Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
******
New Delhi dated the 31st March, 2011.
To
All Chief Commissioners/Directors General
All Commissioners of Service Tax
All Commissioners of Central Excise
All Commissioners of Central Excise & Customs
Madam/Sir,
Subject: Amendments in Point of Taxation Rules, 2011 and other related
provisions
As you are aware, the Point of Taxation Rules (PTR) were formulated vide
Notification No.18/2011-ST dated 01.03.2011. Based on the feedback, certain
amendments are being carried out in these rules vide
Notification No. 25/2011-ST
dated 31.03.2011. The highlights of the changes are discussed in the following
paragraphs.
- While the rules shall come into force from 01.04.2011, an option has been
given in rule 9 to pay tax on payment basis, as at present, till 30.06.2011.
- Rule 3 has been amended to provide that the point of taxation shall be as
follows:
- Date of invoice or payment, whichever is earlier, if the invoice is issued
within the prescribed period of 14 days from the date of completion of the
provision of service.
- Date of completion of the provision of service or payment, if the invoice is
not issued within the prescribed period as above.
The applicability of the rule will be clear from the illustrations in the
following table:
| S. No.
|
Date of completion of service
|
Date of invoice |
Date on which payment recd.
|
Point of Taxation |
Remarks |
| 1. |
April 10, 2011 |
April 20, 2011 |
April 30, 2011 |
April 20, 2011 |
Invoice issued in 14 days and before receipt of payment |
| 2. |
April 10, 2011 |
April 26, 2011 |
April 30, 2011 |
April 10, 2011 |
Invoice not issued within 14 days and payment received after completion of
service |
| 3. |
April 10, 2011 |
April 20, 2011 |
April 15, 2011 |
April 15, 2011 |
Invoice issued in 14 days but payment received before invoice |
| 4. |
April 10, 2011 |
April 26, 2011 |
April 5, 2011 (part) and
April 25, 2011
(remaining) |
April 5, 2011
and
April 10, 2011 for respective amounts |
Invoice not issued in 14 days. Part payment before completion, remaining later |
- Rule 4 has been amended to clarify that change in the effective rate of tax
shall also include change in that portion of value on which tax is payable in
terms of an exemption notification or rules made in this regard. It may be noted
that an exemption has been granted in value for various services vide
Notification No. 1/2006-ST dated 01.03.2006 which has the effect of payment of
tax only on a part of the value. Similarly either the values or the rates at
which tax is payable are provided under rule 6(7, 7A, 7B or 7C) of the Service
Tax Rules, 1994 as well as the Works Contract (Composition Scheme for Payment of
Service Tax) Rules, 2007. Thus, whenever these values or the composition rates
are changed, it would have the same effect as the change in the rate of duty. It
is hereby further clarified that the rate of tax shall also include any other
notification which is issued, rescinded or amended and has the effect of
altering the taxability of any service.
- Rule 6 relating to continuous supply of service has been aligned with the
revised rule 3 and the date of completion of continuous service has been defined
within the rule. This date shall be the date of completion of the specified
event stated in the contract which obligates payment in part or whole for the
contract. For example, in the case of construction services if the payments are
linked to stage-by-stage completion of construction, the provision of service
shall be deemed to be completed in part when each such stage of construction is
completed. Moreover, it has been provided that this rule will have primacy over
rules 3, 4 and 8.
- Moreover, the following services have been notified as “continuous supply of
services” in terms of clause 2(c) of the rules vide
notification No. 28/ST-2011
dated 01.04.2011:
- Telecommunication service [65(105)(zzzx)]
- Commercial or industrial construction [65(105)(zzq)]
- Construction of residential complex [65(105)(zzzh)]
- Internet Telecommunication Service [65(105)(zzzu)]
- Works contract service [65(105)(zzzza)]
Thus these services will constitute “continuous supply of services” irrespective
of the period for which they are provided or agreed to be provided. Other
services will be considered continuous supply only if they are provided or
agreed to be provided continuously for a period exceeding three months.
