Transcript Accrual system of taxation in Service Tax

Accrual system of taxation in
Service Tax
CA Atul Kumar Gupta
CA Akhil Gupta
Learning Objectives
Shift from cash system to accrual system – changes in provision of law
 Meaning of Point of Taxation
 Applicability of Point of Taxation Rules, 2011
 Determination of Point of Taxation under different situations
 Impact of Point of Taxation on taxable event in service tax
 Applicability of accrual system to Credit of Service Tax
 Self Adjustment of Service Tax

CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
2
Accrual System – Changes in provision of law
Notification No. 03/2011-ST
Amend Service Tax Rules, 1994
Amendments made
1.
2.
3.
4.
5.
Rule 6(1)
First proviso to Rule 6(1)
Second proviso to Rule 6(1)
Third proviso to Rule 6(1)
Rule 5B
omitted
added
effect
Point of Taxation Rules, 2011
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Liability to pay tax shall be determined on
date when services are deemed to be
provided
3
Meaning of Point of Taxation
Rule 2(e) ‘point of taxation’ means the point in time when a service shall be
deemed to have been provided
Point of Time/Date
Services shall be deemed to
be provided
for the purpose of Rule 6(1)
Procedural aspect to determine when tax
has to be paid
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
4
Applicability of Point of Taxation
Date of applicability of
Point of Taxation
Where provision of service is
completed or invoice is issued
Where provision of service is
completed or invoice is issued
Where provision of service is
completed or invoice is issued
before 01.04.2011
between 01.04.2011 to 30.06.2011
on or after 01.07.2011
Not Applicable
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Optional
Compulsory
5
Determination of Point of Taxation
Normal
Situation
Continuous
Supply
Service
Export of
Service
Services
under
reverse
charge
Transaction with
Associated
Enterprises
Introduction of
new service
Change in
effective
rate of tax
Intellectual
property
service
Specified
services
Transitional
provisions
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
6
Determination of Point of Taxation – Normal Situation
Rule 3 of the Point of Taxation Rules, 2011 provides that the point of taxation shall be as follows:
a) Date of issue of invoice or receipt of payment, whichever is earlier, if the invoice is issued within the
prescribed period of 14 days from the date of completion of the provision of service.
b) Date of completion of the provision of service or receipt of payment, if the invoice not issued within the
prescribed period as above.
Situation
Invoice is issued before completion
of service and receipt of payment
Service is completed and invoice is
issued within 14 days
Service is completed and invoice is
not issued within 14 days
Payment is received in advance
CA Atul Kumar Gupta before issue of invoice or
CA Akhil Gupta
completion of service
7/16/2015
Point of Taxation
Time of issue of invoice
Relevant Rule
Rule 3(a)
Time of issue of invoice
Rule 3(a)
Date of completion of service
Proviso to Rule 3(a)
Date of receipt of payment, to
Rule 3(b) read with
Explanation to Rule 3
the extent of such payment
7
Determination of Point of Taxation – Normal Situation
Situations Date of
Date of Invoice Date of receipt Point of
Completion of
of payment
Taxation
service
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Relevant Rule
1
15.07.2011
20.07.2011
25.07.2011
20.07.2011
Rule 3(a)
2
15.07.2011
30.07.2011
01.08.2011
15.07.2011
Proviso to Rule 3(a)
3
15.07.2011
30.07.2011
25.07.2011
25.07.2011
Rule 3(a)
4
15.07.2011
30.07.2011
25.07.2011
(part) and
01.08.2011
(remaining)
Rule 3(a) read with
proviso to Rule 3(a)
5
15.07.2011
20.07.2011
10.07.2011
25.07.2011
for part and
15.07.2011
for remaining
10.07.2011
Rule 3(b)
6
15.07.2011
30.07.2011
10.07.2011
10.07.2011
Rule 3(b)
8
Determination of Point of Taxation – Continuous Supply
Service
Rule 6 of the Point of Taxation Rules, 2011 provides that the point of taxation shall be as follows:
a) Date of issue of invoice or receipt of payment, whichever is earlier, if the invoice is issued within the
prescribed period of 14 days from the date of completion of the provision of service.
b) Date of completion of the provision of service or receipt of payment, if the invoice not issued within the
prescribed period as above.
Situation
Invoice is issued before completion
of service and receipt of payment
Service is completed and invoice is
issued within 14 days
Service is completed and invoice is
not issued within 14 days
Payment is received in advance
CA Atul Kumar Gupta
before issue of invoice or
CA Akhil Gupta
7/16/2015
completion of service
Point of Taxation
Time of issue of invoice
Relevant Rule
Rule 6(a)
Time of issue of invoice
Rule 6(a)
Date of completion of service
Proviso to Rule 6(a)
Date of receipt of payment, to
Rule 6(b) read with
Explanation 2 to Rule 6
the extent of such payment
9
Determination of Point of Taxation – Continuous Supply
Service
As per Rule 2(C) of the Point of Taxation Rules, 2011; Continuous Supply Service means ‘any
service provided or to be provided for a period exceeding three months’.
