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Point of Taxation Rules, 2011
INTRODUCED: 01.04.2011 - As Amended by Budget 2012-13 w.e.f. 01.04.2012

Point of Taxation Rules, 2011 (POT Rules) came into existence on 01.04.2011 vide Notification No. 25/2011 dated 31.03.2011. However till 30.06.2011, it was optional to follow POT Rules. From 01.07.2011 vide Notification No. 41/2011 dated 27.06.2011, it was made mandatory for all Service Tax assessees to comply with POT Rules and pay Service tax on accrual basis. As per these rules only a few specified Service Providers were not required to adhere to Point of Taxation Rules, 2011.

What is Point Of Taxation?

Before introduction of POT Rules, 2011, service providers were required to pay tax on receipt basis. After introduction of POT Rules, from 01.07.2011 onwards, service providers were required to pay tax on accrual basis i.e. date of issuance of Invoice or receipt of payment or the date when the invoice was required to be issued, whichever is earlier.

Determination of Point of Taxation

As per Rule 3 of Point of Taxation Rules, the point of taxation shall be earliest of;

a) Time when the invoice for the service provided or agreed to be provided is issued.

b) If invoice is not issued within 30 days as specified in Rule 4A of the Service Tax Rules, 1994, the point of taxation shall be date of completion of service.

c) Date of receipt of the payment or consideration.

Eg.1- Date of issuance of invoice is 10.04.2012 and date of receipt of payment is 10.05.2012- the point of taxation shall be 10.04.2012 since the date of invoice is earlier than the date of receipt of payment.

Eg.2- Date of issuance of invoice is 10.05.2012 and date of completion of service is 01.04.2012- the point of taxation shall be 01.04.2012 since the invoice is not issued within 30 days from the completion of service.

Eg.3- Date of issuance of Invoice is 10.04.2012, the amount of Invoice is Rs. 1,00,000/- out of which an amount of Rs. 50000/- is received by the Service provider as advance on 01.04.2012 – the point of taxation for the advance receipt of Rs. 50000/- would be 01.04.2012 (date of receipt of advance) and the point of taxation for the balance amount of Rs. 50000/- would be 10.04.2012 (date of issue of Invoice).

Eg.4- Date of issuance of Invoice is 10.04.2012, date of completion of provision of service is 31.03.2012 and date of receipt of payment is 10.05.2012 - the point of taxation shall be 10.04.2012 since the date of Invoice is earlier than the date of receipt of payment and the Invoice is also issued within 30 days of date of completion of provision of service.

The table below would indicate the point of taxation in different situations:-

Sr. No Date of Invoice Date of Receipt of Payment Date of completion of Provision of Service Point of Taxation Remark
1 01.01.2012 01.03.2012 25.12.2011 01.01.2012 Note:1 below
2 01.01.2012 01.03.2012 01.11.2011 01.11.2011 Note:2 below
3 01.01.2012 01.02.2012 01.03.2012 01.01.2012 Note:3 below
4 01.03.2012 01.01.2012 01.02.2012 01.01.2012 Note:4 below
5 01.03.2012 01.01.2012 05.01.2012 01.01.2012 Note:5 below

 

As per Rule 4A of the Service Tax Rules, 1994

Every person providing taxable service shall, not later than thirty days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier, issue an invoice.

Note 1: As the invoice is issued within 30 days as per the time limit specified in Rule 4A of The Service Tax Rules, 1994, the Point of Taxation shall be date of Invoice.

Note 2: As per Rule 3(a) of Point of Taxation Rules as invoice is not issued within specified time (30 days) so the Point of Taxation shall be date of Provision of Service.

Note 3: As per POT Rules, 2011, point of taxation is date of invoice or date of provision of service (when invoice is not issued within 30 days) or date of receipt of payment/consideration, whichever is earlier.

Note 4 & 5: It is mandatory to issue invoice within 30 days of receipt of any payment as per Rule 4A of Service Tax Rules, 1994 and in case of failure to do so the point of taxation would be the date of completion of provision of service. However, as per Rule 3(b) of The Point of Taxation Rules, 2011, if the payment is received before such date of completion of provision of service (where invoice is not issued within 30 days), the date of receipt of payment shall be the point of taxation.

 

POINT of TAXATION in case of change in effective Rate of Tax

As per Rule 4 of the POT Rules, 2011

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

(i) where the invoice for the same has been issued and the payment received after the 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 change in effective rate of tax but the payment is received after the 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 change in effective rate of tax, but the invoice for the same has been issued after the 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 change in effective rate of tax,-

(i) where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the 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 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 change in effective rate of tax but the payment has been received before the change in effective rate tax, the point of taxation shall be date of issuing of invoice.

From 01.04.2012 effective Rate of Tax has been restored to 12 % from 10% vide Notification No 2/2012.

