It has been In the discussion /article published in Tax-Guru giving rise a conflict In section-67A and POT Rule-2011. Both are considered a bone of contention to determine Service tax liability while Service tax rate are changed.
Some points in this contention are elaborated hereunder-
1. Section-67A of Statutory provisions relating to Service Tax Chapter-V and VA of the Finance Act-1994 are reproduced hereunder(inserted by the Finance Act-2012 wef-28-May-2012)
–Date of determination of rate of tax taxable service and rate of exchange-
‘’The rate of Service tax, value of a taxable service and rate of exchange, if any, shall be the rate of rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided”
Levy of service tax rate would prevail or determined during the currency of services rendered. Rendition of services provided shall be the core factor in determination of service tax rate.The timing of invoice issuance or receipt of payment for the period shall not the levy of service tax rate even if the both the events I .e. issue of invoice and receipt of payments happens after the change in Service Tax Rate.
POT came in to being in April-2011 to remove the ambiguity in application of Service Tax Rate related to timing of invoice issuance and receipt of payment. A closer perusal of this rule are summarized below-
1-Date of payment-This events shall be construed to mean such date on which payment is received.No relation in book entry or bank credit whichever is earlier.
2-Determination of Point of Taxation(POT)-
i-Issuance of invoice with in the time limit(30 days after services rendered) as specified in Rule-4A of service tax rule-1994.If invoice not issued, completion of service would be point of Taxation.
ii-Receipt of payment before the time specified in Rule-4A,the time when payment is recd to the extent of such payment.
3-Determination of POT in case of change in effective rate of Tax-
Situation-No-A-Taxable services provided before the change in effective rate of Tax-
Two events are very important to determine –POT-
i-Invoice issued and
ii-Receipt of payment after change in rate
POT shall be which events occurred first.
Here are a conflict in Section-67A and POT. If both the events came into being after change in rate ,then ,new rate would be applicable. This is not in accordance of Section-67 A where rendition of service are main factor to determine tax rate.
In this situation POT shall be established as per Rule 4A or completion of service ,deciding factor of POT.(POT-Rule-4)
Situation No-B-Invoice issued prior to the change in effective rate but payment is received after change in effective rate-
Issue of invoice shall be POT.
3a-Taxable services provided after the change in effective rate of Tax-
In this situation, currency of taxable services provided are main ingredients to establish POT-
i. -Receipt after the change in effective rate and invoice issued before change in rate.POT shall be the receipt of payment.
ii-Invoice has been issued and payment received before change in effective rate,the POT shall be the receipt of payment or date of issuance of invoice whichever is earlier.
This ii point show a flaw in implementing of Section-67A and a cause to refer court.In case ,if both events occurs before change in rate and rendition of service thereafter i.e. after change in rate,then 64A would be coming in the way to establish POT.The assess may contend the rate should be applicable on the basis of services completed.
iii-Invoice issued after change in rate but payment is received before change-issue of invoice shall be POT.
A clarification is essential to avoid ambiguity and contention in POT rule- and Section-67A.
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