Telecommunication Service [Section 65(105)(zzzx)]
Commercial or Industrial Construction Service [Section 65(105)(zzq)]
Construction of Residential Complex Service [Section 65(105)(zzzh)]
Internet Telecommunication Service [Section 65(105)(zzzu)]
Works Contract Service [Section 65(105)(zzzza)]
Continuous supply even if provided for less then 3
months
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Other services
Continuous supply only if
provided for more then 3
months
10
Determination of Point of Taxation – Export of Service
In case of receipt of advance
In case payment is received
after provision of service
Date of receipt of such advance
Payment is received
within period specified by
RBI
Date of receipt of such
payment
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Interest is applicable from date of issue of
invoice or completion of service as the case
may be
Payment is not received
within period specified by
RBI
Date of issue of invoice if
raised within 14 days of
completion of service
other wise date of
completion of service
11
Determination of Point of Taxation – Reverse Charge
In case of advance payment
Date of payment of such
advance
In case payment is made after
provision of service
Payment is made within 6
months from date of
invoice of service provider
Payment is not made within 6
months from date of invoice of
service provider
Date of such payment
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Interest is applicable from date of issue of
invoice
Date of issue of invoice
12
Determination of Point of Taxation – Transaction with
associated enterprises
In case service provider is in
India
Date of issue of invoice
or
receipt of payment,
whichever is earlier
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
In case service provider is
outside India
Date of credit in books of service receiver
or
making of payment, whichever is earlier
13
Determination of Point of Taxation – Change in effective rate of tax
Situation
Invoice raised after change
in rate
Payment made after change
in rate
Service provided before change in effective
rate of tax
Service provided after change in effective
rate of tax
Date of payment/ date of invoice, whichever Date of payment/ date of invoice, whichever
is earlier
Rule 4(a)(i)
is earlier
Invoice raised before change Date of issue of invoice
in rate
Rule 4(a)(ii)
Payment made after change
in rate
Date of payment
Rule 4(b)(i)
Invoice raised after change
in rate
Payment made before
change in rate
Date of issue of invoice
Rule 4(b)(iiI)
Date of payment
Rule 4(a)(iii)
Invoice raised before change Date of payment/ date of invoice, whichever Date of payment/ date of invoice, whichever
in rate
is earlier
is earlier
CA Atul Kumar Gupta Payment made before
Rule 4(b)(ii)
CA Akhil Gupta
change in rate
7/16/2015
14
Determination of Point of Taxation – Change in effective rate of tax
Situations Date of
Date of Invoice Date of receipt Point of
Completion of
of payment
Taxation
service
Relevant Rule
1
15.04.2012
28.03.2012
10.04.2012
10.04.2012
Rule 4(b)(i)
2
15.04.2012
04.04.2012
10.04.2012
04.04.2012
3
15.04.2012
04.04.2012
31.03.2012
04.04.2012
Rule 4(b)(iii)
4
15.04.2012
31.03.2012
31.03.2012
31.03.2012
Rule 4(b)(ii)
Effective rate of service tax is changed w. e. f. 01.04.2012
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
15
Determination of Point of Taxation – Change in effective rate of tax
Situations Date of
Date of Invoice Date of receipt Point of
Completion of
of payment
Taxation
service
Relevant Rule
1
15.03.2012
28.03.2012
10.04.2012
28.03.2012
Rule 4(a)(ii)
2
15.03.2012
04.04.2012
10.04.2012
04.04.2012
Rule 4(a)(i)
3
15.03.2012
04.04.2012
31.03.2012
31.03.2012
Rule 4(a)(iii)
4
15.03.2012
31.03.2012
31.03.2012
31.03.2012
Effective rate of service tax is changed w. e. f. 01.04.2012
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
16
Determination of Point of Taxation – Change in effective rate of tax
Change in effective rate of tax
means change in applicable rate under Section 68
includes
Change in rate of abatements
Change in rate under composition scheme
Explanation 4 to Rule 4 read with para 3 of letter
F. No. 341/34/2011-TRU dated 31.03.2011
Change in rate under any other rule or provision of law
like Rule 6(7), rates for air travel agents
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
17
Determination of Point of Taxation – Introduction of new service
Service provided before
applicability
No service tax
In case payment is received
in advance
Service has
become taxable
Invoice is issued before
applicability of service tax
No service tax
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Invoice is issued within 14
days given under Rule 4A
(STR)
No service tax
Invoice is not issued within 14
