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Amendments in Service Tax - Budget 2012- Point of Taxation Rules & Reverse & Joint Charge Mechanism By: Yash Dhadda Chartered Accountant 1© Dhadda & Co.
2 At the end of June this year, this tax will attain adulthood by completing 18 years. It is therefore time to shift gears and accelerate ahead. -Shri Pranab Mukherjee (Finance Minister of India) In his budget speech on 16 th March, 2012
What happened? A big turnaround was observed in this budget in relation to Service Tax, revamping the old provisions in a close 360° circle. Set of new basics pushed out the older ones.. Yes, new meanings were established! In a bid to launch GST in a familiar ground, govt. edified this budget to bring simplicity, certainty in tax provisions and optimizing the compliance through neutrality of business to tax. The proposal marks a shift from selective basis of taxation to a comprehensive taxation of all service transactions excepting those specifically excluded. © Dhadda & Co.3
Fundamental Principal any Enactment… Common Man should be able to Read, Understand & Comply. Language should be simple and compliance friendly. It should not have complex sentences or crowded with if and but Statutory Provisions should not be changed at Drop of a Hat If there is any problem in interpretation same should be resolved rather – Making Amendments Substituting the Provisions Either in Whole or Part Lets keep all this in mind before moving ahead !! 4© Dhadda & Co.
Levy, Collection and Payment… In the process of taxation, First step is levy of tax. Levy is linked with certain event. On triggering of the certain event, the transaction becomes taxable. It is known as Taxable Event. In the second stage, once an event has become taxable, the question of collection of tax will arise. The statute will provide for the event or time whereat it will become point of taxation. In the third step, the statute will provide for the time period or another event on occurring of which tax will have to be paid. Thus, as can be seen, the concept of levy, collection and payment of tax are fundamental aspects of any fiscal law. 5© Dhadda & Co.
What gave birth to Point of Taxation Rules Section 66 of the Finance Act (FA) use to provide for levy of ST on provision of various services. Section 65(105) use to define various services which are subject to tax. However, unlike in the case of Central Excise, the FA does not provide for point of taxation. Since, the payment of tax was linked with receipt of payment; it did not pose any problem. However, as it is proposed to be aligned with the provisions of CE and VAT, the question of determining Point of Taxation (PoT) had arisen. 6© Dhadda & Co.
Basic Concept of Point of Taxation… Earlier Concept of Payment of Service Tax was on Actual Realization of tax, on or before 5 th of the following month or quarter, as the case maybe. The principle was adopted for levy and collection of duty of excise and all other indirect taxes. However Government in a bid to mop- up the indirect tax collection and with the excuse of getting closer to GST where there is no difference between Goods and Services. Changed the concept of payment of service tax from actual receipt of amount of tax to the deemed receipt based on few rules called Point of Taxation Rules 2011. 7© Dhadda & Co.
Basic Structure of Point of Taxation Rules Rule -1 – Short Title and Commencement Rule-2- Definations Rule-3- Determination of point of taxation Rule-4- Determination of point of taxation in case of change in effective rate of tax Rule-5- Payment of tax in cases of new services Rule-6- Determination of POT in case of continuous supply of service Rule-7- Determinatiion of POT in case of associated enterprises Rule-8- Determination of POT in case of copyrights etc Rule-9- Savings 8© Dhadda & Co.
Changes in Point of Taxation Rules, 2011 proposed through Point of Taxation (Amendement) Rules, 2012 Rule-2 © Dhadda & Co.9 New Clause (ba)- Change in Effective Rate of Tax Includes a change in the portion of value on which tax is payable in terms of a notification issued in the Official Gazette under the provisions of the Act, or rules made thereunder. Earlier it was an Explanation to Rule 4 and had limited applicability on Rule 4 only.
Rule 2 (c) – Continuous Supply of Service Earlier ClauseNew Clause Any service which is provided, or to be provided continuously, under a contract, for a period exceeding three months, or where the Central Government, by notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition Any service which is provided or to be provided continuously or on recurrent basis under a contract, for a period exceeding three months with the obligation for payment periodically or from time to time, or where the Central Government by notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition 10© Dhadda & Co.
