1. Accrual system of taxation in Service Tax
CA Atul Kumar Gupta CA Akhil Gupta

2. Learning Objectives
Shift from cash system to accrual system – changes in provision of law
Meaning of Point of Taxation
Applicability of Point of Taxation Rules, 2011
Determination of Point of Taxation under different situations
Impact of Point of Taxation on taxable event in service tax
Applicability of accrual system to Credit of Service Tax
Self Adjustment of Service Tax
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

3. Accrual System – Changes in provision of law
Notification No. 03/2011-ST
Amendments made
Rule 6(1)
First proviso to Rule 6(1)
Second proviso to Rule 6(1) omitted
Third proviso to Rule 6(1)
Rule 5B added
Amend Service Tax Rules, 1994
effect
Liability to pay tax shall be determined on date when services are deemed to be provided
Point of Taxation Rules, 2011
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

4. Meaning of Point of Taxation
Rule 2(e) ‘point of taxation’ means the point in time when a service shall be deemed to have been provided
Point of Time/Date
Services shall be deemed to be provided
for the purpose of Rule 6(1)
Procedural aspect to determine when tax has to be paid
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

5. Applicability of Point of Taxation
Date of applicability of Point of Taxation
Where provision of service is completed or invoice is issued
before
Not Applicable
between to
Optional
on or after
Compulsory
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

6. Determination of Point of Taxation
Normal Situation
Export of Service
Transaction with Associated Enterprises
Introduction of new service
Intellectual property service
Continuous Supply Service
Services under reverse charge
Specified services
Change in effective rate of tax
Transitional provisions
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

7. Determination of Point of Taxation – Normal Situation
Rule 3 of the Point of Taxation Rules, 2011 provides that the point of taxation shall be as follows:
Date of issue of invoice or receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service.
Date of completion of the provision of service or receipt of payment, if the invoice not issued within the prescribed period as above.
Situation
Point of Taxation
Relevant Rule
Invoice is issued before completion of service and receipt of payment
Time of issue of invoice
Rule 3(a)
Service is completed and invoice is issued within 14 days
Service is completed and invoice is not issued within 14 days
Date of completion of service
Proviso to Rule 3(a)
Payment is received in advance before issue of invoice or completion of service
Date of receipt of payment, to the extent of such payment
Rule 3(b) read with Explanation to Rule 3
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

8. Determination of Point of Taxation – Normal Situation
Situations
Date of Completion of service
Date of Invoice
Date of receipt of payment
Point of Taxation
Relevant Rule 1 2 3 4
(part) and (remaining) 5 6
Rule 3(a)
Proviso to Rule 3(a)
Rule 3(a)
for part and for remaining
Rule 3(a) read with proviso to Rule 3(a)
Rule 3(b)
Rule 3(b)
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

9. Determination of Point of Taxation – Continuous Supply Service
Rule 6 of the Point of Taxation Rules, 2011 provides that the point of taxation shall be as follows:
Date of issue of invoice or receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service.
Date of completion of the provision of service or receipt of payment, if the invoice not issued within the prescribed period as above.
Situation
Point of Taxation
Relevant Rule
Invoice is issued before completion of service and receipt of payment
Time of issue of invoice
Rule 6(a)
Service is completed and invoice is issued within 14 days
Service is completed and invoice is not issued within 14 days
Date of completion of service
Proviso to Rule 6(a)
Payment is received in advance before issue of invoice or completion of service
Date of receipt of payment, to the extent of such payment
Rule 6(b) read with Explanation 2 to Rule 6
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

10. Determination of Point of Taxation – Continuous Supply Service
As per Rule 2(C) of the Point of Taxation Rules, 2011; Continuous Supply Service means ‘any service provided or to be provided for a period exceeding three months’.
Telecommunication Service [Section 65(105)(zzzx)]
Commercial or Industrial Construction Service [Section 65(105)(zzq)]
Construction of Residential Complex Service [Section 65(105)(zzzh)]
Internet Telecommunication Service [Section 65(105)(zzzu)]
Works Contract Service [Section 65(105)(zzzza)]
Other services
Continuous supply even if provided for less then 3 months
Continuous supply only if provided for more then 3 months
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

11. Determination of Point of Taxation – Export of Service
In case of receipt of advance
In case payment is received after provision of service
Date of receipt of such advance
Payment is received within period specified by RBI
Payment is not received within period specified by RBI
Date of receipt of such payment
Date of issue of invoice if raised within 14 days of completion of service other wise date of completion of service
Interest is applicable from date of issue of invoice or completion of service as the case may be
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

12. Determination of Point of Taxation – Reverse Charge
In case of advance payment
In case payment is made after provision of service
Date of payment of such advance
Payment is made within 6 months from date of invoice of service provider
Payment is not made within 6 months from date of invoice of service provider
Date of such payment
Interest is applicable from date of issue of invoice
Date of issue of invoice
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

13. Determination of Point of Taxation – Transaction with associated enterprises
In case service provider is in India
In case service provider is outside India
Date of issue of invoice or
receipt of payment, whichever is earlier
Date of credit in books of service receiver or
making of payment, whichever is earlier
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

14. Determination of Point of Taxation – Change in effective rate of tax
Situation
Service provided before change in effective rate of tax
Service provided after change in effective rate of tax
Invoice raised after change in rate
Payment made after change in rate
Date of payment/ date of invoice, whichever is earlier
Rule 4(a)(i)
Invoice raised before change in rate
Date of issue of invoice
Rule 4(a)(ii)
Date of payment
Rule 4(b)(i)
Payment made before change in rate
Rule 4(a)(iii)
Rule 4(b)(iiI)
Rule 4(b)(ii)
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

