Point of Taxation Rules, 2011

Transcription

1 Point of Taxation Rules, 2011 CA Final Paper 8 Indirect Tax Laws Chapter 3 CA Ashok Batra

2 Learning Objectives & Coverage General Concepts Key Terms Point Of Taxation Rules,

3 General Concepts Prior to As per Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, the liability of service tax was to be discharged by the service provider by 5th(6th if paid electronically) of the month immediately following the calendar month/quarter in which the payments were received towards the value of taxable services. However, the liability of service tax on the value of taxable services received during the month of March, or the quarter ending in March was required to be discharged by 31st March of the calendar year.

4 General Concepts W.E.F Service tax liability shall be discharged in accordance with Point of Taxation Rules, The Point of Taxation Rules (POTR), 2011 have been notified w.e.f. 1st April, 2011 vide Notification No.18/2011-ST dated

5 General Concepts Applicability of Point of Taxation Rules, to Optional Onwards - Mandatory

6 Key Terms Point Of Taxation Point of taxation means the point in time when a service shall be deemed to have been provided [Rule 2(e)].

7 Key Terms Continuous Supply of Service continuous supply of service means any service which is provided, or to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time to time, or where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition. [Rule 2(c)] Central Government has notified [vide Notification No. 38/2012 dated ] following services as continuous supply of service with effect from : Telecommunication Services Service portion in execution of a works contract

8 Key Terms Date of Payment - Rule 2A date of payment shall be the earlier of the dates on which the payment is entered in the books of accounts or is credited to the bank account of the person liable to pay tax: Provided that (A)the date of payment shall be the date of credit in the bank account w hen (i) there is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and (ii) the credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and (iii)the payment is made by w ay of an instrument which is credited to a bank account, (B) if any rule requires determination of the time or date of payment received, the expression date of payment shall be construed to mean such date on which the payment is received.

9 Point Of Taxation Rules,2011

10 RULE 3 - DETERMINATION OF POINT OF TAXATION For the purposes of these rules, unless otherwise provided, point of taxation shall be:

11 Rule 3 - Determination Of Point Of Taxation Rule 3(a) If the invoice is issued within the time period specified in Rule 4A of the Service Tax Rules, 1994 (i.e. thirty days or forty five days for banks and financial institutions)[14 days in both the cases up to ] from the date of completion of the service Point Of Taxation: Time of issuance of invoice

12 Rule 3 - Determination Of Point Of Taxation Proviso to Rule 3(a) According to proviso to Rule 3(a) with effect from if invoice is Not issued within thirty days or forty five days for banks and financial institutions [14 days in both the cases up to ] from the date of completion of the service Point Of Taxation: Date of Completion of provision of service

13 Rule 3 - Determination Of Point Of Taxation Rule 3(b) If, service provider receives any payment before time specified in clause (a) of Rule 3 above i.e. before the issuance of invoice Point Of Taxation: Time [Date] of Payment to the extent it is received

14 Proviso to Rule 3 Proviso (i) Time of Issue of Invoice Within thirty days (or forty five days for banks and financial institutions) [14 days in both the cases up to ] from the date of completion of the provision of service Point of Taxation Earlier of the following two dates: (i) Date of Invoice for the service provided or agreed to be provided; or (ii) Date of payment to the extent it is received. Deemed date of completion of provision of service According to Proviso (i) to clause (a) and (b) in case of continuous supply of service** where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be date of completion of provision of service.

15 Proviso to Rule 3 Time of Issue of Invoice Not issued within thirty days (or forty five days for banks and financial institutions) from the date of completion of the provision of service [i.e. issued thereafter] Point of Taxation Earlier of the following two dates: (i) Date of completion of the provision of the service or (ii) Date of Payment to the extent it is received. Deemed date of completion of provision of service According to Proviso (i) to clause (a) and (b) in case of continuous supply of service** where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be date of completion of provision of service.

