The government has introduced a few notifications on 31 March 2011 under Service tax and Cenvat credit laws in order to iron out some of the pain points faced by the industry. Here we summarized the key amendments introduced vide these notifications with effect from 1 April 2011.
Point of taxation
Transition rule
The Point of Taxation Rules effective from 1 April 2011 determining point of tax will not apply where-
- provision of service is complete prior to 1 April 2011; Or
- invoice is issued prior to 1 April 2011
An option has been provided to the tax payer to continue to pay service tax on receipt of payment where –
- provision of service is complete on or before 30 June 2011; or
- invoice is issued on or before 30 June 2011
General rule
The general rule to determine point of taxation shall be earlier of
- issuance of invoice; or
- receipt of payment, including advance; or
- the date of completion of service, where invoice is not issued within 14 days of completion of service
The rule determining point of tax in case of “change of rate of tax” has been amended to mean “change in effective rate of tax”. It is further provided that such change shall also include a change in taxable value under a notification.
Continuous supply of service
In case of continuous supply of service the point of tax shall be earlier of –
- issuance of invoice; or
- receipt of payment, including advance; or
- the date of completion of service, where invoice is not issued within 14 days of completion of service; or
Where under a contract, provision of service is determined periodically on the completion of an event, the date of completion of such event shall be deemed to be the date of completion of service.
Following services are notified as continuous supply of service
- Telecommunication service
- Commercial or industrial construction service
- Construction of residential construction service
- Internet Telecommunication service
- Works contract service
The rule determining point of tax in case of continuous supply of service will have overriding effect over the general rule determining point of tax, the rule determining point of tax in case of change of rate and the rule determining point of tax for copyright service.
Special cases
For following services or persons, the point of tax shall continue to be on receipt of payment for the service –
- services qualifying export under Export of Services Rules, 2005 and payment for which is received within the period specified by RBI
- the person requiring to pay service tax under revere charge and payment for which is made within six months of the invoice date
- individuals, proprietary firms or partnership firms providing taxable services of Architect, Interior Decorator, Chartered Accountant, Cost Accountant, Company Secretary, Scientific or technical consulting and Legal services.
This rule will have overriding effect over the other rules determining point of tax.
Associated enterprises
For services received from associated enterprise located outside India, the point of tax shall be earlier of –
- payment date; or
- date of credit in the books of account of service recipient
This rule will have overriding effect over the other rules determining point of tax.
Cenvat Credit Rules, 2004
Point of Cenvat credit
Cenvat credit will be allowed on “receipt of invoice” as against on “payment of value of taxable service along with service tax”. It is also provided that if payment of value of input service and service tax thereon remains unpaid for 3 months from the invoice date, the amount of credit initially availed needs to be paid. The amount so paid will be subsequently available as credit upon payment of value of input service and service tax thereon.
Where service tax is payable under reverse charge, the Cenvat credit will be allowed only upon payment of value of input service and service tax thereon.
As a transition provision, for invoices issued prior to 1 April 2011, Cenvat credit will continue to be available upon payment of value of input service and service tax thereon.
Cenvat treatment in the case trading
It has been provided that the value in case of trading shall be higher of the following:
- difference between the sale price and the cost of goods sold (COGS); or
- 10% of COGS
COGS has to be determined as per generally accepted accounting principles without including the expenses incurred towards its purchases.
Cenvat credit on input service will be denied where service tax on such input service became recoverable from the input service provider on account of fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions with intention to evade such tax.
Forex trading
It has been provided that the value of taxable service in the case of forex trading shall be the difference between the buying / selling rate and the RBI reference rate at a given time. Earlier this provision applied the rate for the given day. This change is to provide basis of valuation for the transactions taking place on a given day prior to issuance of the reference rate by the RBI for that day.
However, there is no such amendment introduced where neither of the currencies exchanged (bought or sold) is Indian rupee.
Service tax rules 1994
The rule requiring issue of invoice now provides that an invoice should be issued within 14 days of ‘completion’ of service. In the case of continuous supply of service the invoice should be issued within 14 days of completion of event specified in the contract requiring payment to be made by the service receiver.
The facility of self adjustment of any excess service tax paid due to non-provision of service is now also available to cases where invoice amount is renegotiated due to deficient provision of service or any terms contained in a contract.
The option to pay service tax by a foreign exchange broker including an authorized dealer or money changer has now been amended from 0.1% of the gross amount of currency exchanged to the following:
- 0.1 per cent of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 25; and
- rupees 100 and 0.05 per cent of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and
- rupees 550 and 0.01 per cent of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 5000:
The option under this scheme once exercised shall be applicable for the entire financial year.
The exemption in relation to inter-bank forex trading earlier available only for the transactions between two scheduled banks is now applicable to the taxable service provided to any bank, including a bank located outside India or money changer, by any other bank or money changer.
Service tax payable on billing basis or collection basis from 01.04.2011. If service billing for apr, 11 is Rs. 500000/-. Service tax payable before 31.05.2011.
Please clarify.