The table below would indicate the rate of tax in different situations :- 

Sr. No Date on which Service provided Date of Invoice issued Date of Payment Rate of Tax 10% or 12% Remarks
1 01.01.2012 01.02.2012 01.05.2012 10% Date of issue of Invoice and provision of service before 01.04.2012 (change in rate of tax)
2 01.01.2012 01.05.2012 01.06.2012 12% Date of issue of Invoice and date of receipt of payment after 01.04.2012 (change in rate of tax)
3 01.01.2012 01.05.2012 01.02.2012 10% Date of provision of service and date of receipt of payment before 01.04.2012 (change in rate of tax)
4 01.05.2012 01.01.2012 01.06.2012 12% Date of provision of service and date of receipt of payment after 01.04.2012 (change in rate of tax)
5 01.05.2012 01.02.2012 01.01.2012 10% Date of issue of Invoice and date of receipt of payment before 01.04.2012 (change in rate of tax)
6 01.05.2012 01.06.2012 01.01.2012 12% Date of issue of Invoice and provision of service after 01.04.2012 (change in rate of tax)

 

Whether it is mandatory to follow POINT of TAXATION or Not?

For Individuals and Partnership Firms

From 01.04.2012 as per Rule 6 of Service Tax Rule, 1994 as amended vide Notification No 03/2012 dated 17.03.2012, individuals, partnership firms and limited liability partnership firms, whose aggregate value of taxable services provided (from one or more premises) is fifty lakh rupees or less in the previous financial year, these service providers shall have the option to pay tax on taxable services provided or agreed to be provided by them up to a total of rupees fifty lakhs in the current financial year, after receipt of payment for such services.
So, from 01.04.2012

Individuals, Partnership Firms and Limited Liability Partnership Firms, whose Taxable Turnover is less than Rs 50 lakh in previous year, shall have option to pay Service tax on receipt basis.

However such Individuals and Partnership Firms can enjoy such relaxation upto Taxable Turnover of Rs 50 lakhs in current year.

For all other assessee like Private limited, Public limited, Trust, Government it is mandatory to follow Point of Taxation Rules.

Position of 8 specified Services after 01.04.2012

As per Rule 7 of Point of Taxation Rules, 2011 (till 31.03.2012) in case of individuals, proprietary ship firms and partnership firm providing eight specified services, the point of taxation shall be the date on which payment is received.

These 8 specified services were;

1. Chartered Accountant

2. Company Secretary

3. Cost Accountant

4. Interior Decorator

5. Consulting Engineer

6. Architect

7. Scientific or Technical Consultant

8. Legal Consultant

From 01.04.2012 the above category of eight specified services provided by individuals, proprietary ship firms and partnership firm have to mandatorily follow Point Of Taxation rules and the point of taxation would be determined as per Rule 3 of POT Rules.

However, if taxable turnover of such services provided by individuals, proprietary ship firms and partnership firm does not exceed Rs 50 lakhs in previous year, the provider of such services have option to pay tax on receipt basis as per Rule 6 of Service Tax Rules, 1994. But this option is only available for a turnover of Rs. 50 Lakhs in the current financial year and after crossing this limit of Rs. 50 Lakhs, the point of taxation would be determined under Rule 3 of POT Rules.

Taxability of Invoice issued before 01.04.2012 and payment/consideration received on or after 01.04.2012 in respect of eight specified categories of services

As per Circular 154/5/2012 S.T. dated 28.03.2012 and 158/9/2012 S.T. dated 08.05.2012 issued by CBEC, in respect of 8 specified services provided by individuals, proprietary ship firms and partnership firm, who were required to make payment of service tax on receipt basis till 31.03.2012, in respect of invoices issued on or before 31st March, 2012, the Point of Taxation shall be the Date of Payment. If such invoices issued by such service providers before 01.04.2012 reflects 10% rate of Service Tax , for which payments are received on or after 01.04.2012, supplementary Invoices may be issued to reflect the new Rate of Tax (12% and cess) and recover the differential amount.

Case Laws Related

  • STO 2013 CESTAT 36
  • Amendment: Retrospective or Prospective: Section 67: insertion of explanation (c) in Section 67 of the Finance Act, 1994 on 10.05.2008, providing that service tax on taxable service is liable to be paid as soon as transaction with any associated enterprises is entered in the books of account: In the present case, the transaction of the taxable service with the associated enterprises was entered in the books of account prior to 14.05.2008 and waiting for actual remittances: Stay granted as amendment found not retrospective.

  • STO 2013 CESTAT 27
  • Service Tax: Rate: Rate of tax applicable is rate applicable on the date of providing taxable service.

  • STO 2012 Del 578
  • Ultra Vires: Vires of Circular dated 08.05.12 challenged being not in consistent with the provisions of Point of Taxation Rules, 2011 and provisions of the Finance Act, 1994.Notice issued

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