Date of Payment for the KKC, Service Tax

[Sanjay Aggarwal]

Dear Sir,

We have provided a taxable service to our client in 15,Apr 2016 and accordingly raised the invoice for such service in 10, May 2016. The customer have made the payment through cheque dated 31.05.2016 and subsiquently such cheque is cleared on 04.06.2016.

In this case, what will be the date of payment and are we liable to pay KKC on such payment ?

Posts / Replies

[deepak gulati]

Dear Sir,

KKC is not applicable on the above circumstances if the invoices and service provided before the change of rate of tax according to Rule 4 of Point of Taxation Rules

Determination of point of taxation in case of change of rate of tax.-

Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a ¹[change in effective rate of tax] in respect of a service, shall be determined in the following manner, namely:-

(a) in case a taxable service has been provided before the change of rate,-

(i) where the invoice for the same has been issued and the payment received after the ³[change in effective rate of tax], the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii) where the invoice has also been issued prior to ²[change in effective rate of tax] but the payment is received after the ³[change in effective rate of tax], the point of taxation shall be the date of issuing of invoice; or

(iii) where the payment is also received before the ³[change in effective rate of tax], but the invoice for the same has been issued after the ³[change in effective rate of tax], the point of taxation shall be the date of payment;

(b) in case a taxable service has been provided after the ³[change in effective rate of tax],-

(i) where the payment for the invoice is also made after the ¹[change in effective rate of tax] but the invoice has been issued prior to the ¹[change in effective rate of tax], the point of taxation shall be the date of payment; or

(ii) where the invoice has been issued and the payment for the invoice received before the ¹[change in effective rate of tax], the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii) where the invoice has also been raised after the ³[change in effective rate of tax], but the payment has been received before the ³[change in effective rate of tax],, the point of taxation shall be date of issuing of invoice.

[Sanjay Aggarwal]

But Sir, for the purpose of POT of KKC, Rule 5 will be applicable rather than Rule 4.

Correct me, If i am wrong.

[Rajagopalan Ranganathan]

Sir,

Rule 5 of Point of Taxation Rules, 2011 stipulates that-

Payment of tax in case of new services.-

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.

Explanation 1.- This rule shall apply mutatis mutandis in case of new levy on services.

Explanation 2.- New levy or tax shall be payable on all the cases other than specified above.

According to this rule if invoice in respect of provision of a new service is issued and payment against such invoice is received before levy of service tax comes into effect then no service tax is payable on such service. Explanation 1 of the same rules states that this rule shall apply mutatis mutandis in case of new levy on services.

Therefore if you have provided a taxable service to your client in 15,Apr 2016 and accordingly raised the invoice for such service in 10, May 2016 and the customer have made the payment through cheque dated 31.05.2016, then no KKC is payable by you. Date of clearance of the cheque is not at all relevant for levy of KKC.

[Sanjay Aggarwal]

Sir,

Will your answer be same if cheque clearance date is 5th June 2016 or thereafter ?

[Ganeshan Kalyani]

Sir, KKC is a new levy and therefore Rule 5 is applicable. The reply of Sri Rajagopalan Sir is precise and to the point. And I agree with the his view that clearance of payment is not relevant for determining point of Taxation. Thanks.

[Sanjay Aggarwal]

Dear Sir,

Please guide me, whether Rule 2A of POT Rule will be applicable in the situation mentioned in my situation.

[Sanjay Aggarwal]

As per Rule 2A, the date of payment shall be the date of credit in the bank account when :

1) There is changes in effective rate of tax or when a service is taxed for the first time during the period between such entry in the books of accounts and its credit in the bank accountd: and,

2) the credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and,

3) the payment is made by way of an instrument which is credited to a bank account.

[Sanjay Aggarwal]

Dear all,

I need your expert comment, that whether Rule 2A will be applicable to determine the "Date of Payment" for the purpose of KKC or not ?

