Mangesh Kinare service tax_Goa_Chamber

Report
Preamble

Presentation covers the major amendments in Service tax legislation
through the Finance Act, 2012 in respect of:


•
Point of Taxation Rules, 2011
•
Service Tax Rules, 2004
Amendments effective from dates mentioned in Finance Act / Notification:
•
Enactment date
–
28.05.2012
•
Notified date
–
01.07.2012
•
Commencement of F.Y.
– 01.04.2012
Reference to following in presentation would mean:
•
Act – Finance Act, 1994
•
STR – Service Tax Rules, 1994
•
POTR – Point of Taxation Rules, 2011
7-7-2012
1
POINT OF TAXATION RULES, 2011 (‘POTR’) AS
AMENDED BY NOTIFICATION NO.4/2012SERVICE TAX DATED 17 MARCH,2012
7-7-2012
2
POTR – Basics

“Point of Taxation Rules” (‘POTR’) prescribes the point of taxation

“Point of Taxation” (‘POT’) means the point of time when service shall be
deemed to have been provided (occurrence of taxable event) [Rule 2(e)]

Due date for tax payment linked with POT (Rule 6(1) of Service Tax Rules)

Pre POTR, tax obligation was on realization of consideration (Cash basis)

Post POTR, tax obligation generally arises on accrual or realization of
consideration, whichever is earlier (subject to few exceptions)

Does POTR is in consonance with legislative intent to bring it at par with
VAT or Excise Duty in view of impending GST enactment?
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3
POT – Reverse Charge Mechanism (Rule 7)

POT for following services in respect of which service recipient is obliged to
pay tax under reverse charge mechanism U/s 68(2) / Rule 2(1)(d) shall be
the date of payment:
Nature of Service
Service provider
Service recipient
Insurance auxiliary
business
Insurance agent
Any person carrying on insurance
business
GTA services
Goods transport agent
Specified persons paying freight
Sponsorship
Services
Any person
Any body corporate or
partnership firm located in
taxable territory
Arbitration services
Arbitral tribunal
Business entity located in taxable
territory
Legal services
Individual advocate /
firm of advocates
Business entity located in taxable
territory
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4
POT – Reverse Charge Mechanism (Rule 7)
Nature of Service
Service provider
Service recipient
Support services excluding
(1) renting of immovable
property
(2) Postal services
(3) Services in relation to
an aircraft or vessel
(4) Transport of goods or
passengers
Government or local
authority
Business entity located in
taxable territory
Rent-a-cab
Any individual, HUF, firm
or partnership firm
including AOP located in
taxable territory
Business entity registered
as a body corporate
Person in non-taxable
territory
Person in taxable territory
Supply of manpower for
any purpose
Works contract
Any service (popularly
known - Import of service)

Where payment for service is not made within period of 6 months of date of
invoice, POT shall be determined as per General Rule (Rule 3)
7-7-2012
5
POT–Transaction with Associated Enterprises (Rule 7)

In case where service provider is located outside India and is an associated
enterprise of service recipient, POT will be earlier of (Proviso to Rule 7):

•
Date of payment
•
Date of debit in books of account of person liable to pay tax
This Proviso does not apply to an Indian service provider providing service
to associated enterprise located in or outside India

‘Associated Enterprise’ has the meaning assigned to it in Section 92A of
Income Tax Act, 1961 (Section 65(7b) of Act)

Relationship to be seen on which date?

Rule 7 overrides all other Rules of POTR
•
Rule 3–General Rule (discussed in slide 8)
•
Rule 8–Royalty, Patents, Copyright, Trademarks (discussed in slide 7)
•
Rule 4-Change in tax rate (discussed in slide 14)
7-7-2012
6
POT – Copyright etc. (Rule 8)

This exception is carved out for
Copyrights
Trademarks

What about Franchise services?

This Rule applies where:
Designs
Patents
Royalty
• Whole consideration not ascertainable when services performed; and
• Usage by / benefit to service recipient gives rise to payment obligation


In above referred cases, POT would be earlier of [Rule 8]:
•
Date of issue of invoice
•
Date of receipt of consideration by service provider
Whether this Rule will be redundant in case where service provider is
associated enterprise?
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7
POT – General Rule (Rule 3)

General rule applies to cases not falling under:
•
Rule 4 - Change in tax rate
•
Rule 5 - Where the service is taxed for the first time
•
Rule 7 - Liability under reverse charge mechanism
- Transactions with associated enterprises
•

Rule 8 - Transactions for copyright, patents, trademarks or design
In general, POT would be earlier of [Rule 3]:
•
Date of issue of invoice – where invoice is issued within 30 days from
completion of service
•
Date of completion of service – where invoice is not issued within 30
days from completion of service
•

Date of receipt of consideration (including receipt of advance)
Continuous supply of service falls under General Rule w.e.f. 01.04.2012
7-7-2012
8
POT – General Rule (Rule 3)

