Rates of Service Tax or Rates of GST on services provided or to be provided shall have link to payment in certain situations says CBEC in Draft Rules - But, what is the relevant date?

[C.A. Surender Gupta]

CBEC has issued a draft circular addressing various issues relating of determination of rate of taxes in the various circumstances [See Draft Rules with Explanatory Notes]

While analyzing the draft circular, I got perplexed with the query, that what is the relevant date which in my view CBEC must address while issuing final rules otherwise it would lead more confusions and complexities.

What is relevant date?

Since, CBEC has tried to introduce clarity and certainty in the matter of levy and collection of service tax particularly in situations of change of rate of service tax or imposition of service tax on new services and linked this issue with the time of receipt of payment, CBEC must make a provision to determine the relevant date on which payment is received or made.

For example, suppose date of new levy on a fresh service is 1.7.2010. Date of issuance of Cheque towards advance (services to be provided later) is 5.6.2010. Date of receipt of Cheque is 25.6.2010. Date of tendering the cheque into bank is 1.7.2010. Date of clearance of cheque is 7.7.2010.

Now in the above example, by applying the draft rules, if the payment is considered to be received before 1.7.2010, there is no levy of service tax but if the payment is considered to be received on or after 1.72010, such service provider is liable to pay service tax.

Therefore, in my view, the relevant provisions for determining the date of payment may be clarified as under:

1	Cash transaction	Relevant date shall be the date when cash is actually received by the service provider.
2	Transfer through negotiable instruments e.g. Cheque / DD etc.	Relevant date shall be the date when the instrument is tendered with the bank by the service provider for clearance provided the same is honored. Where the instrument is dishonored, it should be treated as non receipt.
3	Electronic transfer e.g. NEFT / RTGS / Credit Cards etc.	Relevant date shall be the date when the payment is received by the service provider
4	Barter transactions / exchange of services or receipt of consideration in lieu of money	Relevant date shall be the date when the services shall be performed actually by the each party.

What is relevant: date of payment or date of receipt?

Further, a careful analysis of the draft rules, it appears that the Board is confused with the terms "date of payment" and "date of receipt". Perhaps, according to the board, the two terms are the same. But in the trade, these two dates are different and there may be a substantial gap between "date of making payment" and "date of receipt of payment".

In Rule 1 to Rule 4 of the Draft Rules the term or concept of the term "date of receipt of payment" has been used.

In Rule 5 of the Draft Rules contrary terms have been used, which may lead to more confusion:

In the opening para of Rule 5  and in the sub rules (a) to (c) the term or concept of the term "date of payment" has been used. Whereas in sub rule (d) of rule 5 the term "date of receipt of payment" has been used.

In Rule 6 of the Draft Rules, the concept of "date of receipt of payment" is used.

In rule 7 of the Draft Rules, again contrary terms have been used which again may lead to confusion.

In Rule 7(a)(i) and (ii), the concept of "date of payment" has been used whereas in rule 7(a)(iii) the concept of "date of receipt of payment" has been used.

In rule 8 of the Drafts Rules, the concept of "date of payment" has been used.

In rule 9 of the Draft Rules, the concept of "date of receipt" has been used.

Justification

It may be so that Board has something different in mind for using different terms at different places, but those aspects must be clarified.

The use of concept of the term "date of payment" seems to be logical in rule 7(a)(i) where the due date as per contract is the relevant date, but the same concept used in rule 5(a) to Rule 5(c) and Rule 8 is not appearing as correct since the service tax is levied in accordance with the services provided by the service provider and not in accordance with the date of payment made by the recipient of services.

Therefore, it is highly advisable that while issuing final "Point of Taxation (for Services Provided or Received in India) Rules, 2010" the board should redraft the rules and address the above issues.