ive amounts
July 5, 2011 Invoice not issued in 14days. Part payment beforecompletion, remaining later
0 2011 J l 5 2011 if I i i d i hi 140, 2011 July 5, 2011, iftimely billed itwould have beenAug 5 or Oct 5
Invoice not issued within 14days and payment receivedafter completion of service
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Constitutional valiConstitutional vali8
With the introduction of thesetriggered on happening of any one
Service tax is payable irrespectiveby the service provider, whether pbooks of accounts or not?
Issue may arise whether fixing tax Consolidated Coffee Ltd. & Anr. 198
Point of Taxation
ditydity
rules, service tax liability would bee of the specified event.of the method of accounting followed
provision of service is recognised in the
liability is constitutionally valid?0 AIR 1468
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Point of Taxation – pe9Point of taxation shifts in specifleakages.
eculiar situation
ic cases. This has been made to avoid revenue
Change in effectiveChange in effective10
Rule 4 covers the situation where Change in effective rate of taxg Change in the portion of value on w
Change on rate of abatement or rate o Value on which tax is applicable is cha
Distribution & Selling of Lottery Ticket
It does not cover the situation wh It does not cover the situation whthe first time.
Issue may arise where services w Issue may arise where services wand invoicing/payment is done aft
Point of Taxation
e rate of taxe rate of tax
there is
which tax is payable in term of notificationof composition is changed ornged eg Air Travel Agent, Money Changing Services,s, Works Contract Services, Life Insurance Services
ere service has been brought to tax forere service has been brought to tax for
were provided during exemption periodwere provided during exemption periodter exemption is withdrawn.
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Change in effectiveChange in effective11
Provisionof service
Issue ofinvoice
PaymentReceived
Point of Tof service invoice Received
Beforechange
Afterchange
After change Date ofpayment,change change payment,whicheve
Beforechange
Beforechange
After change Date of in
Beforechange
Afterchange
Before change Date of p
Point of Taxation
e rate of taxe rate of tax
Taxation Rate Remarks
invoice or,
NewRate
As service was alreadytaxable, and the tax point is,
er is earlierRate taxable, and the tax point is
earlier of invoice/payment,tax charged at new/revisedraterate
nvoice OldRate
As service was already taxableand invoice issued beforechange, the tax point isinvoice, tax charged at oldrate.
ayment OldRate
Tax point is date of payment,old rate
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Change in effectiveChange in effective12
Provision ofservice
Issue ofinvoice
Payment Point of Tservice invoiceAfterchange
Beforechange
Afterchange
Date of p
Afterchange
Beforechange
Beforechange
Date ofor pwhicheveearlier
After After Before Date of inAfterchange
Afterchange
Beforechange
Date of in
Point of Taxation
e rate of taxe rate of tax
Taxation Rate Remarks
ayment NewRate
Tax charged at revised rate.Supplementary /additionalinvoice may be issued forinvoice may be issued fordifferential tax, otherwise samewould be required to be borneby service provider
invoicepayment,
OldRate
Tax charged at old rate.
er is
nvoice Newnvoice NewRate
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New ServicesNew Services13
No tax on new services is payable Invoice has been issued and pap
becomes taxable If payment has been received befo
b i d ithi 14 d f d tbeen issued within 14 days from dat
Tax be levied under the situationdesirable situations in following cadesirable situations in following ca Payment has been received before
14 dayy Service is rendered prior to such
receives amount after service is ma Invoice is issued before service is ta
is taxable Vazir Sultan Tobacco Co Ltd v Collect
Point of Taxation
Vazir Sultan Tobacco Co. Ltd. v. Collect
whereyment has been received before servicey
ore service becomes taxable and invoice hast f i t f tte of receipt of payment.
other than above. It may give rise toaseaseservice is taxable but invoice is issued after
h service is taxable but raises invoice andde taxableaxable but payment is received after service
or of Central Excise 1996 (83) ELT 3
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or of Central Excise 1996 (83) ELT 3
Continuous supplyContinuous supply14
Continuous supply of service which is provided or to be providedp p
period of 3 months Which is specified by government in
Telecommunication service Commercial or Industrial construction Construction of residential complex Construction of residential complex Internet Telecommunication service Works Contract service
Point of Taxation
y of servicey of service
continuously under the contract exceeding y g
n the Official Gazette
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Continuous supplyContinuous supply15
Point of taxation Date of raise of invoice (if raised(
provided or to be provided Date of completion of service whe
l ti f icompletion of service Date of paymentWhich ever is earlierWhich ever is earlier
Date of completion shall be datewhich obligates payment in part owhich obligates payment in part o Eg in case of builder payment is link
floors, provision of service shall besuch floor is constructed.