Where service provider receives a payment upto Rs. 1,000/- in excess of
the amount indicated in the invoice, POT for such excess amount, at the
option of the service provider, shall be earlier of

•
date of issue of invoice, or
•
date of completion of service, where invoice not issued within 30 days
Amendment vide Notification No 37/2012-ST dated 20.06.2012
•
Where service provider opting receipt as POTR in respect of an
amount of Rs. 1,000/- in excess of the amount indicated in the invoice,
no invoice is required to be issued to such an extent
7-7-2012
9
Meaning of Continuous Supply of Service

Continuous supply of service would mean [Rule 2(c) of POTR]:
• Services provided/agreed to be provided continuously, or recurrent basis,

Under a contract

for a period exceeding 3 months

With the obligation for payment periodically or from time to time
• Any service notified as continuous supply of service

Notification No. 28/2011-ST dated 01.04.2011 notifies following services as
“continuous service”:
• Telecommunication Service
• Commercial or Industrial Construction
• Residential Construction
• Internet Telecommunication Service
• Works Contract Service
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10
Meaning of ‘Completion of Service’

Date of completion of continuous service would be completion of an event
which requires service receiver to make payment as per contract.

‘Completion’ is not defined/explained in POTR except continuous service

In terms of Circular No 144/13/2011-ST dt. 18.07.2011 completion means:
•
completion of all other auxiliary / related activities that place the service
provider in a situation to be able to issue an invoice
•
Such auxiliary activities could include activities like measurement,
quality testing etc which may be essential pre-requisites for
identification of completion of service
•
This interpretation of completion of services also applies to “continuous
supply of service”

Circular puts the caveat that auxiliary activities should not be flimsy or
irrelevant

Circular may not achieve desired purpose due to such caveat
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11
Circular Explaining General Rule

TRU Circular No.F.No.341/34/2010-TRU dated 31.03.2011 explaining
applicability of POTR in regular cases:
Completion
of service
Invoice
date
Payment
received
Point of
Taxation
16.07.11
26.07.11
06.08.11
26.07.11
Remarks
Invoice issued in 30 days and
before receipt of payment
16.07.11
18.08.11
21.07.11
16.07.11
Invoice not issued within 30 days
and payment received after
invoice date
16.07.11
26.07.11
21.07.11
21.07.11
Invoice issued in 30 days but
payment received before invoice
16.07.11
7-7-2012
18.08.11
11.07.11
(part) and
21.07.11
(remaining)
11.07.11 and
16.7.11 for
respective.
Amounts
Invoice not issued in 30 days.
Part payment before completion,
remaining later.
12
POT – New Services (Rule 5)

New services (other than continuous service), not liable to tax if (Rule 5):
•
Invoice raised and payment received before effective date; or
•
Payment received before effective date and invoice raised within 30
days from effective date

‘Effective date’ would mean notified date on which Services become
taxable


Consider following example:
•
Hotel Accommodation Service is taxable w.e.f. 01.05.2011.
•
Hotel opts for POT from inception (i.e. 01.05.2011)
•
A person stays in hotel from 16.04.2011 to 10.05.2011
•
Hotel makes bill / guest makes payment on check out (i.e. 10.05.2011)
In terms of above Rule, service tax is payable on entire billing though the
service was not taxable for the period 16.04.2011 to 30.04.2011

Is this proposition legally tenable?
7-7-2012
13
POT – In case of change in Tax Rate (Rule 4)
Provision of
service
Date of Invoice
Date of payment
POT / Effective tax rate
on POT date
Before rate change
30.04.2011
After rate change
02.05.2011
After rate change
30.05.2012
Invoice date or payment
date, whichever is earlier
02.05.2011
Before rate change
30.04.2011
Before rate change
30.04.2011
After rate change
30.05.2012
Date of invoice
30.04.2011
Before rate change
30.04.2011
After rate change
30.09.2011
Before rate change
30.04.2011
Date of payment
30.04.2011
After rate change
30.09.2011
Before rate Change
30.04.2011
After rate change
30.05.2012
Date of payment
30.05.2012
After rate change
30.09.2011
Before rate change
30.04.2011
Before rate change
30.04.2011
Invoice date or payment
date, whichever is earlier
30.04.2011
After rate change
30.09.2011
After rate change
30.09.2011
Before rate change
30.04.2011
Date of invoice
30.09.2011

Is it fair and legally correct to modify POT in case of change in tax rates?

Circular No 158/9/2012-ST dated 08.05.2012 is in consonance with Rules?
7-7-2012
14
Determination Of Tax Rate, Value Of Taxable Services And
Exchange Rate [Section 67A] – w.e.f. 28.05.2012

Following prevailing on the date of provision of service / receipt of advance will
be relevant for discharging service tax liability:
•
Tax rate
•
Value of taxable services
•
Exchange rate.

Subsequent change in any of above would not alter service tax liability at later
date.

Whether Rule 4 of POTR is inconsistent with above referred provision?

