Draft Point of Taxation (for
Services Provided or Received in India) Rules
The
Government of India proposes to issue Point of Taxation (for Services Provided
or Received in India) Rules, 2010 in exercise of the powers conferred on it
under Sec. 94 (2) (hhh) of the Finance Act, 1994.
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. At present there is lack of clarity as to the
date from which the changed rate or a new levy of service tax become payable
and tax payers as well as tax officials face uncertainty in this regard as the
provisions are not explicit. Similar uncertainty prevails in regard to cases of
continuous supply of services. So far these issues have been addressed by CBEC
through clarificatory circulars that accompany such changes. A need has been
felt to put the regulatory frame work on a transparent, clear and durable basis
and hence these rules.
The other major change proposed to
be brought about through these rules is to link the payment of tax to provision
of service, raising of the invoice or payment for
service provided or to be provided, whichever is the earliest. Currently the
payment of service tax is linked to receipt of payment for the service, which
is at odds with regime in force in Central Excise and VAT laws implemented by
the states. In both Central Excise and VAT, tax payment is required on accrual
basis – upon manufacture and clearance of goods in the former and issue of
invoice in the latter. In neither case is the tax payment linked actual receipt
of payment for the goods. The GST regime is likely to follow this practice and
it is necessary to align the service tax regime with it so that transition to
GST will be smooth. The change in the point of payment of tax will also
simplify accounting for the taxpayers.
The proposed changes are broadly on
lines of best international practices.
Consistent with the CBEC’s practice
of wide consultation with all stakeholders, the draft of these rules is being
published on the web site for public scrutiny, comments and suggestions. The
draft is also accompanied by explanatory notes for each of the clauses. The
Central Board of Excise and Customs welcomes responses from all who wish to
comment on the proposals and will give careful consideration to all suggestions
and comments while finalizing the rule.
Kindly send your response at roopamkapoor@gmail.com
For
being considered, the responses must reach us latest by 01.09.2010.
Draft Point of Taxation (for
Services Provided or Received in India) Rules, 2010
1) These
Rules shall be called the Point of Taxation (for services provided or received
in India) Rules, 2010. They shall come
into force on the date of their publication in the official gazette.
2) In
these Rules, unless the context otherwise requires,-
a) “Act”
means the Finance Act, 1994 (32 of 1994);
b) “
associated enterprises” shall have the meaning assigned to it in section 92 A
of the Income Tax Act, 1961 (43 of 1961) ;
c) “continuous supply of service” means any
service which is provided, or to be provided, under a contract, for a period
exceeding six months ,or where the Central Government, by a notification,
prescribes provision of a particular service to be a continuous supply of
service, whether or not subject to any condition;
d) “
Invoice” shall have the meaning assigned to it in Rule 4A of the Service Tax
Rules, 1994 and shall include any bill or challan as
prescribed therein;
e) “ Point of taxation” means the point of time
when the tax becomes payable to the Government;
f) “taxable
service” means a service which is subjected to service tax, whether or not the
same is fully exempt by the Central Government vide powers conferred under
Section 93 of the Act;
g) ‘taxable event” means an event which causes the tax liability
to arise, namely, the provision of service, issuance of invoice or the receipt
of payment.
3) For
the purposes of these rules, -
a) A
provision of service shall be treated as having taken place at the time when
service is provided, or is to be provided.
b) If,
before the time prescribed in sub-rule (a), the person providing the service
issues an invoice or receives a payment in
respect of service to be provided, the supply shall be, to the extent covered
by the invoice or the payment made thereof, deemed
to be have taken place at the time the invoice was issued or the payment is
received, as the case may be, whichever is earlier.
4) Treatment
of advances: Wherever any advance, by
whatever name it is known, is received by the service provider towards the
provision of taxable service, the tax becomes payable on the date of receipt of
each such advance.
Provided that no tax shall be
payable on an interest free refundable deposit.
5) For
the purposes of these Rules, if there is a difference in date and time between
the raising of invoice, date of payment and providing of taxable service, and
the tax rate changes during such period, the point of taxation shall be determined
in the following manner
a) Where
a taxable service has been provided before the change of rate*, but the invoice
for the same has been raised and the payment received after the change of rate,
the point of taxation shall be the date of payment or issuance of invoice,
whichever is earlier.
b) Where
the invoice has been raised and service provided prior to a change in tax
rate*, the point of taxation shall be the date of raising of invoice, provided
the payment for the invoice is made within 30 days of raising of invoice. In
other cases, it would be the date of payment.
c) Where
the invoice has been raised prior to the change of tax rate*, but the service
has been provided and the payment for the invoice made after the change in tax
rate, the point of taxation shall be the date of payment.
d) Where
the invoice has been raised and the payment for the invoice received before the
change of tax rate*, but the service provided after the change of rate, point
of taxation shall be the date of receipt of payment or date of issuance of
invoice, whichever is earlier.
*(Note:- change in
tax rate includes withdrawal of exemption)
6) Where
a service, not being a service covered by rule 7 of these rules, is taxed for
the first time -
a) no tax shall be payable to the extent the
invoice has been issued and payment received before such service becomes
taxable, even if the service is provided at a time when it is taxable;
b) no tax
shall be payable if the payment has been received and invoice has been issued
within the period prescribed under rule 4A of the Service Tax Rules, 1994.
Provided that no tax shall be payable on any service
which has been provided before the service becomes taxable.
7)
Continuous
Supply of service:
a) Continuous
supply of service, the whole or part of which is determined or payable
periodically or from time to time, shall be treated as separately supplied at
the following times;
i) If
the date of payment is prescribed in the contract, the date on which the
payment is liable to be made by the service receiver, irrespective of whether
or not any invoice has been raised or any payment received by the service provider;
ii) If
the payment is linked to the completion of an event, the time of completion of
that event;
If the date of payment is
not prescribed in the contract, each time when the service provider receives
the payment, or issues an invoice, whichever is earlier.
Provided that, for the provision of services covered by this
Rule, no tax shall be payable on the payment received before any service
becomes taxable, provided that such payment is covered by clause (i) or (iii) above.
Provide further that the clauses (i)
to (iii) shall be read sequentially for the purposes of this rule.
8) The
point of taxation in respect of associated
enterprises shall be the date on
which the payment has been made, or the date of debit or credit in books of
accounts, or issuance of debit or credit notes, whichever is earlier.
9) In
respect of royalties and similar
payments, where the whole amount of the consideration for the provision of
service was not ascertainable at the time when the service was performed, and
subsequently the use or the benefit of these service by a person other than the
supplier gives rise to any payment of consideration, the service shall be
treated as having been provided each time that a payment in respect of such use
or the benefit is received by the provider, or an invoice is issued by the
provider, whichever is earlier.
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