Purpose of new definition… To remove misunderstanding that service which takes more than 3 months for completion are covered here Thus if same service is provided repeatedly under a contract for a period exceeding three months then such case will be considered as Continuous Supply of Service. E.g. Recurring Annual Maintenance Service Contract, Cleaning Contracts etc 11© Dhadda & Co.
New Rule – 2A- Date of Payment © Dhadda & Co.12 For the purpose of these rules date of payment shall be earlier of dates on which Payment is entered in the books of accounts Credited to the Bank Account of the person liable to pay tax Provided that date of payment shall be date of credit in bank account when- Change in effective rate of tax or, Service is taxed for the first time during the period between entry in books of accounts and credit in the bank account and Payment is credited after 4 working days from above said period and Payment is made by way of instrument which is credited to bank account Provided that if any rule requires determination of the time or date of payment received, the expression date of payment shall be constructed to mean such date on which the payment is received.
Purpose of New Rule.. Clarification vide D.O.F No. 334/1/2012-TRU dated 16.3.2012 Keeping in view impending changes in rate effective from April 1, 2012 Introduction of Negative List (New Levy) 13© Dhadda & Co.
Rule 3 (a) – Determination of Point of Taxation For the purposes of these rules, unless otherwise provided, point of taxation shall be,- the time when the invoice for the service provided or to be provided is issued or when the payment is received before issue of invoice, then such receipt of payment. Earlier Proviso to clause (a)New Proviso to clause (a) Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion. Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service;rule 4A 14© Dhadda & Co.
Rule 4A of The Service Tax Rule 1994 In rule 4A of the principal rules, in sub-rule (1),- (i) for the words fourteen days, at both the places where they occur, the words thirty days shall be substituted; (ii) after the third proviso, the following provisos shall be inserted, namely:- Provided also that in case the provider of taxable service is a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person, providing service to any person, in relation to banking and other financial services, the period within which the invoice, bill or challan, as the case may be is to be issued, shall be forty five days;; (iii) after the fifth proviso, the following proviso shall be inserted, namely:- Provided also that wherever the provider of taxable service receives an amount upto rupees one thousand in excess of the amount indicated in the invoice and the provider of taxable service has opted to determine the point of taxation based on the option as given in Point of Taxation Rules, 2011, no invoice is required to be issued to such extent.. 15© Dhadda & Co.
New Provisio in Rule 3 © Dhadda & Co.16 Provided that for the purposes of clauses (a) and (b), 1. In case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; 2.Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).
Analysis… 1 st Proviso.. Explanation which was firstly appended to Rule 6 of POT Rules 2011 No difference in Rule 3 and the Rule 6 of earlier POT, 2011 except this explanation. Now explanation incorporated itself in Rule 3 by way of proviso. Consequently Rule 6 of Point of Taxation Rules 2011 has been omitted. 17© Dhadda & Co.
Rule -4 – Just a glance… Determination of POT in case of change in effective rate of tax a) Where taxable service provided before change in effective rate of tax and following event happens before change in effective rate of tax- Date of Invoice (DOI) Date of receipt of Payment Received (DOP) Point of Taxation (POT) No DOI or DOP whichever is earlier YesNoDOI NoYesDOP 18© Dhadda & Co.
Rule -4 – Just a glance… Determination of POT in case of change in effective rate of tax b) Where taxable service provided after change in effective rate of tax and following event happens before change in effective rate of tax- Date of Invoice (DOI) Date of receipt of Payment Received (DOP) Point of Taxation (POT) NoYesDOP Yes Earlier of DOP or DOI NoYesDOI 19© Dhadda & Co.
Rule-4 © Dhadda & Co.20 Explanation to the Rule- Omitted For the purposes of this rule, change in effective rate of tax shall include a change in the portion of value on which tax is payable in terms of a notification issued under the provisions of Finance Act, 1994 or rules made thereunder.
