The Government tabled Union Budget 2011 before the Parliament on 28 February 2011, wherein, various tax related amendments were proposed by the Finance Minister. In order to give effect to these proposals and also with an objective to amend some of the Notifications issued at the time of Budget, the Government issued a series of Notifications (pertaining to Service tax law and Cenvat Credit Rules) on 31 March 2011. The purpose of this document is to summarise some of these key notifications.
Amendments in Point of Taxation Rules, 2011 (the Point of taxation Rules) as prescribed by Notification No. 25/2011 – Service Tax dated 31 March 2011 effective from 1 April 2011
- In terms of the amended Rules, the point of taxation shall be date of issuance of invoice.
If the invoice is not issued within 14 days of completion of the provision of the service, the point of taxation shall be construed to be the date of such completion of provision of service.
If the payment is received before the date mentioned above, the point of taxation shall be the date of such payment.
- For continuous services (more than 3 months duration), where payments are linked to milestones, ‘date of completion of provision of services’ shall be the date of completion of these milestones! events.
These Rules, in their original form, stated that point of taxation shall be the earlier of date of invoice, date of collection or date of provision of services! date when services were ‘to be provided’. Considering the practical difficulties that the industry may face in tracking the date of provision of services or the date when services would be construed as ‘to be provided’, these Rules have now been simplified and the point of taxation is now primarily linked to date of invoice! collection.
- In case of reverse charge mechanism, the point of taxation continues to be the date of payment.
- In case of transaction with associated enterprises, the point of taxation continues to be the same i.e. the earlier of date of accrual or the date of payment.
- For following transactions, point of taxation shall be the date of payment:
– Where services qualify as export (in terms of the Export Rules);
– Specified services provided by individuals! proprietary firms! partnership firms such as ‘Architect Services’, ‘Interior Decorator Services’, etc.
- As regards transitional provisions, it has been provided that the Point of taxation Rules shall not apply where services have been completed or invoices have been issued prior to 1 April 2011.
- Further, where services have been completed or invoices have been issued prior to 1 July 2011, the businesses have been given the option to construe the date of payment! collection as the point of taxation.
Amendments in the Cenvat Credit Rules, 2004 (the Credit Rules) vide Notification No.13/2011 – Central Excise (N.T.) dated 31 March 2011 effective from 1 April 2011
- Credit of input services shall now be available from the date when the invoice is received (even where the payment has not been made),However, in case invoices have been issued before 1 April 2011, credit would be available on payment basis only.
However, where payment is not made within 3 months from the date of invoice, credit needs to be reversed. Though, the same can be re-instated once the payment is made subsequently.
- In case of reverse charge mechanism, the condition of making payment towards the value of services (for availing credit) has been retained.
- The definition of trading margin (for the purposes of computing credit reversal amount on account of trading activities) has been amended and the revised definition reads as under:
“difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten percent of the cost of goods sold, whichever is more”
Some of the other key amendments are as under:
- Service tax exemption available to transport of goods by rail has been extended till 30 June 2011 vide Notification No. 19/2011 – Service Tax and Notification No. 20/2011 – Service Tax dated 30 March 2011 effective from 1 April 2011.
- The Composition scheme for paying Service tax for services in relation to purchase and sale of foreign currency has been completely revamped (the tax now payable would be in the range of INR 25 to INR 5000)5.
- Self adjustment shall now also be allowed in situations where the amount of invoice is renegotiated due to deficient provision of service or any terms contained in a contract vide Notification No. 26/2011 – Service Tax dated 31 March 2011 which is effective from 1 April 2011.
- Exemption available to services in relation to inter-bank transactions of purchase and sale of foreign currency, which was available when a scheduled bank provided these services to another scheduled bank, has been extended to services provided by any bank/ money changer to any other bank/ money changer vide Notification No. 27/2011 – Service Tax dated 31 March 2011 effective from 1 April 2011.