[CS SANJAY MALHOTRA]

Dear Friends,

Provision has been added to Section 67A of Finance Act, which provides for Determination of Rate of Tax as Point of Taxation Rules 2011. Hence, Rule 5 of POT is applicable to be read accordingly with Rule 2A of POT.

Rule 5 of POT has been drafted for new levies and hence KKC applies for Invoices raised prior to 31.05.16 but payment not received.

Hence, supplementary invoice shall be raised for KKC @0.50% for cases where payments has not been received.

In case of SBC, it was stated clearly that the new levy is applicable for services provided on and after 15.11.2015, whereas nothing specific has been stated for KKC.

CBEC may come out with clarification / amend the POT rules,but going by present set of law, KKC is applicable for Invoices raised prior to 31.05.16 and payment not received.

 

[Sanjay Aggarwal]

Thank you sir for your suggestion.

That means, with the current set of law, Rule 5 will be applicable alongwith Rule 2A for the determination of POT of KKC.

Hence, when payment is mady by cheque dated 31.05.2016 for the service provided before 31.05.2016 then taxability of KKC will arise if cheque is cleared on or after 05.06.2016 AND if cheque is cleared on or before 04.06.2016 then there will no liability of KKC.

[CS SANJAY MALHOTRA]

Agreed.

[Sanjay Aggarwal]

Thank you so much Malhotra sir.

[Shaikh Abdul Samad Ahmad]

Seems to be contradiction between Rule 3, 4 and 5 of PoT Rules.

Rule 4 reads : Determination of PoT in case of change in effective rate of tax.

Rule 5 reads: Payment of tax in case of new services.

Rule 5 is applicable when it is a new service and it also deals with the date of payment as PoT.

However in normal case of accrual system DoP will not at all come into picture as the PoT would have already been determined and tax is discharged.

Let us assume M/s. ABC Pvt. Ltd. had raised his invoice in the month of Apr 2015 to M/s. XYZ along with Service Tax. As per PoT Rules the point of taxation is the point when the invoice is raised hence they have to pay service tax on or before 06.05.2015 and the same was abided and the service tax returns "FORM ST 3" was also filed with in due date. However the payment is still to be realised from M/s. XYZ. If the payment is realised on 15.07.2016, whether KKC will apply on such receipt?

Practically whether it is possible to declare the values in the FORM ST 3 return?

New column should come "Amount on which ST paid already on accrual basis but amount received after June for which KKC is payable"; which is logically wrong.

One has to read Rule 5 which is applicable only when new service is brought into tax net and the explanation also will apply only for new services accordingly.

Hence in my most humble view KKC will not apply on the payments recd for services rendered and invoice raised prior to 1st June 2016.

[CS SANJAY MALHOTRA]

Dear Mr. Ahmad,

No contradiction in Rules 3,4,5 is there as these are independent. Act has to be read first which is Section 67 of Finance Act for Determination of Tax and afterwards POTR comes into picture.

Please go through the attached Notification No. 10/2016-ST on POT amended on 01.03.2016, wherein Explanation 1 to Rule 5 of POT clearly mentions of NEW LEVY on services.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-notifications/st-notifications-2016/st10-2016.pdf

No Doubt, we all agree that KKC should not have been levied in respect of cases, wherein service has been rendered prior to 31.05.16/ Invoice has been raised, but payment has not been made..... But the wording of Notifications has been placed in such manner that KKC becomes payable.

In SBC, it was clearly speclt out that the same is applicable in respect of services provided from 15.11.15 onwards, but nothing has been specifically mentioned for KKC. Further the amendment in POT has been done in Mar-16, whereas SBC and other new levies have been imposed prior to amendment in POT.

If CBEC really feels that injustice has been done in respect of KKC, they should defintely come out with amendment or clarification...

[Ganeshan Kalyani]

Sir the burden of tax is on pure manufacuter as service provider gets the credit of KKC. Thanks