The exchange rate would mean the rate of exchange referred to in the
Explanation to Section 14 of the Customs Act, 1962.
7-7-2012
15
Insertion of New Rules – POTR

Vide Notification No 4/2012-ST dated 17.03.2012 w.e.f. 01.04.2012
Pre-amendment
Position
Rule
Rule 2A – Date
of Payment
Post-amendment Position
---
Earlier of:
• Date on which payment is entered in
the books of accounts, or
• Date on which payment is credited to
the bank account of the person liable
to pay tax
Rule 8A – POT --in other cases
Where POT cannot be determined as the
date of invoice or the date of payment or
both are not available, the Officer shall
by an order in writing, after giving an
opportunity of being heard, determine
POT to the best of his judgment
7-7-2012
16
MAJOR AMENDMENTS IN SERVICE
TAX RULES, 1994 THROUGH
NOTIFICATION NO. 3/2012-ST
DATED 17.03.2012 AND 36/2012-ST
DATED 20.06.2012
7-7-2012
17
Change in Tax Rates w.e.f. 01.04.2012 – Notification 3/2012-ST

Alternate / Optional Rates (excluding education cess)
Service
Rule
Life Insurance
- First year Premium
- Renewal Premium
6(7A)
Promotion, Marketing and
organizing Lottery
- Guaranteed Prize
Payout less than 80%
6(7C)
- Guaranteed Prize
Payout more than 80%
Air Travel Agents
- Domestic bookings
- International bookings
7-7-2012
Rule
6(7)
Up to 31.03.2012
From 01.04.2012
1.50 %
1.50 %
3.00 %
1.50 %
Rs.6,000 for every
Rs. 10,00,000
Rs.7,000 for every
Rs. 10,00,000
Rs.9,000 for every
Rs. 10,00,000
Rs.11,000 for every
Rs. 10,00,000
0.60%
1.20%
0.60%
1.20%
18
Change in Tax Rates w.e.f. 01.04.2012 – Notification 3/2012-ST
Service
Foreign Exchange
Dealing
- Up to Rs.1,00,000
Rule
Up to 31.03.2012
From 01.04.2012
0.1% (Minimum of Rs.25)
0.12% (Min. of Rs.30)
6(7B)
- Rs.1,00,001 to
Rs.10,00,000
Rs.100 + 0.05% of excess
Rs. 120 + 0.06% of
over Rs.1,00,000
excess over Rs.1,00,000
- Above
Rs.10,00,000
Rs.550 + 0.01% of excess
over 10,00,000 (Max of
Rs.5,000)
7-7-2012
Rs.660 + 0.12% of
excess over 10,00,000
(Max of Rs.6,000)
19
Service Tax Rule 6A and Notification 39/2012-ST

Exporter of Services will be entitled to refund (rebate) of Input service tax
used in providing export of services – Notification No 39/2012-ST dated
20.06.2012

Any service provided/agreed to be provided shall be treated as export of
service when:
•
Service provider is located in the taxable territory
•
Service recipient is located outside India
•
Service is not a service specified in Negative list (i.e. Section 66D)
•
Place of provision of the service is outside India
•
Consideration for such service is received in convertible foreign
exchange; and
•
The
service
provider
and
service
recipient
are
not
merely
establishments of a distinct person
7-7-2012
20
Procedural Amendments


Extension of Time limit for issuance of invoice (w.e.f 01.04.2012):
•
For banking and financial institutions – 14 days to 45 days
•
For other service providers – 14 days to 30 days
Discharge of service tax liability on accrual to realization basis / vice versa
(w.e.f 01.04.2012)
Individuals / firms and LLP having turnover Realization basis irrespective
of taxable services of Rs.50 Lakhs or less of nature of services.
in immediately preceding financial year.
Individuals / firms and LLP having turnover
of taxable services of more than Rs.50
Lakhs in immediately preceding financial
year.
Accrual basis irrespective of
nature of services. Provider of
professional services will also
be covered.
Service providers other than Individuals / Accrual basis irrespective of
firms and LLP
nature of services.
7-7-2012
21
Procedural Amendments

Adjustment of excess payment of service tax (w.e.f 01.04.2012):
•
Monetary limit of Rs.2 Lakhs removed and adjustment allowed without
any monetary limit
•
Requirement
of
intimating
such
adjustment
to
jurisdictional
superintendent is omitted

Partnership firm to include Limited Liability Partnership (LLP).
This
provides clarity on due date for tax payment and whether to pay service tax
on accrual / realization basis by LLP (w.e.f 01.04.2012)
7-7-2012
22
Words of Caution

Views expressed are the personal views of faculty based on his
interpretation of law

Application/implications of various provisions will vary on facts of the case
and law prevailing on relevant time

Contents of this presentation should not be construed as legal or
professional advice

This is an educational meeting
arranged with clear understanding that
Faculty will not be responsible for any error, omission, commission and
result of any action taken by participant or anyone on the basis of this
presentation
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23
THANK YOU
7-7-2012
24

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