Dr. Sanjiv Agarwal
Date of determination of rate of tax, value of taxable service and rate of exchange (Section 67A)
W.e.f. 28.05.2012, section 67A has been inserted by the Finance Act, 2012 which provides as under:
“The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the 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.
Explanation— For the purposes of this section, “rate of exchange” means the rate of exchange referred to in the explanation to section 14 of the Customs Act, 1962.”
Section 67A provides for –
(i) date of determination of rate of tax,
(ii) value of taxable service and
(iii) rate of exchange.
These shall be taken as in force or as applicable at the time when taxable service has been provided or agreed to be provided. Thus, rate of Service Tax, value of service and rate of exchange shall be considered as that rate or value as prevailing at the date when such services are provided or agreed to be provided.
What shall be rate of exchange has also been defined to mean the rate as in the explanation to section 14 of the Customs Act, 1962. Accordingly, rate of exchange means the rate of exchange–
(i) determined by the Board
(ii) ascertained in such manner as the Board may direct for the conversion of Indian Currency into Foreign Currency of Foreign Currency into Indian Currency.
Amendment made by Finance Act, 2014
Finance Act, 2014 has substituted the explanation defining ‘rate of exchange’ as under:
“Explanation: For the purposes of this section, ‘rate of exchange’ means the rate of exchange determined in accordance with such rules as may be prescribed.”
Thus, Central Government shall prescribe the manner or rules for determining the rate of exchange for calculation of taxable value in respect of certain services by way of notification. Accordingly, on or after the enactment of Finance Act, 2014 on 06.08.2014, Central Government was expected to prescribe the rules or manner in which rate of exchange (foreign exchange) shall be determined for the purposes of arriving at value of taxable services in Service Tax.
Determination of Rate of Exchange
Vide Notification No. 19/2014-ST dated 25.08.2014, Central Government has amended Service Tax Rules, 1994 whereby a new Rule, Rule 11 has been inserted w.e.f. 01.10.2014 for determination of rate of exchange. According to this rule, the rate of exchange for determination of value of taxable service shall be the applicable rate of exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011.
Thus, rate of exchange shall be taken as the applicable rate of exchange as per generally accepted accounting principles (GAAP) on the date on which point of taxation arises as per Point of Taxation Rules, 2011. The following events would, therefore be relevant for the rate of exchange –
Thus, the exchange rate for calculation of value of services sought to be imported into the taxable territory will be based on generally accepted accounting principles. The assessees will therefore, look at both the above conditions.