RATE OF SERVICE TAX- RELEVANT DATE IS DATE OF SERVICE RENDERED:

[C.A. DEV KUMAR KOTHARI]

The base of levy of service tax is "service" rendered by service provider though tax is payable only when payment for service is received. Being tax on taxable value of services rendered or to be rendered, according to common sense as well as on commercial principals the date of rendering of service is relevant for the charges to be made by the service provider and therefore service tax will also be on the basis of rate prevailing on the date of providing service.

Suppose a standard service is provided e.g. by telecom company. The TRAI changes rate of services. The telecom company raises bill periodically. The service provider will have to charge more than one rate, if the charges for services is revised during a billing cycle. Similarly will be the case of service tax. Suppose rate is revised w.e.f. 15.05.08 and the billing cycle is quarterly and bill will be raised for the period  01.04.08- 30.06.08. In such a situation the service provider has to ascertain value of taxable services of each subscriber for the periods 01.04.08- 14.05.08 and from 15.05.08- 30.06.08 and applicable rate of service tax will be applied. The date of issuance of bill or date of realization of bill will not make difference. This is as per normal commercial and taxation principals. In absence of any specific legal provision providing otherwise, it cannot be said that the rate of service tax should be applied as applicable on the date of raising of bill, in the above example as on say 01.07.08 for the entire period covered by the bill ( it the example 01.04.08- 30.06.08). It will also be wrong to say that the rate applicable will be the rates applicable on the date of payment.

Therefore the billing date or date of payment will not make difference in relation to applicable rate of service tax.

Increasing rate of service tax:

The readers are well-aware that rate of service tax has increased from time to time.  A brief history of the rate is as follows:-

Period in chronological order		Rate of service tax, other levies and total rate of levy.
		Service Tax	E.Cess	S & H E.Cess	Total
1-7-1994 to 13-5-2003	=	5%	-	-	5%
14-5-2003 to 9-9-2004	=	8%	-	-	8%
10-9-2004 to 17-4-2006	=	10%	2%	-	10.20%
18-4-2006 to 10-5-2007	=	12%	2%	-	12.24%
11-05-2007 onwards	=	12%	2%	1%	12.36%

The rate of total levy has been increased from 5% to 12.36% .

Periods when no tax was payable:

Every year some new services are brought under service tax net by amending the FA 1994 and then notifying effective date of levy. Prior to notification service tax is not leviable. Pre-notification Services cannot be charged with service tax, even if invoice or demand is raised and/ or collected afterward such notification.

Abatement effect the effective rate of service tax 

Rates of service tax and ratio of abatement determine effective rate of service tax.  In case the proportion of abatement is increased or reduced, the effective rate of service tax will be reduced or increased.

Changes in rate of tax:

The rate of service tax may vary when the service was rendered during the intervening period of billing or payment. So far we have seen increasing rates and no decline at all. Therefore, revenue take view that rate applicable at the time of billing / payment should apply and not the rates when service was rendered.

Dispute about applicable rate/ effective rate:

In above circumstances assessee claims that the rate at the time of rendering service should apply and whereas revenue demand at rates applicable when payment is received.

Date of service is relevant for rate purpose

As discussed earlier the service tax is  leviable on the value of taxable service rendered. However it is payable when payment for taxable services is received.  However, as per normal commercial practice, the service tax is charged on the date when bill is raised.  Usually bills are raised immediately or periodically after rendering of service.  In practice the bills are generally raised, separately at old rate when there is a change in rate taking the cut off date. And for services rendered afterwards, bills are raised taking into new rate from applicable effective date. In some cases in the same bill service tax Can be charged at two rates. In all such cases the payment is usually received afterwards.

Invoices  may be raised subsequently

In some circumstances, invoices for services may be raised afterwards according to the agreement with the customer or according to certain legal obligation under law wherein a cycle for statement / notice for payment is to be followed.  For example, in case of telephone companies, credit card companies, bills may be raised for a particular period of time on a particular statement date.

Delay in demand or payment

A delay in invoicing does not amount that services is rendered on the date of demand or payment.  Suppose for some reasons, like sickness or mistake, or negotiation and settlement of service charges with client the invoice for services is not raised at the time of rendering service but after some time and then there is also delay in payment by service receiver.  Does it mean that services were not rendered earlier but when payment is made?

The answer will be clear, no, because the service was rendered earlier.  Therefore, the service tax liability should be only on the basis of the date when service is rendered and not when the bill is raised or payment is received.  The liability to make deposit of service tax department is an altogether aspect and it cannot be considered as a criteria to determine the date when service was rendered.

Different contentions:

Suppose at some time, rates are reduced and the higher rates are applicable on the day when service was rendered and lower when payment is received.  Then it is likely that the service tax department shall claim service tax based on the higher rate applicable when the service was rendered instead of the lower rate when the service charges are received from service receiver.  This is a very common and natural phenomenon because the tax gatherer wants to maximize the tax collection and the taxpayer wants to reduce tax burden.  Therefore, a clear provision in the Finance Act, 1994 relating to the service tax is desired to avoid controversies in this regard.

Case when services are received under reverse charge method

In earlier paragraph matter was in connection with services rendered.  Similarly, in case a recipient of service is liable to pay service tax then also the date of rendering of service by service provider and the date of receiving of service by the service receiver will be relevant and not the day when the service receiver pays to the service provider.  In case services were rendered / received when there was no liability to service tax,  service tax cannot be collected merely because the bill for services is raised or payment for services is made after the coming into force of service tax or revised rate of service tax.  Therefore, if the rate was nil or the service was exempted and during that period service was rendered / received then service tax cannot be collected.