16 Proviso to Rule 3 Proviso (ii) Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a) of Rule 3.

17 Rule 4 - Determination of Point of Taxation in Case of Change in Effective Rate of Tax Notwithstanding anything contained in Rule 3, the Point of Taxation in cases where there is a change in effective rate of tax in respect of a service shall be determined in the following manner:

18 S.No Time [Date] of Provision of Taxable Service Time [Date] of Issue of Invoice Time [Date] of Receipt of Payment Point of Taxation a) Before the change in effective rate of tax (i) After the change in effective rate of tax After change effective of tax the in rate Earlier of following two dates: Date of issuance of invoice; or Date of payment of invoice (ii) Prior to change in effective rate of tax (iii) After the change in effective rate of tax After the change in effective rate of tax Prior to the change in effective rate of tax Date of issuance of invoice Date of payment

19 S.No Time [Date] of Provision of Taxable Service Time [Date] of Issue of Invoice Time [Date] of Receipt of Payment Point of Taxation b) After the change in effective rate of tax (i) Prior to change in effective rate of tax After change effective of tax the in rate Date of Payment (ii) Prior to change in effective rate of tax Prior change effective of tax to in rate Earlier of the following two dates: (A)Date of receipt of payment; or (B) Date of issuance of invoice (iii) After the change in effective rate of tax Prior change effective of tax to in rate Date of issuance of invoice

20 Rule 4 - Determination of Point of Taxation in Case of Change in Effective Rate of Tax Note: Change in Effective Rate of tax shall include a change in the portion of value on which tax is payable in terms of a notification issued in the Official Gazette under the provisions of the Act, or rules made thereunder Rule 2(ba) of Point of Taxation Rules, 2011

21 Rule 5- Payment of Tax in Case of New Services Where a service is taxed for the first time, then payment of tax shall be determined in the following manner:

22 Rule 5- Payment of Tax in Case of New Services Clause (a) If the invoice is issued and payment against such invoice is received before the date such service becomes taxable for the first time Point of Taxation: Not-Taxable to the extent of issuance of invoice and receipt of payment against such invoice.

23 Rule 5- Payment of Tax in Case of New Services Clause (b) If the payment is received before the service becomes taxable and invoice is issued within fourteen days from the date when the service is taxed for the first time Point Of Taxation: Not-Taxable to the extent of issuance of invoice and receipt of payment against such invoice.

24 Rule 6 DELETED W.E.F

25 Rule 7 - Determination of Point of Taxation in Case of Specified Services or Persons Notwithstanding anything contained in these rules, the Point of Taxation in the respect of specified services or persons will be determined in the following manner::

26 Rule 7 - Determination of Point of Taxation in Case of Specified Services or Persons Rule 7 read with first proviso to Rule 7 Persons required to pay tax as service recipients in respect of services notified under Section 68(2) of the Act Point Of Taxation: Date on which payment is made. However, the first proviso to Rule 7 provides that if the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined in the absence of this rule. In simple words, in such a situation, Point of Taxation will be determined in accordance with Rule 3 of these Rules.

27 Rule 7 - Determination of Point of Taxation in Case of Specified Services or Persons Second Proviso to Rule 7 In case of associated enterprises where the person providing service is located outside India Point Of Taxation: Earlier of the following two dates: (i)date of debit in the books of account of the person receiving the service; or (ii)date of making the payment.

28 Rule 8- Determination of Point of Taxation in Case of Copyrights Etc. In respect of Royalties & Payments pertaining to copyrights, Trademarks, Designs or Patents where:- (a) The whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed [which means when the provision of service is made];and (b)subsequently the use or the benefit of these services by a person other than the provider gives right to any payment of consideration. Point Of Taxation: Earlier of the following two: (i)date of Issuance of Invoice; (ii)date of receipt of payment. It is worth highlighting here Point of Taxation will be determined in the above manner each time on the happening of either of above two events.

29 Rule 8a- Determination of Point of Taxation on Other Cases Where the point of taxation cannot be determined as per these rules as the date of invoice or the date of payment or both are not available, the Central Excise officer, may, require the concerned person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account such material and the effective rate of tax prevalent at different points of time, shall, by an order in writing, after giving an opportunity of being heard, determine the point of taxation to the best of his judgment.

