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Service Tax amendments are shortsighted
04 April, 2012 Ahmedabad :
Service Tax amendments are shortsighted

The government lacks a foresight and has been known for its short sightedness. This is the main reason that they are forced to come out with frequent amendments and clarifications. With the negative list already introduced in the Finance Bill 2012, the definitions and existing list of Taxable services under relevant sections will be obsolete and likely to be deleted from the current Finance Act 1994. In other words, there is no need to classify the taxable services and all services apart from those which have been in the scheduled negative list will be taxable, unless and until specifically exempted. Moreover Notification No.4/2012 - Service Tax dated the 17th March 2012 has amended the Point of Taxation Rules 2011 w.e.f. 1st April 2012, inter- alia, amending Rule 7 of the POT rules, which applied to individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (g), (p), (q), (s), (t), (u), (za) and (zzzzm) of clause (105) of section 65 of the Finance Act, 1994. Thus as per the amendment a proviso is added that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist. In other words, the payment has to be received in six months and appropriate service tax paid accordingly.

These specific services are those provided to any person, by an architect in his professional capacity; by an interior decorator in relation to planning, design or beautification of spaces; by a practising chartered accountant, practising cost accountant, practising company secretary in their professional capacities. It also covers services by a scientist or a technocrat, or any science or technology institution or organisation, in relation to scientific or technical consultancy and services to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law. Consulting engineer services are also under the ambit of this Rule.

Rule 7 determined the point of taxation in such cases as the date of receipt of payment. The provisions have been amended both in the Point of Taxation Rules 2011 and the Service Tax Rules 1994 such that from 1st April 2012 the payment of tax shall be allowed to be deferred till the receipt of payment upto a value of Rs 50 lakhs of taxable services. The facility has been granted to all individuals and partnership firms, irrespective of the description of service, whose turnover of taxable services is fifty lakh rupees or less in the previous financial year. However, the board received many representations form associations of such service providers, in respect of these specified eight services, requesting clarification on determination of point of taxation in respect of invoices issued on or before 31st March 2012 where the payment has not been received before 1st April 2012.

The board examined the issue and clarified vide 154/5/2012 dated 28.3.12 that for invoices issued on or before 31st March 2012, the point of taxation shall continue to be governed by the Rule 7 as it stands till the said date. Thus in respect of invoices issued on or before 31st March 2012 the point of taxation shall be the date of payment. Now one wonders that once the Finance bill is enacted and the section 65(105) ceases to be effective, the ministry once again will have to suitably amend the said rules in order to implement them in their true spirit. Such frequent changes and amendments could have been avoided with a better foresight. A major corrective sight surgery may be required and this Short sightedness needs to be rectified.

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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