Rule 5– Payment of Tax in case of New Services Where a service (earlier not being a service covered by Rule 6) is taxed for the first time then,- Clause a- No Change (Issue of Invoice and Date of payment, before such service became taxable- no Tax) 21© Dhadda & Co. Earlier clause (b)New Clause (b) 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. 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.
Rule 6- Determination of point of taxation in case of continuous supply of service- Rule Omitted Already incorporated in Rule 3 through proviso. 22© Dhadda & Co.
Rule 7– Determination of Point of Taxation in case of Specified Services or Persons (Associated Enterprises), 23© Dhadda & Co. Earlier RuleNew Rule Notwithstanding anything contained in these rules, the point of taxation in respect of,- (a) the services covered by sub-rule (1) of rule 3 of Export of Services Rules, 2005; (b) the persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994; (c) individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994, shall be the date on which payment is received or made, as the case may be: Notwithstanding anything contained in these rules, the point of taxation in respect of – the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:sub-section (2) of section 68 of the Act
Section 68 (2) of The Finance Act-1994 in section 68, in sub-section (2), with effect from such date as the Central Government may, by notification, appoint,–– (i) for the words "any taxable service notified", the words "such taxable services as may be notified" shall be substituted; (ii) the following proviso shall be inserted, namely:–– "Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider."; 24© Dhadda & Co.
Rule 7– Continued… 25© Dhadda & Co. Earlier ProvisoNew Proviso Provided that in case of services referred to in clause (a), where payment is not received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist. Provided further that in case of services referred to in clause (b) 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. Provided 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:
Rule 7– Continued… 26© Dhadda & Co. Earlier ProvisoNew Proviso Provided also that in case of associated enterprises, where the person providing the service is located outside India, the point of taxation shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier. Provided further that in case of associated enterprises, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.
New Rule – 8A- Determination of Point of Taxation in other cases © Dhadda & Co.27 Best Judgment Assessment Where the point of taxation cannot be determined as per these rules as the date of invoice or the date of payment or both are not available, the Central Excise officer, may, require the concerned person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account such material and the effective rate of tax prevalent at different points of time, shall, by an order in writing, after giving an opportunity of being heard, determine the point of taxation to the best of his judgment.
Issues.. Practical Issues with Point of Taxation on so called Accrual Basis Contract of Payment Vs. Actual Receipt – specially in Service Sector as Services are Intangible. Cases pending in Civil Courts- Mind Boggling Add to it cases of cheques bounced or Dishonored- Situation gets worse Honor in Commitment to pay in Service Sector is low 28© Dhadda & Co.
Actual Reality… 29© Dhadda & Co. Point of Taxation Rules, 2011 was notified vide Notification No. 18/2011-ST, dated 1-3-2011 and was made effective from 1-4-2011 having 9 rules. Then Amending Notification No. 25/2011-ST dated 31-3-2011 substituted Rule 3, Rule 6, Rule 7 and Rule 9 besides other changes (4 out of 9 rules). Said rules were again amended vide Notification No. 41/2011-ST, dated 27-6-2011. Finally till date CBEC thought it is desirable to take out major amendment vide notification No. 4/2012-ST, dated 17-3-2012 w.e.f. 1-4-2012. It appears that CBEC is not clear as to what should constitute the Point of Taxation in Service Tax
Due to this… 30© Dhadda & Co. Tax payer has been at the receiving end Any slip by tax payer has been visited by fine and penalty Concept of Deemed Payment as tried to explained by Point of Taxation Rules 2012 is a problem for stakeholders The concepts of VAT, Excise etc have been forcefully tried to be implemented on Service Tax but Various laws cannot be put in Straight Jacket. Client has to comply with the provisions but not to do business (One partner for taxation)
Issues- Rule 5(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. 31© Dhadda & Co. Restriction of 14 days for new levy is to be assumed as a Conscious Prescription or just an Omission ? No logic behind 14 days time period It seems a harsh mechanism and again shows pro revenue attitude of Government ignoring assesse. Does not have uniformity
Vision of POT- Smooth Transition to GST But shortcomings in the vision … Requirement of more liquid funds by tax payer Enhancement of cost of provision of service Specifically bars any concession against bad debts (F.No. 341/34/2010-TRU-31-3-11, 11(ii) Take the case of CA firms having receipts more than 50 lacs, -Cost of Bad Debts ? Renting of immovable property ? It will de-motive tax payer to raise invoices until they are sure of receiving the payments 32© Dhadda & Co.