30 Rule 9 - Transitional Provisions S.No Kind of Taxpayers Transitional Provisions (A) Who wish to switch over to these Rules with effect from (i) Where the provision of service is completed; or (ii) Where invoices are issued Prior to the date on which these rules comes into force i.e It has been clarified vide TRU Letter Bearing No. 341/34/2010-TRU dated that the transitional provisions will apply to all invoices issued on or before To say it differently, the assessee can discharge his service tax liability on receipt of payment basis [which was prevailing until ] where either the provision of service is completed or the invoices are issued on or before

31 Rule 9 - Transitional Provisions S.No Kind of Taxpayers Transitional Provisions (B) Who wish to switch over to these Rules with effect from (i)where the provision of service is completed on or before ; or (ii) Where invoices are issued up to Point of Taxation shall, at the option of the taxpayer, be the date on which the payment is received or made, as the case may be. It has been clarified that protection of transitional provisions will also be available in respect of invoices issued on or before To say it differently, the assessee can discharge his service tax liability on receipt of payment basis [which was prevailing until ] where either the provision of service is completed or the invoices are issued on or before

32 Test Yourself

33 Question From which date Point of Taxation Rules, 2011 have compulsorily come into force: (a) (b) (c) (d) Answer: C

34 Question Mr. Raj Jaggi provided Opinion Poll Agency Services to Harpreet Ltd.Ltd. on for Rs. 5,00,000. Mr. Raj Jaggi raised the invoice in respect of said services on He received the foregoing payment by way of cheque from Harpreet Ltd. and entered the same in his books of accounts on However, the cheque was credited to Mr. Raj Jaggi s Account on In accordance with Rule 2A Date of Payment shall be: (a) (b) Answer:A

35 Q.No.2:Answer: According to Rule 2A date of payment shall be the earlier of the dates on which the payment is entered in the books of accounts or is credited to the bank account of the person liable to pay tax.

36 Question Mr. Naman, a consulting Engineer provided his services for an agreed consideration of Rs. 1,00,000/- to his client Mr. Manoj on He issued the invoice for the said services on Mr. Naman received payment of Rs. 1,00,000/- on In accordance with Rule 3 of POT Rules, 2011, the Point of Taxation will be: (a) for Rs. 1,00,000/- (b) for Rs. 1,00,000/- (c) for Rs. 1,00,000- Answer:c

37 Q.No.3 Answer (c) Point of Taxation for Advance payment of Rs. 1,00,000/- Date of payment i.e

38 Question Mr. Shyam, an architect, provided his services for an agreed consideration of Rs. 75,000 to his client Mr. Rajinder on However, invoice for the said services was issued by Mr. Shyam on and payment for such services was received on The Point of Taxation in accordance with Rule 3 of POT Rules, 2011 shall be: (a) (Date of Completion of Provision of Service) (b) (Date of Issue of Invoice) (c) (Date of Payment Received)

39 Q.No.4.Answer: (a) Since invoice has not been issued with 30 days from the date of completion of provision of service and no advance payment has been received, point of taxation shall be - date of completion of provision of service i.e (Rule 3)

40 Question The effective rate of service tax has been increased from 10.30% to 12.36% with effect from Certain taxable Services [for instance Business Auxiliary Services] were provided by Mr. Anil to his client Mr. Kumar on for Rs. 50,000/-. However, invoice for the said services was issued by Mr. Anil on and payment for such services was received on The rate of service tax applicable in the present case shall be: (a) 12.36% Answer:a (b) 10.30%

41 Q.No.5:Answer Time of issue of Invoice - prior to change in effective rate of tax. Time of provision of taxable service - after the change in effective rate of tax Time of receipt of payment - after the change in effective rate of tax Thus, point of taxation as per Rule 4 shall be date of payment and rate of service tax applicable on such date shall be applicable in the present case i.e % applicable on

42 Question A new service which became taxable with effect from has been provided on for Rs. 2,00,000/-.However, the invoice for the said new service was issued on for Rs. 2,00,000/- Further, payment of Rs. 1,30,000/- was received on by cheque which was credited to the bank account of service provider on Balance payment of Rs. 70,000/- was received on In accordance with Rule 5 of Point of Taxation Rules, 2011, Point of Taxation shall be: (a) for Rs. 2,00,000/- (b) for Rs. 70,000/- Answer:b (c)fully Non-taxable because invoice has been issued before the date service became taxable.