Point of Taxation
y of servicey of service
d within statutory period) for the servicey p )
ere invoice is not raised within 14 days of
e of achieving of specified mile stoner whole for the contract.r whole for the contract.ked to completion of each of the constructeddeemed to be completed in part when each
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Royalties CopyrighRoyalties, Copyrigh16
Point of taxation in respect to recetrademarks, design or patents Date of invoice or payments, which
Where the whole amount of thservice was not ascertainableperformed and subsequently the u
th th th liperson other than the suppliconsideration, the service shall betime that a payment in respect oftime that a payment in respect ofthe provider, or an invoice is issue
Point of Taxation
hts etchts etc
eipt on account of copyrights,
ever is earlier.
he consideration for the provision ofat the time when the service wasuse or the benefit of these service by ai i i t t fier gives rise to any payment ofe treated as having been provided eachf such use or the benefit is received byf such use or the benefit is received byd by the provider.
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Exceptions to POTExceptions to POT 17
Point of taxation with respect to thdate of payment is received or ma
Export of services Where payment is received within t
Twelve / six months
Taxation of service under reverse c Where payment is made within t
invoice Where payment is not made within 6 Where payment is not made within 6
payment, whichever is earlier. Where no invoice is issued within 14d
shall be applicableshall be applicable For services received from associated
of credit in the books of accounts of tht hi h i lipayment, which ever is earlier.
Point of Taxation
rulesrules
he under mentioned services would bede as the case may be.
the period specified by RBI
chargehe period of six months from the date of
6 months POT would be date of invoice or date of6 months POT would be date of invoice or date of
days from the date of completion of service, rule 3
enterprises from outside India POT would be datehe person receiving the service or date of making of
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Exceptions to POTExceptions to POT 18
Individuals or proprietary firms / pservices; Consulting Engineer Architect services Interior Decorator services Chartered Accountant services Cost Accountant Services Company Secretary Services Scientific and Technical Consultancy Scientific and Technical Consultancy Legal Service
Whether LLP engaged in abov Whether LLP engaged in abovexemption?
Point of Taxation
rulesrules
partnership firms providing following
y Servicesy Services
ve activities would be covered byve activities would be covered by
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Non‐provision of sNon‐provision of s19
With introduction of POT Rules,w.e.f. 1‐4‐2011.
Assessee may take credit of suchwhich is not so provided whollyamount of invoice is renegotiatservice, or any terms of contracinvoice or received payment proviinvoice or received payment provi issues credit note for the value of
whom invoice was issued or refunded the payment or part ther
the receiver of service Words “along with service tax paya
Point of Taxation
services etcservices etc
Service Tax rule 3 has been amended
excess service tax paid on the servicesor partially for any reason or whereed due to deficiency in provision ofct where service provider has issueddedded –f service not so provided to the person to
reof so received for the service provided to
able there on” has been dropped
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Non‐provision of sNon‐provision of s20
Undesirable results may occur in fo Amount renegotiated other than fog Amount renegotiated where there i Where no credit note is issued Service receiver is insolvent Service receiver simply does not pay Receipt of amount post issue of cred
Point of Taxation
services etcservices etc
ollowing situationsr deficiency in provision of servicey ps no explicite contract
y and amount is bad debtdit note
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CENVAT credit ruleCENVAT credit rule21
Post POT Rules, CENVAT Creditamended.
Under amended rule 4(7) of the Cinput service On receipt of invoice only, i.e., accru
if no payment of supplier invoice is mawill have to be reversed and will be allwill have to be reversed and will be all
Point of Taxation
eses
Rules, 2004 has been appropriately
Cenvat Credit Rules, credit is allowed on
ual basis;ade in within three months, then such Cenvat creditowed only after making its paymentowed only after making its payment.
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Way forward22Point of taxation would require eacand terms of contract.
ch business houses to relook into their supply chain
Way ForwardWay Forward23
In exercise to put service tax at par wservices being intangible is ruled out an
POT Rules necessitate various service pproviders especially Realty Players,engaged in turnkey projects worksengaged in turnkey projects, worksprofessional advise to tweak theirrequirements vis‐à‐vis their customerbl k f t i t A l tblockage of amount in taxes. A lot wentered into by the service providers, w
The Point of Taxation Rules will have The Point of Taxation Rules will havetaxable event, (b) determination ofaccounting.
There may be pressure on accounting &April, 2011 as their taxable event (billof Rules.
Point of Taxation
ith excise and VAT, an important element ofnd is treated at par with goods.
provider to change business models. ServiceSoftware Developers, service providerscontract etc would be required to takecontract etc. would be required to takeagreements to ensure that the paymentrs are not linked in a way where there is
ld d d h twould now depend on how agreements arewith the customers.
far reaching effect on (a) determination offar reaching effect on (a) determination off tax liability, and (c) most importantly
& MIS due to realisation of amounts after 1sting) has already occurred before imposition
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Way ForwardWay Forward24
The Service provider will have to kreceived from the customers and i it belongs to previous billing cycle a new billing cycle and has been charg
Service providers need to quickly ((c) make necessary changes in acc
lcorrectly. It would be difficult to properly co
l i l bl i lmultiple taxable events are involv
Point of Taxation
keep track of each and every amount its taxability to check Whether nd has been charged to tax on cash basis, or ged to tax on accrual basis
(a) comprehend, (b) implement, and ounting for computing tax liability
ompute liability using software where dved.
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Let’s talk!Let s talk!25
Point of Taxation 05-07-11