Issues- Rule 7 – Harsh Provision If payment not made within six months from date of issue of invoice- Applicable Rule will be Rule 3 for determining Point of Taxation Practical Problems- Service Value is deducted on account of various reasons (Not Bad Debts but Claims & Discounts)- No benefit Payments are delayed due to multiple reasons Invoice raised reaches accounts department very late of payments 33© Dhadda & Co. In above cases if time- limit of 6 months are missed then Payment of tax with interest Unnecessary burden Should be allingned with Rule 4(5)(a) of CCR, 2004 where upon expiry of 180 days, its upon 181 st day that liability of interest arises
Changes in ST-3 Return required … Rule -6 Due date of payment of Service Tax shall be determined w.r.t. date on which service is deemed to be provided in this regard Point of Taxation Determination of Point of taxation in case of provision of a service Basically governed by Rule -3 of POT (Accrual Basis) In ST-3 Determination of ST liability is still linked with amount received towards value of service It is required to be linked with issue of invoice and date of completion of service 34© Dhadda & Co.
Continuous Supply of Service… Basic Condition – Service exceeding from 3 months Provided Continuously or on, Recurrent Basis- Includes same service is provided repeatedly under the contract Under a Contract with a Obligation for payment periodically or time to time 35© Dhadda & Co. What if … No formal contract No obligation to pay periodically No payment schedule decided ? Then No Service Tax under Continuous Supply of Service ??
Rule 8A- Sarkar Raj ?? Date of invoice and Date of payment not available – Where is the service tax liability ? Regular Tax Payer to bear the burnt of ill- doings of regular tax evadors. Criteria of Best Judgment – Not explained ? Service Tax varies from case to case- No comparative study can be done. 36© Dhadda & Co.
Changes due to Amendment in POT-2011 Exemption to Small Service Providers w.e.f. 01.04.2012- Aggregate Value redifned Aggregate Value means the sum total of value of taxable services charged in the first consecutive invoices issued or required to be issued, as the case may be, during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66 of the said Finance Act under any other notification. 37© Dhadda & Co. Hence SSI exemption from point of view of Invoices raised Applicable on those also who are liable to pay service tax on receipt basis.
Other Amendments related to Point of Taxation Rules 2011 In case of export of services and eight specified services provided by individuals or firms, the point of taxation is the date of payment. The special dispensation is being shifted from the POT Rules to the Service Tax Rules. This would help provide certainty in the application of rate of tax while retaining the benefit of payment of tax until payment is received. In case of exporters, the period extended by the Reserve Bank of India is now explicitly included in the period for which the tax is allowed to be deferred. 38© Dhadda & Co.
Other Amendments related to Point of Taxation Rules 2011 The benefit available to individuals and firms to determine POT on the basis of date of payment for eight specified services is being extended to all services in a slightly modified form. The facility will be now available to individuals and partnership firms (including limited liability partnership) up to a turnover of Rs 50 lakh in a financial year provided the taxable turnover did not exceed this limit in the previous financial year. For computing the above limits, the turnover of the whole entity is required to be summed up and not any single registration 39© Dhadda & Co.
Reverse Charge Mechanism History Concept was introduced to Finance Act 1994 under Service Tax Rules 2002 In these rules it was provided that where a taxable service is provided by a non- resident not having an office in India, service tax would be payable by the service recipient. Later on an explanation to Section 65(105) was added wherein the concept of import of services was launched. Later on explanation was removed in year 2006 and Section 66A was inserted where it was provided that in case of import of taxable services, the recipient will be deemed service provider for the purpose of paying service tax. Rules 2(1)(d) of the Service Tax Rules, 1994 prescribed the cases of deemed service providers. 40© Dhadda & Co.
