PAYMENT OF TAX IN CASES OF NEW SERVICES

[Dr. Sanjiv Agarwal]

Rule 5 of Point of Taxation Rules, 2011 as amended, deals with payment of service tax for new taxable services. Where a service, not being a service covered by Rule 6 being continuous supply of service, is taxed for the first time, then no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable and no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within the period referred to in Rule 4A of the Service Tax Rules, 1994.

For such services, the contract between service provider and receiver will be important as the point of taxation is dependent on such agreement. In case of continuous supply of service and periodical billing (like weekly, monthly, half yearly etc.) by service provider, each period will be treated separately provided on the date the liability of payment arise. If contract provides different dates of payments on which service receiver is liable to pay, then such different dates shall constitute point of taxation. If before providing the service of fixing date of service, payment is received or invoice is issued, point of taxation will be the date of payment or date of invoice whichever is earlier. In case of reverse charge method under section 66A of the Finance Act, 1994, the date of receipt of invoice or date of making the payment will be the point of taxation. Where any advance is received for the continuous supply of service, the point of taxation will be date of receipt of such advance. taxmanagementindia.com

However, 1.4.2012, vide Notification No. 4/2012-ST, dated 17.3.2012, Rule 5 has been substituted to provide that where a service is taxed for the first time, then —

(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.

Also, the CBEC has clarified that ‘the test for the determination whether a service has been completed would be the completion of all the ‘related’ activities that place the service provider in a situation to be able to issue an invoice’ and that however such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice. (Circular No 144/13/2011- ST, dated 18.7.2011).

Rule 5 derives its statutory backing from section 94(2)(a) and section 94(2)(hhh) of the Finance Act, 1994, as amended. Readers may also refer to CCE v. Vazir Sultan Tobacco Co. Ltd. 1996 (2) TMI 138 - SUPREME COURT OF INDIA wherein it was held that excise duty is a levy on manufacture of excisable goods and as such, excise duty would be levied on goods if such goods were excisable at the time of manufacture.

Similarly, if any services were not subject to service tax at the time when they were 'provided' or 'agreed to be provided' then, no service tax can be levied thereon even if value thereof is realized after imposition of service tax.

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Discussions to this article

[sabeena vasudeva]

Sir, no service tax to be levied if the services were provided and invoice issued before these were subject to service tax. But what happens in case of CAs who pay tax on 'payment basis'. What would be the taxability if the payment for such services is received after the service becomes taxable.