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TMI BlogDraft Point of Taxation (for Services Provided or Received in India) RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accomp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalties 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. ************************* Explanatory Notes to Draft Point of Taxation Rules Rule 1 : Preliminary Rule 2 : Contains the definitions for the Rules. Rule 3 : Provides that the taxable event shall be theprovision of service, including future provision. This would mean that the service, even though promised to be provided at a future date, shall be taxable. The rule also lays down that, if the service provider issues an invoice or receives any payment before providing service, the service, to the extent of the amount mentioned in the invoice, or the amount of payment, shall be deemed to have been provided. It means that the service provider shall be liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rever two points of taxation have occurred, whether before the change in tax rate or after the change in tax rate, the earlier event of the two would be the point of taxation, with the exception of clause (ii), where a deviation has been made. For this clause too, although the point of taxation would be the date of invoice, the same would be invalid if the payment has not been received within 30 days. Rule 6 : Rule 6 is specifically provided for conditions where a service (which is not a continuous supply of service) is charged to tax for the first time i.e. becomes taxable for the first time. The rule provides that:- (a) If an invoice has been issued and payment received before a service becomes taxable, no tax would be charged even if the service is provided after the same has become taxable. This provision is consistent with the other similar provisions in these rules, and ensures that a financial transaction which has achieved finality before a service was taxable shall not be reopened for collection of tax. (b) If any payment has been received prior to a service being chargeable to tax, no tax shall be chargeable if an invoice has been issued within 14 days of receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, tax is liable to be paid on the basis of raising of invoice or the date provided for payment in the contract or the actual payment, as the case may be.. This Rule is drafted keeping in view the fact that the extent of service provided during a particular period of time in continuous supply of the service is difficult to determine. Further, alternatively, payment received in respect of payments received prior to service becoming taxable, but where the service may be provided subsequently, will also not be taxable. It has been prescribed that the clauses of the rule shall be read sequentially. Thus, if there is a date of payment prescribed in the contract, the tax becomes due on that day irrespective of the fact if the payment has been received or not. In case, the date of payment is not prescribed in the contract, but payment is linked to achievement of milestones, then the tax becomes payable even if no payment has been received by the service provider. However, if no date of payment is prescribed in the contract, or if the payment is not linked to achievement of any milestones, then the tax would be payable whenever the service provider issues an invoice, or receives a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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