subject: Point of Taxation Rules, 2011 [print this page] Point of Taxation Rules, 2011 Point of Taxation Rules, 2011
The Point of Taxation Rules, 2011 (POTR) have come into force with effect from 1 April 2011. The purpose of these rules is to introduce clarity and certainty in the matter of levy and collection of service tax particularly in situations of change of rate of service tax or imposition of service tax on new services. Service tax is now payable on accrual basis as against cash basis which was the practice earlier. The Government of India (GoI) has also amended provisions of the Service Tax Rules, 1994 and the CENVAT Credit Rules, 2004 to align them with the provisions of the POTR.
Salient features of the Point of Taxation Rules, 2011 (POTR)
What is the Point of taxation of the taxable services:
Point of taxation (PoT) means the point in time when a service shall be deemed to have been provided. Determination of the PoT in accordance with these rules will decide the rate and timing for payment of service tax.
POTR provides for deeming fiction which means that at PoT, it is possible that taxable service has not been provided but still the tax has become payable.
Point of Taxation for payment of service tax:
PoT shall be the date of: (i) issue of invoice for the service provided or to be provided, or (ii) receipt of payment, whichever is earlier.
Where the invoice is not issued within 14 days of completing the provision of service, the point of taxation shall be the date of completion of such service.
A service shall be deemed to have been provided on the above basis and service tax shall be payable accordingly on the due date.
PoT for the following taxable services shall continue to be on cash basis: Export of taxable services if payment is received within the time stipulated by Reserve Bank of India;
Service tax payable by the recipient of service under reverse charge principle provided that such payment is made within 6 months.
Following services provided by individuals or proprietary firms or partnership firms: Architect's service;
Chartered accountant's service;
Cost accountant's service;
Interior decorator service;
Company secretary's service;
Scientific or technical consultancy service; and
Legal services.
Point of Taxation in case of Change in Rate of Service Tax (Change):
Where a taxable service has been provided before the Change and: the invoice is issued before the Change but the payment is received after the Change then the old rate of tax will apply and PoT would be the date of invoice; or
the payment is received before the Change but the invoice is issued after the Change then the old rate of tax will apply and PoT would be the date of payment; or
both the invoice and payment are issued and received after the Change, then the new rate of tax will apply and PoT would be the date of payment or the date of invoice, whichever is earlier.
Where a taxable service has been provided after the Change and:
the invoice is issued before the Change but the payment is received after the Change then the new rate of tax will apply and PoT would be the date of payment; or
the payment is received before the Change but the invoice is issued after the Change then the new rate of tax will apply and PoT would be the date of payment; or
both the invoice and payment are issued and received before the Change then the old rate of tax will apply and PoT would be the date of payment or invoice, whichever is earlier.
Point of Taxation in case of New Taxable Services:
If the invoice is issued and payment is also received before the levy, then no service tax would be payable;
If the payment is received before the levy and invoice is issued within 14 days, then no service tax would be payable.
Point of Taxation in case of Continuous Supply of Service:
Continuous supply of service means any service which is provided, or to be provided continuously, under a contract, for a period exceeding 3 months, or where the GoI notifies a particular service to be a continuous supply of service;
GoI has notified following services for the purpose of continuous supply: Commercial or industrial construction service;
Construction of complex;
Telecommunication service;
Internet telecommunication service and
Works contract service.
PoT for such continuous supply of service shall be the date of: (i) issue of invoice for the service provided or to be provided, or (ii) receipt of payment, whichever is earlier;
Where the invoice is not issued within 14 days of completion of the provision of service, PoT shall be the date of completion of such service;
Where the provision of the service (in whole or in part) is determined periodically on completion of an event or milestone in accordance with the terms of a contract, which requires the service receiver to make any payment, the date of completion of each such event as specified in the contract shall be deemed to be the completion date of that service.
Point of taxation in case of Associated Enterprises:
Associated Enterprises have the same meaning assigned to it in Section 92A of the Income Tax Act, 1961.
Where the service provider is located outside India provides service to an associated enterprise located in India, PoT 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.
Determination of point of taxation in case of Intellectual Property:
In case 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, such service shall be treated as having been provided each time when the payment is received or when an invoice is issued by the service provider, whichever is earlier.
Transitional provisions:
The POTR shall not apply in the following cases:
where the provision of service is completed prior to 1 April 2011; or
where invoices are issued prior to 1 April 2011.
The taxpayer has an option to determine PoT either on accrual basis or cash basis in cases where the: provision of service is completed on or before 30 June 2011; or
invoice is issued by 30 June 2011.
Amendment in the Service Tax Rules, 1994
Invoice for continuous supply of services:
Every person is required to issue an invoice, bill or challan within 14 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed.
Payment of service tax:
Point of taxation as determined under POTR is deemed as date of provision of service.
Service tax is payable on 5/6 of the next month/quarter, as the case may be.
Adjustment of value of taxable service:
The service provider is permitted to take credit of service tax paid by him where an invoice has been issued or any payment has been received against a service to be provided:
which is not so provided by him either wholly or partially; or
where the amount of invoice is renegotiated due to deficient provision of service on account of any terms contained in a contract for any reason.
However in such cases the service provider has to:
refund the payment received to the person from whom it was received by the service provider along with the service tax payable for such service; or
issue a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.
There is no monetary limit on such credit.
3. Amendment in the CENVAT Credit Rules, 2004
CENVAT credit on input service is allowed on accrual basis if payment (including service tax paid or payable thereon) is made within 3 months of the date of invoice;
If the payment is not made within 3 months of the date of invoice, CENVAT credit availed against such invoice should be reversed and the manufacturer / service provider would be allowed to take the credit on payment basis.
CENVAT credit of service tax paid under reverse charge is allowed only on payment basis.
In case of adjustment of taxable value of service, the manufacturer / service provider should reverse the proportionate CENVAT credit.
CENVAT credit of service tax against invoice issued before 1 April 2011 is allowed only on payment basis.
A supplementary invoice issued by a provider of output service has been made as an eligible document to avail CENVAT Credit.
