COMPLETION OF SERVICE

[Mr. M. GOVINDARAJAN]

                        Rule 3 of Point of Taxation Rules, 2011 determines the point of taxation.   The said Rule provides that unless otherwise provides the ‘point of taxation’ shall be-

(a)    the time when the invoice for the service provided or to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be of such completion;

(b)   in  a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Explanation:- For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

                        The Service Tax Rules was also amended to suit the provisions of Point of Taxation Rules.  Rule 4A (1) provides that every person providing taxable service not later than fourteen days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him in respect of such taxable service provided or to be provided and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the particulars as prescribed.

                        A bare reading of the provisions of the above said rules indicates that the invoices shall be issued within fourteen days of completion of the service.   The term ‘completion of service’ has not been defined either in Service Tax Rules, 1994 or Point of Taxation Rules, 2011.   The duration of service may not be fixed.   Some services may be for a short period.  Some may for a longer period.  Some services may be continuous service.   The concept of continuous service has been introduced recently.   There may be some procedures involves after completion of the service.   In the absence of proper definition for the term ‘completion of service’ the Tax Research Unit of the Department came with a clarification through circular No. 144/13/2011-ST, dated 18.07.2011.

                        In the said circular it has analyzed the various problems posed by the service providers who sought clarifications for the same.   It observed that in many cases it may not be possible to issue invoices within 14 days of the completion of service since the exact date of completion of service is difficult to identify.   Further after the task of providing the service may be physically accomplished, certain other formalities are also required to be completed from the client’s end before an invoice can be issued.

                        The representations received from various corners in this regard have been examined by the Department.  In the clarification it has been indicated that the invoice needs to indicate inter alia the value of service so completed.  Thus it is important to identify the service rendered has been completed.  Completion of service, as per the clarification, would include not only the physical part of providing the service but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice.   Such auxiliary activities could include activities like measurement, quality testing etc.,which may be essential pre-requisites for identification of completion of service.   The circular further indicated that the test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice.   It further clarified that the activities which include flimsy or irrelevant grounds for delay in issue of invoice will not form part of the same.  The said interpretation is also applicable to the determination of completion of provision of service in case of ‘continuous supply of service.’  This is the timely clarification issued by the department.