Position Prior to enactment of Finance Bill 2012 Services which use to fall within the ambit of Section 68(2) read with Rule 2(1)(d) of the Service Tax Rules 1994 are- Goods Transport Agency General Insurance Business Insurance Auxiliary Service by an Insurance Agent Service provided by person from a country other than India Business Auxiliary Service of Mutual Fund Distributor Sponsorship Service 41© Dhadda & Co.
Place of Provision of Service Rules, 2012- Taxability of services is based on provision of services in the taxable territory. Accordingly, draft rules have been laid down to replace the existing rules for export and import of services. As a broad concept, the draft rules suggest that location of the service recipient (depending on the location of its registered premises, business establishment or fixed establishment) would determine the place of provision of services. However, in case of certain services such as telecommunication services where location of service recipient is difficult to determine, the location of the service provider would be the basis for identifying place of provision of such services. 42© Dhadda & Co.
Definition of Taxable Territory Section 65B (52)- Means the territory to which the provisions of this Chapter apply 43© Dhadda & Co. Implication Services provided in taxable territory only will be liable to Service Tax Thus, the services provided in the state of J & K will not be liable to service tax subject to the provisions of The Place of Supply Rules, 2012 However where Service Provider is located in J & K but the service is being provided in taxable territory, in terms of stated rules, tax will be collected from Service receiver.
Example A company ABC provides a service to a receiver PQR, both located in the taxable territory. Since the location of the receiver is in the taxable territory, the service is taxable. Service tax liability will be discharged by ABC, being the service provider and being located in taxable territory. However, if ABC were to supply the same service to a recipient DEF located in non-taxable territory, the provision of such service is not taxable, since the receiver is located outside the taxable territory. If the same service were to be provided to PQR (located in taxable territory) by an overseas provider XYZ (located in non-taxable territory), the service would be taxable, since the recipient is located in the taxable territory. However, since the service provider is located in a non-taxable territory, the tax liability would be discharged by the receiver, under the reverse charge principle (also referred to as tax shift). 44© Dhadda & Co.
Who is the service receiver? Normally, the person who receives a service and, therefore, becomes obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf. 45© Dhadda & Co. A lady leaves her car at a service station for the purpose of servicing. She asks her chauffer to collect the car from the service station later in the day, after the servicing is over. The chauffer makes the payment on behalf of the lady owner and collects the car. Here the lady is the person obliged to make the payment towards servicing charges, and therefore, she is the receiver of the service.
Headquarter Payments What would be the situation where the payment for a service is made by the headquarters of a business but the actual rendering of the service is elsewhere? The provision of a service may be made at the headquarters of an entity by way of centralized sourcing of services whereas the actual provision is made at various locations. Here, the central office acts only as a facilitator to negotiate the contract on behalf of various geographical establishments. Each of the geographical establishments receives the service and is obligated to make the payment either through headquarters or sometimes directly. Where the payment is settled either by cash or through debit and credit note, it is clear that the payment is being made by such geographical location. In terms of proviso to section 66B, the establishments in a taxable and non-taxable territory are to be treated as distinct persons. 46© Dhadda & Co.
Unascertained Locations.. What is the place of provision where the location of receiver is not ascertainable in the ordinary course of business? Generally, in case of a service provided to a person who is in business, the provider of the service will be in a position to ascertain the location of the recipients registered location, or his business establishment, or his fixed establishment etc, as the case may be. However, in case of certain services (which are not covered by the exceptions to the main rule), the service provider may not be in a position to ascertain the location of the service receiver, in the ordinary course of his business. For instance, an individual may go to the office of a Custom House Agent to obtain his services for clearance of imported personal effects, and furnish an address to which the goods are to be delivered. Normally in such cases, the provider will not be expected to make any detailed enquiry from a customer regarding his location, in the ordinary course of business. In such cases, it will be deemed that the place of provision of the service is the location of the service provider (in the taxable territory). 47© Dhadda & Co.