- Rule 7 relating to associated enterprises has been deleted. Now that the date
of completion of the provision of service is an important criterion in the
determination of point of taxation, it shall take care of most of the dealings
between the associated enterprises. Thus in case of failure to issue the invoice
within the prescribed period, the date of completion of provision of service
shall come into effect even if payment is not made.
- Rule 7 has thus been replaced by a new provision whereby the point of
taxation shall be the date of making or receiving the payment, as the case may
be. This provision shall apply to the following:
- Export of services;
- Persons, where the obligation to pay tax is on the service recipient in
terms of rule 2(1)(d) of the Service Tax Rules, 1994 in respect of services
notified under section 68(2) of the Finance Act, 1994.
- Individuals, proprietorships and partnership firms providing specified
services (Chartered Accountant, Cost Accountant, Company Secretary, Architect,
Interior Decorator, Legal, Scientific and Technical consultancy services). The
benefit shall not be available in case of any other service also supplied by the
person concerned along with the specified services.
- Export of services is exempt subject, inter alia, to the condition that the
payment should be received in convertible foreign exchange. Until the payment is
received, the provision of service, even if all other conditions are met, would
not constitute export. In order to remove the hardship that will be caused due
to accrual method, the point of taxation has been changed to the date of
payment. However, if the payment is not received within the period prescribed by
RBI, the point of taxation shall be determined in the absence of this rule.
- In the case of services where the recipient is obligated to pay service tax
under rule 2 (1)(d) of Service Tax Rules i.e. on reverse charge basis, the point
of taxation shall be the date of making the payment. However, if the payment is
not made within six months of the date of invoice, the point of taxation shall
be determined as if this rule does not exist. Moreover, in the case of
associated enterprises, when the service provider is outside India, the point of
taxation will be the earlier of the date of credit in the books of account of
the service receiver or the date of making the payment.
- Changes have also been made in the Service Tax Rules, 1994 vide
notification
No. 26/2011-ST dated 31.03.2011 and have a close relationship with the Point of
Taxation Rules as follows:
- The obligation to issue invoice shall be within 14 days of completion of
service and not provision of service.
- If the amount of invoice is renegotiated due to deficient provision or in
any other way changed in terms of conditions of the contract (e.g. contingent on
the happening or non-happening of a future event), the tax will be payable on
the revised amount provided the excess amount is either refunded or a suitable
credit note is issued to the service receiver. However, concession is not
available for bad debts.
- The credit of input services under rule 4 (7) of the Cenvat Credit Rules has
also been liberalized vide
notification No. 13/2011-CE (NT) dated 31.03.2011 and
the same shall be available on receipt of invoice (except in cases of reverse
charge) as long as the payment is made within three months. Even specified
persons required to pay tax on cash basis will be able to avail credit on
receipt of invoice. Suitable changes have also been made for reversal of credit
or payment when the value of service is renegotiated or altered for any reason
by refund or issue of a credit note by the service provider. Amendment has also
been made in Rule 9 of Cenvat Credit Rules, 2004 by allowing credit on
supplementary invoice, except in non-bonafide cases, which may become necessary
in certain situations e.g. where the point of tax is the date of payment while
the invoice had already been issued e.g. rule 4(b)(i) of Point of Taxation
Rules.
- It is further clarified that the transitional provisions will apply to all
invoices issued before 31.03.2011 in so far as taxpayers who switch over to the
new rules on 01.04.2011. Those assessees who like to shift to the new rules on
01.07.2011 would have similar protection in respect of invoices issued before
the date they switch over to the new rules. The benefit has also been extended
to services when provision has been completed before 01.04.2011 or 01.07.2011,
as the case may be. It is also clarified that the payments received before the
new rules come into force do not require any transitional provisions as they are
already required to pay tax on payment basis.
- It is hoped that with these changes and clarifications all representations
on the subject have been dealt with. It is requested that all officers may be
advised to explain and clarify the new provisions to taxpayers and assist them
in every possible manner in transition to revised rules. Any difficulty
experienced in this regard may be brought to the notice of undersigned as soon
as possible.
Yours faithfully,
(V.K. Garg)
Joint Secretary (TRU-II)
Tel: 23093027; Fax: 23093037
Email: [email protected]
F.No.341/34/2010-TRU
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