Finance Bill, 2015 vide Clause 107 has proposed certain amendments in the Negative List of services given under Section 66D of the Finance Act thereby removing certain services from the Negative List. Now, in this case, the issue may crop up that the services rendered prior to the date of notification are exigible to Service tax when payments for such services are received later or invoices pertaining to services are raised later.
In any taxing statute, the statutory provision containing the charging Section is of foremost importance. It is well settled law that levy of tax is one thing and collection thereof is quite different thing. Once the levy is attracted, the collection of tax may be at any different point/stage/ event.
Under the Finance Act, Section 66B of the Finance Act is the charging Section which levy Service tax on taxable services. We are reproducing herewith Section 66B of the Finance Act for the ease of convenience:
“66B. Charge of service tax on and after Finance Act, 2012.
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
The literal interpretation of the charging Section 66B of the Finance Act means that the levy of Service tax is on those service ‘other than the one specified in the Negative List’, ‘provided or agreed to be provided’. However, the collection of Service tax may be shifted to any point/ stage/event, in any manner, as prescribed by the Rules made in this behalf.
Further as already quoted above, the Hon’ble Supreme Court of India in the case of Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)] specifically observed that the taxable event under the Service tax law is the rendition of service.
Now, in view of the above discussions, the levy of Service tax is on the provision of service and accordingly, the service must be taxable service at the time of its rendition in order to attract Service tax levy. In other words, if at the time of rendition of service, it is covered under the Negative List, then as per Section 66B of the Finance Act, no Service tax may be levied on the same irrespective of the date of its payment or raising of invoice.
However, in this regard, Rule 5 of the POT Rules governing Point of taxation in case of new services provides contradictory provisions.
Rule 5 of the POT Rules provides that where a service is charged to tax for the first time, then:
(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;
Our Comments: As per this Rule, No Service taxis payable even if services are rendered after such service becomes taxable only when the invoice has been issued and the payment received against such invoice before such service became taxable.
(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.
Our Comments: Manifestly, the stated Rule provides that in cases of levy on new services, irrespective of date of completion of service, Service tax shall be payable if the payment is received on or after the date of levy and if the invoice is not issued within 14 days of the date of levy.
In view of the above discussed provisions, the matter is subjected to debate as to whether Service tax would be leviable on a service which was not a ‘taxable service’ at the time of its rendition as being covered under the Negative List, merely because its payment is received on or after the date of levy and the invoice is not issued within 14 days of the date of levy.
Here it would not be out of place to mention that POT Rules were framed by the Central Government in exercise of the powers conferred under Section 94 of the Finance Act and such delegated legislation cannot be extended to go beyond the vires of the Finance Act.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: email@example.com)