Performance Based Services Place where services are performed… Illustration 1 A foreign music troupe, undertaking a tour in four Indian cities, obtains the services of an Indian cargo handling firm to move its sound and music equipment between the four cities. The place of provision of this service is in the taxable territory, notwithstanding the location of the receiver. Illustration 2 An Electrical engineering firm located in India deputes its engineers to undertake repairs at a hydel power plant in Bhutan (which is owned by say, Govt of Bhutan). Place of provision of this service will be Bhutan i.e outside taxable territory. Illustration 3 An airline company in India gets its aircraft repaired at a hanger at Mumbai airport, by engineers deputed by an overseas firm (say, Airbus, France) who travel from Toulouse, France to Mumbai for the purpose. The place of provision of this service is in the taxable territory, and more specifically, Mumbai. 48© Dhadda & Co.
Notification No. 15/2012 dated 17.3.2012, w.e.f. 1-7-2012 Taxable Services are defined on which Reverse Charge Mechanism is applicable The following services are prescribed in respect of which the recipient will be liable to pay the service tax services provided by an insurance agent to any person carrying on insurance business services provided by a goods transport agency in respect of transportation of goods by road services provided by way of sponsorship services provided or by an arbitral tribunal services provided by individual advocate services provided by way of support service by Government or local authority taxable services provided by any person located in a non-taxable territory and received by any person located in the taxable territory 49© Dhadda & Co.
Notification No. 15/2012 dated 17.3.2012- wef. 1-7-2012 Three services are being prescribed in respect of which both service provider and service recipient will be considered as person liable to pay the service tax on the basis of a fixed percentage If- service provider is an individual/firm/LLP Service recipient is the body corporate 50© Dhadda & Co. S. no. Description of ServiceService RecipientService Provider 1 Hiring of motor vehicle for passengers – with abatement without abatement 100% 40% NIL 60% 2Supply of man power75%25% 3Works contract50%
Reason for brining Joint Charge Mechanism Number of registrants collect the tax but do not pay the same to Department. Serious loss of revenue Recipient of service often not benefited Hence to ensure proper collection, new scheme is introducted. 51© Dhadda & Co. Service Recipient is allowed to take credit of the service tax paid by him under reverse charge method on the basis of challan.- Rule 9 (1)(e) of CENVAT Credit Rules Amended.
Point of Taxation Rules + Reverse Charge Mechanism Rule 7 52© Dhadda & Co.
Rule 7– Determination of Point of Taxation in case of Specified Services or Persons (Associated Enterprises), 53© Dhadda & Co. Earlier RuleNew Rule Notwithstanding anything contained in these rules, the point of taxation in respect of,- (a) the services covered by sub-rule (1) of rule 3 of Export of Services Rules, 2005; (b) the persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994; (c) individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994, shall be the date on which payment is received or made, as the case may be: Notwithstanding anything contained in these rules, the point of taxation in respect of – the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:sub-section (2) of section 68 of the Act
Section 68 (2) of The Finance Act-1994 in section 68, in sub-section (2), with effect from such date as the Central Government may, by notification, appoint,–– (i) for the words "any taxable service notified", the words "such taxable services as may be notified" shall be substituted; (ii) the following proviso shall be inserted, namely:–– "Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider."; 54© Dhadda & Co.
Analysis of amendments Notification No. 15/2012-ST dated 17.3.2012 supersedes Notification no. 36/2004-ST dated 31.12.2004 Old Services which are not mentioned in 15/2012-ST are- Telecommunication Services Services provided from abroad Insurance Auxiliary Service 55© Dhadda & Co. For the purpose of import separate rules named Place of Provision of Service Rules,2012 have been framed
Services under Joint Charge Mechanism Hiring of Motor Vehicle meant for passengers. Example for with and without abatement Suppose, Rate of Service Tax 12.36 % and amount charged is Rs 100 56© Dhadda & Co. ParticularsIf abatement is claimedIf abatement is not claimed Gross value100 Less: Abatement600 Taxable value40100 Service tax @ 12.36%4.9512.36 Service tax payable – By provider07.42 By recipient4.954.94
Analysis… It will be beneficial to claim the abatement as in both the cases, the liability on the service recipient will be same. However there is additional liability on the service provider of Rs. 7.42% where abatement is not claimed. 57© Dhadda & Co.
