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Change in Service Tax Rate - Section 67A vs Rule 4 of Point of Taxation Rules.

Service Tax - By: - Manindar Kakarla - Dated:- 22-5-2015 Last Replied Date:- 25-5-2015 - Introduction: Finance Bill, 2015 has proposed to increase the service tax rate to 14% by amending Section 66B. The said bill has received President s assent on 14/05/2015. The increased rate is going to be effective from 01.06.2015. As there is a change in rate of tax, the applicability of new service tax rate assumes significant importance. Further, there are conflicting provisions in the law creating much .....

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ch POT occurs. Rule 5B of the Service Tax Rules, 1994 provides that rate of tax shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard. Consequently, Rule 4 of the Point of Taxation Rules, 2011 provides for determination of POT when there is a change in service tax rate. The other rule of Service Tax Rules, 1994 that refers to Point of Taxation Rules, 2011 is Rule 6. This rule provides that service tax shall be paid by 5th .....

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ey completely ignore the date on which service is provided. It provides as follows; 1.Where services provided prior to change in service tax rate, new rate is applicable if invoice is issued or payment is received after the change in service tax rate. Otherwise old rate is applicable. 2.Where services are provided after the change in service tax rate, old rate is applicable if invoice is issued or payment is received before the change in service tax rate. Otherwise new rate is applicable. This r .....

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these amendments cast doubt on relevance of the Rule 4 of the Point of Taxation Rules, 2011 after 18.05.2012. Let us have a look at the scope of Section 67A. Scope of Section 67A: Section 67A provides that- The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided. .....

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e provided is added in levy section after the words provided during the Finance Budget, 2005. It has been then clarified that the objective of the amendment is to link payment of service tax on the advances received for the services to be provided in future. On a harmonious construction of Section 67A in line with charging Section 66B, similar interpretation can be adopted for the phrase provided or agreed to be provided appearing in Section 67A.Thus it can be rationally concluded that in terms .....

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rpreted in align with the Rule 4 of the Point of Taxation Rules, 2011. Conflict between Section 67A and Point of Taxation Rules, 2011: Going plain understanding of the language employed by Section 67A and Rule 4 of the Point of Taxation Rules, 2011, there is a clear conflict between the provisions as discussed above. This can be further appreciated by the following examples. 1.X Ltd has provided consultancy services which got completed by May 15th 2015. Invoice issued on 5th June 2015 and paymen .....

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July, 2015. As per Section 67A: In terms of Section 67A, rate prevailing at the time of provision of service is relevant. Service got completed by May 15th 2015. The rate prevailing on this date i.e. 12% is applicable. However, the due date for payment of service tax is still driven by Point of Taxation Rules, 2011 only. 2.X Ltd has provided consultancy services in June 2015 for an advance received in the month of May 2015 itself. X Ltd paid service tax on this amount by 6th of June, 2015 at 12. .....

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A: As advance money is received in the month of May itself, the services are agreed to be provided in the month of May itself. The rate prevailing at the time of receipt of advance is relevant i.e. 12.36%. However, the due date for payment of service tax is still driven by Point of Taxation Rules, 2011 only. Conclusion: Before parting, based on the above discussion it is clear that in view of the above referred conflicting provisions, ambiguity exists about the applicability of the new service t .....

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