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Point of Taxation Rules, 2011

POINT OF TAXATION RULES, 2011

CONTENTS

POINT OF TAXATION RULES, 2011. 1

Rule 1- Short title and commencement. 1

Rule 2- Definitions. 1

Rule 2A - Date of Payment. 1

Rule 3- Determination of point of taxation (General Rule). 2

Rule 4-Determination of POT in case of change in effective rate of tax. 2

Rule 5- Payment of tax in case of new services. 3

Rule 6 - omitted. 3

Rule 7-Determination of Point of Taxation in case of specified person or services. 3

Rule 8- Determination of Point of Taxation in case of copyrights. 3

Rule 8A-Determination of Point of Taxation in other cases. 3

Rule 9- Transitional provisions. 4

 

 

Rule 1- Short title and commencement

-       Come into force from 1-4-2011

 

Rule 2- Definitions

(a)   Act means the Finance Act, 1994

(b)  Continuous Supply of Service means

a.    any service which is provided or agreed to be provided continuously or on recurrent basis, under a contract, for a period exceeding 3 months with the obligation for payment periodically or from time to time OR

b.    prescribed by Central Government in the Official Gazette

Services notified by CG to be a continuous supply of service:

                                     i.        Telecommunication Services

                                    ii.        Works Contract Services

 

Rule 2A - Date of Payment

(Inserted w.e.f 1-4-2012)

-       A date on which payment is entered in the books of account

-       A date on which payment is credited to the bank account of the person liable to pay the tax

WHICHEVER IS EARLIER

However, the Date of Payment shall be the Date of credit in bank account when the following 3 conditions are fulfilled (Date of Payment=Date of credit in bank account)

         there is change in effective rate of tax or new levy between date of entry in books and date of credit in bank

         the credit in the bank account is after 4 working days from the date where there is change in effective rate of tax or new levy

         the payment is made by way of any banking instrument

 

Rule 3- Determination of point of taxation (General Rule)

-       Date of invoice or date of payment; whichever is earlier [If invoice is issued within 30/45 days (Rule 4A of Service Tax Rules, 1994)]

-       Date of completion of service provided or date of payment; whichever is earlier [if invoice is not issued within 30/45 days]

For a banking company or a financial institution including a non-banking financial company, the invoice should be issued within 45 days, for others the time period is 30 days.

 

Rule 4-Determination of POT in case of change in effective rate of tax

 

Situation

POINT OF TAXATION

 

 

 

Service provided before the date of change of tax rate

Where the invoice and payment received after the change rate

Date of payment or of invoice, whichever is earlier.

 

Where the invoice issued prior to the change in tax rate but the payment is received after the change of rate

Date of issue of invoice

Where the payment received before the change of rate of tax but the invoice issued after the change rate

Date of payment received

 

 

 

 

Services provided after the date of change of tax rate

Where the payment received after the change of tax rate but the invoice issued prior to the change of tax rate

Date of payment received

Where the payment received after the change of rate but the invoice issued prior to the change of tax rate

Date of payment received

Where the invoice issued and payment received before the change of tax rate

Date of payment of issue of invoice; whichever is earlier.

When the payment is received before the change of tax rate but invoice issued after change of tax rate

Date of issuing invoice

Rule 5- Payment of tax in case of new services

-       If serviced is taxed for the first time?

o    No tax shall be payable to the extent invoice has been issued and payment received against such invoice before such service become taxable

o    No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when service is taxed for the first time

** It is important to note that in case of new levy, time period available for the issuance of the invoice has still been restricted to 14 days as against normal time-period for issuance of invoice being extended to 30 days.

Rule 6 - omitted

Rule 7-Determination of Point of Taxation in case of specified person or services

-       W.e.f. 1/4/2012, rule 7 provides for Point of Taxation in case of certain specified services or persons in relation to payment of service tax under reverse charge and in case of associated enterprises.

 

-       In case of payment of tax under reverse charge, the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made (subject to the condition that the payment is made within a period of six months of the date of invoice). In case if the payment is not made within 6 months, POT will be determined as per Rule 3.

 

-       In case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making payment whichever is earlier.

 

Rule 8- Determination of Point of Taxation in case of copyrights

-       It provides that in respect of royalties and payments pertaining to copyrights and trademarks etc. where the whole amount of consideration is not ascertainable at the time of providing the service and subsequent the use or benefit of service by a person other than service provider gives rise to any payment of consideration the service shall be treated as having been provided each time when payment is received.

 

i.e. POT will be:

Date of payment received by SP in respect of such use/benefit OR

Date of issue of invoice by the SP

Earlier of the two

 

Rule 8A-Determination of Point of Taxation in other cases

(w.e.f.1/4/2012)

-       Rule 8A provides a best judgement option to the Central Excise officer where point of taxation is not determinable under the Point of Taxation Rules due to non-availability of either date of invoice or date of payment or both. In such cases, Central Excise Officer may ask for production of accounts, documents or other evidences from the concerned person as he may deem necessary and then after providing an opportunity of being heard, and after considering

                              i.        material on record

                             ii.        evidences gathered, and

                            iii.        effective rate of tax prevalent at different points of time determine the point of taxation to the best of his judgement.

 

Rule 9- Transitional provisions

-       Vide Notification No.25/2011-ST dated 31/3/2011, transitional provisions shall apply. Accordingly, Point of Taxation Rules shall not be applicable where a provision of services is completed or where invoices are issued prior to date on which these rules come into force i.e. 1/4/2012. However, services for which provisions is completed on or before 30/6/2011 or where invoices are issued up to 30/6/2011, the assessee shall have an option to choose point of taxation as the date on which payment is received or made.