43 Q.No:6 Answer For Rs. 130,000/- Time of issue of Invoice Before the date new service become taxable for the first time i.e Time of receipt of payment- Before the date new service become taxable for the first time i.e Point of Taxation Not taxable [Rule 5(a)] For Rs. 70,000/-

44 Question Johnson Ltd., USA provided Business Auxiliary services for a stipulated consideration of $3,00,000 /-to an Indian company namely Raj Ltd. on Johnson Ltd. raised the invoice for foregoing services on Raj Ltd. made said payment of $ 3,00,000/- on 27, The Point of Taxation as per Rule 7 of POT Rules, 2011 shall be: (a)15.10,2012 (Date of Completion of Service) (b) (Date of Invoice) (c) (Date of Payment ) Provision of Answer:b

45 Q.No.7:Answer (b) According to Rule 7 of POT Rules, 2011 if payment for services received is not made within a period of 6 months of the date of invoice, point of taxation shall be determined in accordance with Rule 3. As per Rule, since invoice has been issued within 30 days from the date of completion of provision of service Point of Taxation shall be date of invoice i.e

46 Question Pepsi Ltd. USA provides Business Consultancy Services to its subsidiary company Pepsi Ltd. India for $ 5,00,000 on Subsequently, the invoice was raised by Pepsi Ltd., USA on However, date of debit in the books of Pepsi Ltd. India was and payment for invoice by made on In accordance with Rule 7 of POT Rules, 2011, Point of Taxation shall be: (a) (Date of Completion of Provision of Service) (b) (Date of Invoice) (c) (Date of Debit in the books of account of the Pepsi Ltd. India) (d) (Date of making the payment)

47 Q.No.8Answer (c) Since, Pepsi Ltd. USA and Pepsi Ltd. India are associated enterprises and service provider i.e. Pepsi Ltd. USA is located in USA (outside India), point of taxation is earlier of date of debit in the books of accounts of Pepsi Ltd. India or date of making the payment. Thus, Point of Taxation =

48 Question Mr. Batra, holds the patent right for an oil field. He entered into an agreement with Reliance Ltd. on whereby he transferred his patent right to extract oil from his oil field to Reliance Ltd. The foregoing patent right was transferred subject to the condition that he would be entitled to a royalty of Rs. 10/- per litre of oil extracted. During the financial year , Reliance Ltd. extracted 2,00,000 litres of oil from the concerned oil field. Mr. Batra raised the invoice on Reliance Ltd. on and he received the payment of royalty on In accordance with Rule 8 of POT Rules, 2012, the Point of Taxation shall be: (a) (Date of Agreement) (b) (Date of Invoice) (c) (Date of Payment)

49 Q.No.9 :Answer (b) Point of taxation is i.e. the date of invoice since payment has been received after that date on [Rule 8]

50 Question ABC Ltd. completed the provision of Business Auxiliary Services to Kirti Ltd. on for Rs. 4,00,000/-. The invoice in respect of aforementioned services was issued by ABC Ltd. on However, the payment has been received by ABC Ltd. on In accordance with Rule 9 of POT Rules, 2011, ABC Ltd. has the option of choosing Point of Taxation as: (a) (Date of Completion of Provision of Service) (b) (Date of Invoice) (c) (Date of Payment)

51 Q.No.10 Answer (c) Date of Provision of completion of service (i.e. before ) Point of taxation at the option of the taxpayer, be the date on which the payment is received i.e

52 Question Mr. Raman provided Business Support Services to his client on for a stipulated consideration of Rs. 5,00,000/-. Mr. Raman received the payment on However, date of issue of invoice in respect of foregoing services was not available from the records of the Mr. Raman. The Central Excise Officer, therefore, determined Point of Taxation as to the best of his judgment after giving an opportunity of being heard to Mr. Raman. In accordance with Rule 8A of POT Rules, 2011 the Point of Taxation shall be: (a) (Date of completion of provision of service) (b) (Date of payment) (c) (Date determined by Central Excise Officer)

53 Q.11.Answer Answer: b Since the date of invoice is missing, point of taxation cannot be determined. Thus, the date determined by Central Excise Officer to the best of his judgment is point of taxation i.e [Rule 8A].

54 Thank you