Changes in Service Tax and CENVAT Credit related to Point of Taxation Rules, Service Tax Rules 1994 and CENVAT Credit Rules 2004

Amendments in Point of Taxation RulesThe Point of Taxation Rules (POTR) which shall come into effect from April 1, 2011 have been amended as under:

• The point of taxation in terms of Rule 3 of POTR would be the date of invoice or payment, whichever is earlier.
• In cases where invoice is not issued within 14 days of completion of the provision of service, the point of taxation shall be the date of such completion or receipt of payment whichever is earlier.
• Provisions for determining the point of taxation in case of change of rate of tax shall also include cases involving a change in portion of value on which tax is payable in terms of a notification issued under the Finance Act, 1994 or rules made thereunder.
• In Rule 6 of POTR, which relates to point of taxation in case of continuous supply of services:

─     The point of taxation in case of continuous supply of service has been aligned with Rule 3.

─     The date of completion of continuous service has been defined and the said date would be the date of completion of specified event, as stated in the contract.

─     As per TRU Letter following services shall amount to continuous supply of services:

a)  Telecommunication Services

b)  Commercial or industrial construction

c)  Construction of residential complex

d)  Internet Telecommunication Service e) Works contract service

• Rule 7 of POTR which dealt with the point of taxation in respect of associated enterprises has been substituted as under:

– The point of taxation for services covered under Export of Services Rules, 2005 shall be the date on which payment is received. However, in case the payment is not received within time stipulated by the Reserve Bank of India, point of taxation would be determined as if this Rule does not exist.

-The point of taxation in case of services where a recipient is required to pay service tax in respect of services notified under Section 68(2) of Finance Act, 1994 shall be the date on which payment is made. However, if the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist.

– The point of taxation in case of individuals, proprietary firms or partnership firms providing Chartered Accountant, Cost Accountant, Company Secretary, Architect, Interior Decorator, Legal Consultancy services and Scientific and Technical Consultancy services shall be the date on which payment is received.

– The point of taxation in case of ^„associated enterprise^‟ where the person providing the service is located outside India, shall be the date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

• In respect of services for which provision is completed on or before June 30, 2011 or where the invoices are issued upto June 30, 2011, the point of taxation, at the option of taxpayer, can be the date on which the payment has been received or made as the case may be.

Amendments in Service Tax Rules, 1994

• The obligation to issue invoice shall be within 14 days of completion of service.
• In respect of continuous supply of services, an invoice shall be issued within 14 days of the date specified in the contract which is also considered as the date of completion of service as per Rule 7 of POTR.
• The assesse can take credit of the excess service tax paid by him in cases where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in the contract, provided the excess amount is either refunded or a suitable credit note is issued to the service receiver.
• A person providing service in relation to purchase and sale of foreign currency shall have an option to pay as under:

The option once chosen for a Financial Year cannot be withdrawn for the year.

Amendments in CENVAT Credit Rules, 2004

• The CENVAT credit in respect of input services shall be allowed on the date of receipt of invoice. However, in case the payment of the value of input service is not made within three months of the date of the invoice, the person who has taken credit on such input services shall pay an amount equal to the CENVAT credit availed on such input services and avail credit thereafter when the payment is made.
• In case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit shall be allowed on or after the day on which payment is made for the value of input service.
• CENVAT credit needs to be reversed to the extent any payment or part thereof is refunded or credit note is received from the manufacturer or the service provider.
• CENVAT credit in respect of services for which an invoice is issued before April 1, 2011, shall be available on or after the day the payment of such invoice is made.
• The value in respect of trading activity shall be the difference between the sale price and cost of goods sold or ten percent of cost of goods sold, whichever is more.
• CENVAT credit on supplementary invoices for input services shall be allowed in cases other than the cases where the amount of service tax becomes recoverable from the service provider on account of non-levy or non-payment or short-levy or short-payment by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act, 1994 or of the rules made thereunder with the intent to evade payment of service tax.

Others

The exemption from service tax in respect of foreign currency exchange between Scheduled Banks has been extended to such transactions between any banks and money changers.