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Total Number of Subscribers: 1626 |
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Date:18th August 2010 |
Compiled by: M Sathya Kumar |
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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 1) These Rules shall be
called the Point of Taxation (for services provided or received in 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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