Services under Joint Charge Mechanism Supply of man power services- 25% Service Tax by Service Provider and 75% by Service Recepient. Example- Service Tax rate = 12.36% Amount Charged = Rs 100 58© Dhadda & Co. ParticularsAmount Gross value100 Service tax payable @ 12.36%12.36 Service tax paid by service provider (12.36 * 25%) 3.09 Service tax paid by service recipient (12.36 * 75%) 9.27
Analysis… Service Tax paid by Service Recipient = Rs 9.27 Service Tax payable by Service Provider = Rs 3.09 Service Provider is allowed to take the CENVAT Credit of the input and input services (TRU letter F.No. 334/1/2012-TRU dated 16.3.2012, para 15) Thus- Service Provider will take credit of service tax paid on such input service. Service recipient will take credit of tax paid by him under reverse charge method on the basis of challan in light of Rule 9(1)(e) of the CENVAT Credit Rules 2004. Thus effect of entire process is same- So what is the need of complicating things which are going fine ? 59© Dhadda & Co.
Services under Joint Charge Mechanism Works Contract Service. 50% payable by Service Provider and 50% by Service Receiver 60© Dhadda & Co. However- Government has already complicated Works Contract by amending the valuation rules pertaining to this service Fixing liability of two person will add fuel to fire Analogy stated in case of Manpower Services equally applicable here What will be new then ? Confusion, litigation and increased cost will be new
Reverse Charge Mechanism- TDS Provisions Services covered in Reverse Charge Mechanism are covered in TDS provisions under Direct Tax Laws. Now they are also covered under RCM and service receiver has additional responsibility of depositing Service Tax and TDS of Service Providers It will seriously hit funds of service receivers. Will there be concept of Tax Credit like 26AS here ? If yes, then is there any infrastructure ? Only time will tell us. 61© Dhadda & Co.
Services Received from Abroad ASSOCIATE ENTERPRISENON ASSOCIATE ENTERPRISE Provisions are clear regarding point of taxation It is the Date of Book Entry Thus exact date is known when tax liability arises Thus tax liability can be ascertained Service Provider need not necessarily raise invoice on service recipient. Then ? Whether Service Receiver to raise invoice within given time and pay service tax within 6 months What if no party raises invoices? 62© Dhadda & Co.
Solution to above problem … Pay Service Tax on receipt of invoice when you are not sure if you will be able to pay amount in 6 months from date of invoice. Determine exact time when services were rendered so that you do not fall foul to Rule 3(a) of POT, 2011 Else follow provisions of Rule 6(3) or 6(4) or 6(4A) read with 4(B) of the Service Tax Rules 1994 and undergo undue hardships. (Excess payment of service tax and self adjustment) 63© Dhadda & Co. Only service provider knows exact time of completion of service and in RCM it is unfair to make person liable to pay tax to fit in shoes of actual Service Provider.
Reverse Charge Mechanism N o. Description of a serviceLiability of Service Provider Liability of Service Receiver 1 in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil100% 2 in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road Nil100% 3 in respect of services provided or agreed to be provided by way of sponsorship Nil100% 4 in respect of services provided or agreed to be provided by an arbitral tribunal Nil100% 5 in respect of services provided or agreed to be provided by individual advocate Nil100% 6 in respect of services provided or agreed to be provided by way of support service by Government or local authority Nil100% 7 (a) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value. Nil 60% 100 % 40% 8. in respect of services provided or agreed to be provided by way of supply of manpower for any purpose 25%75 % 9. in respect of services provided or agreed to be provided by way of works contract 50% 10 in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory Nil100% 64 © Dhadda & Co.
Final Words… Service Tax Collections have gone up by 9 % in last fiscal year Yet there have been lot of amendments in Service Tax this year Remember While Music can be some times taxing, a tax can never be musical With the kind of changes it seems Govtt has tried to killed the gooze that lays goldern eggs. 65© Dhadda & Co.
Final Words… Common Sense… Thank You Greetings: Yash Dhadda (Chartered Accountant) E-Mail me at : email@example.com@gmail.com +919829186074
CA NITIN GUPTA Download Source-
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