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Service Tax Rate on Bills raised or Payment Recd. before 01.04.2012

As you all may be aware , as per the Finance Bill, 2012, service tax shall be leviable @ 12.36% w.e.f from 1st April, 2012. As per rule numbered 4 and 7 of Point of Taxation Rules, read with Section 38A of Central Excise Act, 1944, for any payment received on or after 01/04/2012 against invoices raised on or before 31/03/2012, service tax at the rate of 12.36% shall be applicable.

Query – I have recently received an email which says that for services rendered on or before 31.03.2012 if I do not pay service tax on or before 31.03.2012 then I have to pay tax on the same at increased rate of 12.36%.   Text of the email is produced below:-

“As you all may be aware , as per the Finance Bill, 2012, service tax shall be leviable @ 12.36% w.e.f from 1st April, 2012.  As per rule numbered 4 and 7 of Point of Taxation Rules,  read with Section 38A of Central Excise Act, 1944, for any payment received on or after 01/04/2012 against invoices raised on or before 31/03/2012, service tax at the rate of 12.36% shall be applicable.

To avoid additional levy of service tax @ 2.06% (12.36% less 10.3%) on payments received on or after 01/04/2012 for invoices raised on or prior to 31/03/2012, we request you to make payment of all such invoices on or before 31.03.2012. 

Views of  CA Kakarla Manindar

As per Rule 4 of the Point of Taxation Rules, in case where services are rendered before the change in effective rate of tax then old rate will be applicable if payments are received or invoice is issued before the change in effective rate of tax. New rate will be applicable when both the events payment and issue of invoice are after the change in effective rate of tax.

In the present situation, if services are rendered prior to 31/03/2012, if we issue invoice to the customer/client before 31/03/2012, then the rate of ST is 10% and not 12% even though the payment is received subsequently.

Rate of ST is 10% even in case where payment is received before 31/03/2012 but no invoice is issued before 31/03/2012

12% rate will be applicable only if both the events ie receipt of payment and issue of invoice falls subsequently i.e after 31/03/2012.

Views of Advocate Santosh Kumar on the above

As per my understanding of the facts the situation is as follow:1. Service rendered:- on or before 31.03.20122. Invoice issued :- on or before 31.03.20123. Payment received:- on or after 01.04.2012for such situation Point of Taxation Rules, 2011 makes provision in Rule 4 (a) (ii), which reads as follow:-” Notwithstanding anything contained in rule 3, the point of taxation in case where there is a change in effective rate of tax in respect of a service, shall be determined in the following manner, namely :-

(a) in case a taxable service has been provided before the change in effective rate of tax-

(i)………

(ii) where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax the point of taxation shall be the date of issuing of invoice.

Views of  CA Naveen Rajpurohit From Bangalore

In terms of Rule 4 of the Point of Taxation Rules, 2011 which reads as follows:

(a) in case a taxable service has been provided before the change in effective rate of tax,—

(i)  where the invoice for the same has been issued and the payment received after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii)  where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or

(iii)  where the payment is also received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment;

(b) in case a taxable service has been provided after the change in effective rate of tax,—

(i)  where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or

(ii)  where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii)  where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice.

The above provision of law can be explained in the following table:

Service provided before 31st March 2012:

Particulars

Rate of tax

Invoice and payment received after 31st March 2012 12.36%
Invoice raised before 31st March 2012 but payment received after 31st March 2012 10.3%
Payment received before 31st March but invoice raised after 31st March 2012 10.3%

Service provided in April 2012 or thereafter

Particulars

Rate of tax

Invoice raised before 31st March 2012 but payment received after 31st March 2012 12.36%
Invoice and payment received before 31st March 2012 10.3%
Payment received before 31st March but invoice raised after 31st March 2012 12.36%

In respect of service receiver who is required to remit the service taxes, the point of taxation will be the date of payment.

Views of  CA Ankit Gulgulia

Impact of change in rate of Service Tax on Existing Taxable Services

The effective rate of Service Tax has been increased from 10.30% to 12.36% with effect from 01st day of April 2012.

Rule 4 Propositions are as below (Except in cases of Reverse Charge Mechanism under section 68(2))

– If Service Provided before 31.3.2012 but Invoice & Payment after 31.3.2012 – Rate is 12.36%
– If Service Provided before 31.3.2012 , Invoice is also Prior to 31.3.2012 but Payment after 31.3.2012 – Rate is 10.3%
– If Service Provided before 31.3.2012 , Payment is Prior to 31.3.2012 but Invoice is raised after 31.3.2012 – Rate is 10.3%
– If Service Provided after 31.3.2012, Payment also after 31.3.2012 but invoice Prior to 31.3.2012 – Rate is 12.36%
– If Service Provided after 31.3.2012, Payment and Invoice both before 31.3.2012 – Rate is 10.3%
– If Service Provided after 31.3.2012, Payment is Prior to 31.3.2012 but Invoice is after 31.3.2012 – Rate is 12.36%

However, if the same cheque is not credited in the Bank Account by within four working days from date of change i.e. 1st April 2012; then the new tax rate i.e. 12.36% will be applicable. (the same is explained vide Notification No 4/2012 applicable from 1st April 2012 in Rule 2A i.e. Date of Payment )

In Case of Reverse Charge Mechanism ( Rule 7 )

– POT shall be Always date of Payment
– This Rule is redundant and other Rules apply if Payment not within 6 Months of Date of Invoice.

Conclusion – Rate of Service Tax will be  10% even in case  payment is received before 31/03/2012 but no invoice is issued before 31/03/2012. Service Tax at 12% rate will be applicable only if both the events i.e. receipt of payment and issue of invoice falls subsequently i.e after 31/03/2012.

Categories: Service Tax

View Comments (15)

  • Dear Sir,
    Suppose we are raising a bill 04-may-2012 for april, then which date i will deposit service tax. 05-may or 05-jun..........

  • Dear Sir,
    Suppose we are raising a bill 04-may-2012 for april, then which date i will deposit service tax. 05-may or 05-jun

  • i received bill 01/04/2012 but input calim 31/03/2013 .this is ok ,no time limit ,please reply

  • Can we raise service invoice on part advance payment received, while related work is still pending to start?

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