15. Determination of Point of Taxation – Change in effective rate of tax
Situations
Date of Completion of service
Date of Invoice
Date of receipt of payment
Point of Taxation
Relevant Rule 1 2 3 4
Rule 4(b)(i)
Rule 4(b)(iii)
Rule 4(b)(ii)
Effective rate of service tax is changed w. e. f
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

16. Determination of Point of Taxation – Change in effective rate of tax
Situations
Date of Completion of service
Date of Invoice
Date of receipt of payment
Point of Taxation
Relevant Rule 1 2 3 4
Rule 4(a)(ii)
Rule 4(a)(i)
Rule 4(a)(iii)
Effective rate of service tax is changed w. e. f
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

17. Determination of Point of Taxation – Change in effective rate of tax
means change in applicable rate under Section 68
includes
Change in rate of abatements
Change in rate under composition scheme
Change in rate under any other rule or provision of law
like Rule 6(7), rates for air travel agents
Explanation 4 to Rule 4 read with para 3 of letter F. No. 341/34/2011-TRU dated
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

18. Determination of Point of Taxation – Introduction of new service
Service provided before applicability
In case payment is received in advance
Service has become taxable
No service tax
Invoice is issued before applicability of service tax
Invoice is issued within 14 days given under Rule 4A (STR)
No service tax
No service tax
Invoice is not issued within 14 days of receipt of advance
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018
Service tax payable

19. Determination of Point of Taxation – Introduction of new service
Situations
Date of Completion of service
Date of Invoice
Date of receipt of payment
Point of Taxation
Relevant Rule 1 2 3 4 5
No tax
Rule 5(a)
No tax
Rule 5(b)
No tax
Taxable
No Tax
New service is introduced from
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

20. Determination of Point of Taxation – Specified services
Other than Specified services
Point of Taxation
Individuals/ firms
providing
Architects
Interior Decorators
CA/CS/CWA
Scientists
Legal Consultants
Consulting engineer
Specified services
No Point of Taxation
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

21. Determination of Point of Taxation – Intellectual Property Service
Intellectual property service means a service where consideration is not ascertainable at the time of service
Copy rights, trade marks, design or patents
First Event
Subsequent Event
Point of Taxation
Receipt of payment or benefit is received by service provider
Issue of Invoice
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

22. Determination of Point of Taxation – Transitional Provision
Services completed before
Point of Taxation
Issue of invoice/ date of receipt of payment, at option of service provider
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

23. Impact of Point of Taxation on Taxable Event in service tax
Issue of invoice/ receipt of advance (whichever is earlier) = Point of Taxation
Whether taxable event would change? No
Provision of service
Section 65 states
Taxable service means any service provided or deemed to be provided
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

24. Impact of Point of Taxation on Taxable Event in service tax
Legal judgments defining taxable event
Association of Leasing & Financial Service Companies v UOI 2010 (20) STR 417 (SC)
observed that “rendition of service is taxable event for service tax”
Kerala Color Lab. Association v UOI 2006 (2) STR 554 (Ker.) held that “taxable event occurs because the service is rendered”
Commissioner of Central Excise , Vadodara II v Schott Glass India (P) Ltd (14) STR 146 (Guj.) held that “the taxable event in relation to Service Tax is admittedly the rendering of taxable service.”
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

25. Impact of Point of Taxation on Taxable Event in service tax
Subordinate legislation cannot override substantive provision of law
Point of Taxation Rules, 2011 or Service Tax Rules, 1994
framed under delegated power of Finance Act, 1994
Supreme Court in case of
Shri Vishin N. Kanchandani & Anr. v Vidya Lachmandas Khanchandani & Anr (158) ELT 403 held that ‘it is well settled principle of law that in case of a conflict between a substantive act and delegated legislation, the former shall prevail inasmuch as delegated legislation must be read in the context of primary/ legislative act and not the vice-versa’
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

26. Impact of Point of Taxation on Taxable Event in service tax
Section 66
Legal Judgments
Principle of supremacy of substantive provision of law over delegated legislation
Taxable event is
‘rendering/ provision of service’
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

27. Applicability of Accrual System to Credit of Service Tax
Rule 4(7) of CENVAT Credit Rules, 2004
amended
CENVAT Credit of Service Tax be taken immediately on receipt of invoices issued on or after
however if payment not made within 3 months of date of invoice, then credit taken shall be reversed
No interest for 3 months period
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

28. Self Adjustment of Service Tax
Adjustment of any excess tax paid due to accrual system – self adjustment mechanism
service to be provided which is not so provided either wholly or partially
Refund of service tax has been made to receiver or
Credit note has been issued
Self adjustment is allowed
CA Atul Kumar Gupta CA Akhil Gupta
9/16/2018

29. A P R A & Associates Thanks CHARTERED ACCOUNTANTS Head office
3812/5 Kanhaiya Nagar, Tri Nagar, Delhi
Branch office
379, Aggarwal Millennium Tower, Netaji Subhash Place, Pitampura, New Delhi
Gurgaon office
III Floor, Opposite Service Tax Department, Udyog Minar, Vanijya Nikunj,
Udyog Vihar, Phase V, Gurgaon
9/16/2018