A recent judgment of CESTAT

In RELIANCE INDUSTRIES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, RAJKOT  reported in 2008 -TMI - 4007 - CESTAT, AHMEDABAD in order dated 30.01.2008  considered this aspect in the case of  a service receiver who is liable to pay service tax on services imported.  The appellant (RIL) received consulting engineering services from the service provider who was located outside India. During period  of availment of service and payment rate of  tax levy came into force and  tax rate was also enhanced from 5% to 8 % from 14.5.03. Assessee contended that  the rate of duty should be nil when there was no levy of service tax and in nay case   the rate applicable at the time of receiving services will apply and it has no relevance to the date of billing or date of payment for the same. The Tribunal agreed and held that service has been rendered prior to introduction of tax , so no tax shall be leviable, even if payments were made subsequent to introduction of the tax.

The relevant facts as noted by the Tribunal were as follows:

(a) The appellant was receiving consulting engineering services from the service provider located outside India.

(b) The rate of service tax was 5% prior to 14-5-2003 and it was enhanced to 8% from 14-5-2003 and further enhanced to 10% w.e.f. 10-9-2004.

(c) the original authority confirmed the demand of service tax amounting to Rs. 5,08,643/- along with interest and also imposed penalty of equal amount on the ground that even in respect of the services received on dates prior to14-5-2003, the rate of service tax shall be as on the date of billing or payment.

(d) on RIL's appeal The Commissioner (Appeals) also  upheld the order of the original authority.

On behalf of the tax payer the learned advocate submitted that the rate of duty should be the rate applicable at the time of receiving services and it has no relevance to the date of billing or date of payment for the same. He relies on the following decisions of the Tribunal.

1. Lumax Samlip Industries v. CST, Chennai - 2007 (6) S.T.R. 417 (Tri.- Chennai)

2. CCE, Noida v. Matsushita TV & Audio India Ltd. - 2006 (1) S.T.R. 162 (Tri.- Del.)

3. Art Leasing Ltd. v. CCE, Cochin -2007(8) S.T.R. 162 (Tri. - Bang.)

On the other hand the learned SDR supports the decision of the Commissioner (Appeals) and submits that in respect of service tax, the liability is linked to the payment of service charges and therefore, the relevant date would be the date of billing or payment. He relied on the CBEC's Circular No. 56/5/2003-ST, dated 25-4-2003.

On careful consideration of the submissions from both sides tribunal has observed and held as follows:

        a. the liability to service tax is on account of rendering of the services.

        b. there are variations in matters relating to manner of collection when compared to other taxes.

       c. it shall be normally paid by the person rendering services but in certain cases it shall be paid by the recipient of the services as is the case of appellant in relation to import of service.

      d. tax  need not be paid on the date of rendering of services but is payable subsequently at the time of receiving the service charges.

      e. when the service tax is introduced for the first time on any service, in respect of the services already rendered on the dates prior to introduction of service tax, even if the payments are received on a subsequent date, no tax shall be leviable.

      f.  in absence of specific provision, the rate of tax applicable to the service tax shall be the rate prevailing on the date of rendering the services.

       g. in Central Excise also, the duty on clearances for any month (other than March) becomes payable within a few days in the following month. The rate of duty is what is applicable on the date of clearance, and not on the date of payment.

       h.  relevant portion of the Boards clarification which has a bearing on the rate of duty is reproduced below:

                "5. A further question raised is relating to payments receivable in foreign exchange for the services performed prior to1-3-2003 when the rate of service tax applicable was 5% but payments are received after 1-3-2003. The enhancement of the rate of service tax from 5% to 8% would be applicable only when the Finance Bill is passed. If payments are received in the aforesaid case after the Finance Bill is passed, the rate of tax applicable would be 5% so long as the billing has been made prior to the date of passing pf the Finance Bill. If the billing is made subsequent to the date of passing of the Finance Bill, the service tax would be applicable at the enhanced rate of 8%".

      i.  the above clarification of the Board cannot be considered to be authorizing the application of rate prevailing at the time of billing/payment. The linking of the rate of duty to the one prevailing on the date of billing or date of payment is not legally justified.

      j. thus, the appeal was allowed with consequential relief to the appellant.

 Wrong circular is not binding:

The Tribunal has therefore, held that the boards' circular cannot be considered to authorize levy of tax, which is not as per law or which is contrary to the concept of levy of service tax. Service tax is on the services rendered (or received) at the rate or as per law prevailing on the date of rendering/ availing of service and not any subsequent date.

Therefore, the Board cannot authorize levy of service tax, when as per law there was no taxability of particular service.

Conclusion:

Duty to remit the service tax to the revenue is a different aspect. The periodicity of remittance and period for which remittance is to be made are the aspects concerned with recovery of service tax and not levy of service tax. There can be cases where remittance is to be made for a period during which more than one rate of service tax prevailed. Fro example for the quarter during which rates are revised, service tax will be remitted at two or more rates.

Practical way:

When it is likely that delay will take place in payment of bill by customer/ client who received service or when there is a delay in payment of bill of service provider on service received which is chargeable in hands of service receiver. Performa or provisional bill or claim may be raised and then on settlement of the bill and amount receivable or payable, a final bill can be raised. Evidence of days on which services were rendered or received should also be kept so that it can be satisfactorily explained.