days of receipt of advance
Service tax payable
18
Determination of Point of Taxation – Introduction of new service
Situations Date of
Date of Invoice Date of receipt Point of
Completion of
of payment
Taxation
service
Relevant Rule
1
20.06.2012
30.06.2012
30.06.2012
No tax
Rule 5(a)
2
20.06.2012
30.06.2012
04.07.2012
No tax
Rule 5(b)
3
20.06.2012
02.07.2012
10.07.2012
No tax
4
20.06.2012
07.07.2012
20.06.2012
Taxable
5
05.07.2012
10.07.2012
30.06.2012
No Tax
New service is introduced from 01.07.2012
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
19
Determination of Point of Taxation – Specified services
Individuals/ firms
providing
Architects
Interior Decorators
CA/CS/CWA
Scientists
Legal Consultants
Consulting engineer
Other than
Specified
services
Point of Taxation
Specified
services
No Point of Taxation
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
20
Determination of Point of Taxation – Intellectual Property Service
Intellectual property service means a service where consideration is not ascertainable at the
time of service
Copy rights, trade marks, design or patents
First Event
Subsequent Event
Receipt of payment or benefit Issue of Invoice
is received by service
provider
Issue of Invoice
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
Point of Taxation
Receipt of payment or benefit
is received by service
provider
Receipt of payment or benefit Issue of Invoice
is received by service
provider
21
Determination of Point of Taxation – Transitional Provision
Services completed before 30.06.2011
Point of Taxation
Issue of invoice/ date of receipt of payment, at
option of service provider
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
22
Impact of Point of Taxation on Taxable Event in
service tax
Issue of invoice/ receipt of advance (whichever is
earlier) = Point of Taxation
Whether taxable event would change?
No
Section 65 states
Provision
of service
Taxable service means any service provided or deemed to be provided
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
23
Impact of Point of Taxation on Taxable Event in
service tax
Legal judgments defining taxable event
Association of Leasing & Financial Service Companies v UOI 2010 (20) STR 417 (SC)
observed that “rendition of service is taxable event for service tax”
Kerala Color Lab. Association v UOI 2006 (2) STR 554 (Ker.) held that “taxable event
occurs because the service is rendered”
Commissioner of Central Excise , Vadodara II v Schott Glass India (P) Ltd. 2009 (14) STR
146 (Guj.) held that “the taxable event in relation to Service Tax is admittedly the
rendering of taxable service.”
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
24
Impact of Point of Taxation on Taxable Event in
service tax
Subordinate legislation cannot override substantive provision of law
Point of Taxation Rules, 2011 or Service Tax Rules, 1994
framed under delegated power of Finance Act, 1994
Supreme Court in case of
Shri Vishin N. Kanchandani & Anr. v Vidya Lachmandas Khanchandani & Anr. 2003 (158) ELT
403 held that ‘it is well settled principle of law that in case of a conflict between a substantive
act and delegated legislation, the former shall prevail inasmuch as delegated legislation must
be read in the context of primary/ legislative act and not the vice-versa’
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
25
Impact of Point of Taxation on Taxable Event in
service tax
Section 66
Legal Judgments
Taxable event is
‘rendering/ provision of
service’
Principle of supremacy of
substantive provision of law over
delegated legislation
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
26
Applicability of Accrual System to Credit of
Service Tax
Rule 4(7) of CENVAT Credit Rules, 2004
amended
CENVAT Credit of Service Tax be taken immediately on receipt of invoices issued on or
after 01.04.2011
however if payment not made within 3 months of date of invoice, then credit taken shall be
reversed
No interest for 3 months period
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
27
Self Adjustment of Service Tax
Adjustment of any excess tax paid due to accrual system – self adjustment mechanism



service to be provided which is not so provided either wholly or partially
Refund of service tax has been made to receiver
or
Credit note has been issued
Self adjustment is allowed
CA Atul Kumar Gupta
CA Akhil Gupta
7/16/2015
28
Thanks
A P R A & Associates
CHARTERED ACCOUNTANTS
Head office
3812/5 Kanhaiya Nagar, Tri Nagar, Delhi
Branch office
379, Aggarwal Millennium Tower, Netaji Subhash
Place, Pitampura, New Delhi
Gurgaon office
[email protected], [email protected],
[email protected]
9810103611
9540748353
7/16/2015
III Floor, Opposite Service Tax Department, Udyog
Minar, Vanijya Nikunj,
Udyog Vihar, Phase V, Gurgaon
29