Rule 7: Important ST notification - Accrual Basis payment for specified persons

Effective 1st April 2011, service tax has to be paid on billing basisand not on collection basis. Till date the point of taxation was atthe time of receipt, from April 2011 onwards, the point of taxationwill be the date of Invoice (similar to Excise and VAT), irrespectiveof whether the amount is received or not. The relevant notification isenclosed for your reference. [TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II,SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance Department of Revenue New Delhi, 31st March, 2011 Notification No.25/2011 – Service Tax G.S.R. (E).- In exercise of the powers conferred by clause (a) andclause (hhh) of sub-section (2) of section 94 of the Finance Act, 1994(32 of 1994) the Central Government hereby makes the following rulesfurther to amend the Point of Taxation Rules, 2011, namely:- 1. (1) These rules may be called the Point ofTaxation (Amendment) Rules, 2011. (2) They shall come into force on the 1st day of April, 2011. 2. In the Point of Taxation Rules, 2011 (hereinafter referredto as the “said rules”), for rule 3, the following rule shall besubstituted, namely:- “3. Determination of point of taxation.- For the purposes of theserules, unless otherwise provided, ‘point of taxation’ shall be,- (a) the time when the invoice for the service provided or to beprovided is issued: Provided that where the invoice is not issued withinfourteen days of the completion of the provision of the service, thepoint of taxation shall be date of such completion. (b) in a case, where the person providing the service, receives apayment before the time specified in clause (a), the time, when hereceives such payment, to the extent of such payment. Explanation .- For the purpose of this rule, wherever any advance bywhatever name known, is received by the service provider towards theprovision of taxable service, the point of taxation shall be the dateof receipt of each such advance.”. 3. In rule 4 of the said rules,- (i) for the words “change of rate”, wherever they occur, the words“change in effective rate of tax” shall be substituted; (ii) for the words “change of rate of tax” or “change in tax rate” or“change of tax rate”, respectively at both the places where theyoccur, the words “change in effective rate of tax” shall besubstituted; (iii) after sub-clause (iii) of clause (b), the following Explanationshall be inserted, namely:- “Explanation.- For the purposes of this rule, “change in effectiverate of tax” shall include a change in the portion of value on whichtax is payable in terms of a notification issued under the provisionsof Finance Act, 1994 or rules made thereunder.”. 4. For rule 6 of the said rules, the following rule shallbe substituted, namely:- “6. Determination of point of taxation in case of continuous supply ofservice.-Notwithstanding anything contained in rules 3,4 or 8, in caseof continuous supply of service, the `point of taxation’ shall be,- (a) the time when the invoice for the service provided or to beprovided is issued: Provided that where the invoice is not issued withinfourteen days of the completion of the provision of the service, thepoint of taxation shall be date of such completion. (b) in a case, where the person providing the service, receives apayment before the time specified in clause (a), the time, when hereceives such payment, to the extent of such payment. Explanation 1. – For the purpose of this rule, where the provision ofthe whole or part of the service is determined periodically on thecompletion of an event in terms of a contract, which requires theservice receiver to make any payment to service provider, the date ofcompletion of each such event as specified in the contract shall bedeemed to be the date of completion of provision of service. Explanation 2.- For the purpose of this rule, wherever any advance, bywhatever name known, is received by the service provider towards theprovision of taxable service, the point of taxation shall be the dateof receipt of each such advance.”. 5. For rule 7, the following rule shall be substituted, namely:- “7. Determination of point of taxation in case of specified servicesor persons.-Notwithstanding anything contained in these rules, thepoint of taxation in respect of,- (a) the services covered by sub-rule (1) of rule 3 of Export ofServices Rules, 2005; (b) the persons required to pay tax as recipients under the rulesmade in this regard in respect of services notified under sub-section(2) of section 68 of the Finance Act, 1994; (c) individuals or proprietary firms or partnership firms providingtaxable services referred to in sub-clauses (p), (q), (s), (t), (u),(za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994, shall be the date on which payment is received or made, as the case may be: Provided that in case of services referred to in clause(a), where payment is not received within the period specified by theReserve Bank of India, the point of taxation shall be determined, asif this rule does not exist. Provided further that in case of services referred to inclause (b) where the payment is not made within a period of six monthsof the date of invoice, the point of taxation shall be determined asif this rule does not exist. Provided also that in case of “associatedenterprises”, where the person providing the service is locatedoutside India, the point of taxation shall be the date of credit inthe books of account of the person receiving the service or date ofmaking the payment whichever is earlier. 6. For rule 9, the following rule shall be substituted, namely:- “9. Transitional Provisions.- Nothing contained in this sub-rule shallbe applicable,- (i) where the provision of service is completed; or (ii) where invoices are issued prior to the date on which these rules come into force. Provided that services for which provision iscompleted on or before 30th day of June, 2011 or where the invoicesare issued upto the 30th day of June, 2011, the point of taxationshall, at the option of the taxpayer, be the date on which the paymentis received or made as the case may be.”. [ F.No. 334/3/2011 – TRU] (SAMAR NANDA) Under Secretary to the Government of India Note.- The principal notification No. 18/2011-Service Tax, dated the1st March 2011, published in the Gazette of India, Extraordinary, videnumber G.S.R.175(E), dated the 1st March, 2011.