No.

1 for CA/CWA & MEC/CEC

MASTER MINDS

AMENDMENTS IN SERVICE TAX (Applicable for Nov. 2012)

Q.No.1. Point of Taxation Rules, 2011? Analysis of point of taxation rules, 2011 S. No. 1 2 3 4 5 6 7 8 9 10 11 Rule 1 2 2A 3 4 5 6 7 8 8A 9 Particulars Short title and commencement Definitions Date of payment Determination of point of taxation (Normal Provision) Determination of point of taxation in case of change in tax rate Payment of tax in case of new services Determination of point of taxation in case of continuous supply of service. Determination of point of taxation in case of reverse charge, associated enterprises Determination of point of taxation in case of copyrights, etc. Determination of point of taxation in other cases Transitional Provisions Remarks

Merged with rule 3 w.e.f. 01.04.2012

Inserted w.e.f. 1/04/2012

Meaning of date of payment: Rule 2A has been inserted in POT, Rules, 2011 vide NN 04/2012 ST dated 17.03.2012 and it defines the date of payment as under: Date of payment means earlier of following: Dates on which the payment is entered in the books of accounts (Or) Dates on which the payment is credited to the bank account of the person liable to pay tax. However date of payment shall be the date of credited to the bank account if the following conditions are satisfied: i. There is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and

ii. The credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and iii. The payment is made by way of an instrument which is credited to a bank account. Determination of Point of Taxation Under Normal Circumstances: As per rule 3 of POT Rules, 2011, point of taxation (point in time when a service shall be deemed to have been provided) under normal situation shall be earlier of the following dates:

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i.

Date of invoice or payment, whichever is earlier: (if the invoice is issued within the prescribed period of 30 days (up to 31.03.2012 it was 14 days) from the date of completion of the provision of service.)

ii. Date of completion of the provision of service or payment, whichever is earlier: (if the invoice is not issued within the prescribed period as above) iii. Date of receipt of advance payment Determination of Point of Taxation In Case Of Continuous Supply Of Services Continuous Supply of Service - Rule 2 (c) of POT Rules, 2011 Continuous supply of service means any service which is provided, or to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time to time, or where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition. Under above rules, the Central Government, vide NN 28/2011 st dated 01.04.2011, notifies the following services as continuous supply of service, for the purpose of the said rules: a. Commercial or Industrial Construction Services [Section 65(105) (zzq] b. Complex Construction Services [Section 65(105) (zzzh)] c. Telecommunication Services [Section 65(105) (zzzx)] d. Internet Telecommunication Services [Section 65(105)(zzzv] e. Services in Execution of Works Contract [Section 65(105)(zzzza)] Therefore it is clear on the basis of above provision that in respect of services which has been notified by Central Govt. as continuous supply of service it is not necessary that these services provided or to be provided continuously for a period exceeding three months. In case of continuous supply of services, date of completion of provision of service shall be deemed to be date of the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider. Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a). Provided also that wherever the provider of taxable service receives an amount upto rupees one thousand in excess of the amount indicated in the invoice and the provider of taxable service has opted to determine the point of taxation based on the option as given in Point of Taxation Rules, 2011, no invoice is required to be issued to such extent. Rule 4 - Determination of Point of Taxation in Case of Change in Tax Rate: (No Change) Rule 5 - Payment of Tax in Case of New Services Where a service is taxed for the first time, then a. No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

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No.1 for CA/CWA & MEC/CEC

MASTER MINDS

b. No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time. Rule 7 - Determination of Point of Taxation in Case of Reverse Charge, Associated Enterprises Erstwhile rule 7 of POT Rules, 2011 provide for determination of POT in following cases: 1. Export of Services under rule 3 (1) of Export of Services Rules, 2005 2. Reverse Charges Mechanism U/s 68 (2) of Finance Act, 1994 3. 8 Specified Services under rule 7(c) of said rules 4. Associated enterprises where the person providing the service is located outside India. W.e.f. 01.04.2012 rule 7 of POT Rules, 2011 provide for determination of POT in following two cases only: 1. Reverse Charges Mechanism U/s 68 (2) of Finance Act, 1994 2. Associated enterprises where the person providing the service is located outside India. And remaining two cases has been dealt with by following proviso of Rule 6 of Service Tax Rules, 1994: 1. Third proviso of rule 6 has been inserted and as per this proviso in case of export of services under Rule 3(1) of Export of Services Rules, 2005, payment is need not to be made as required under Rule 6 if payment in respect of export of services received within the time limit specified by RBI. 2. Forth proviso of rule 6 has been inserted and it provides option to pay service tax on receipt basis to all individual and partnership firm up to Rs.50 lakh. The point of taxation shall be determined in the following manner under Rule 7: S. No 1 Particulars Reverse Charges Mechanism U/s 68 (2) of Finance Act, 1994 Point of Taxation Shall Be Case 1 Payment is made within a period of six months of the date of invoice Date on which payment is made Case 2 Payment is not made within a period of six months of the date of invoice

Date of invoice or payment, whichever is earlier (if the invoice is issued within the prescribed period of 30 days (up to 31.03.2012 it was 14 days) from the date of completion of the provision of service.) Date of completion of the provision of service or payment, whichever is earlier (if the invoice is not issued within the prescribed period as above.) Date of receipt of advance payment POT is determined as per normal rules.

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Associated Enterprises Where the person providing the service is located outside India 1. Date of credit in the books of account of the person receiving the service or 2. Date of making the payment whichever is earlier

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Where the person providing the service is located in India

Point of Taxation Shall Be

Same as point no 1

Rule 8 - Determination of Point of Taxation in Case of Copyrights, etc. In respect of royalties & payments pertaining to copyrights, trademarks, designs or patents, Where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration Then the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier. Rule 8A - Determination of Point of Taxation in Other Cases Where the point of taxation cannot be determined as per these rules as the date of invoice or the date of payment or both are not available, then Central Excise officer, may, require the concerned person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account such material and the effective rate of tax prevalent at different points of time, shall, by an order in writing, after giving an opportunity of being heard, determine the point of taxation to the best of his judgment. Rule 9 - Transitional Provisions (No Change) Q.No. 2. Rate? Rate (12.36%): The rate of service tax specified u/s in section 66 is 12%; Education Cess @ 2% and Secondary and Higher Education Cess @ 1% are chargeable on amount of service tax. Thus, the effective rate of service tax is 12.36% of the value of services. Before 1-4-2012, the effective rate of service tax, on account of exemption notification, was 10.3%; the exemption has been withdrawn.

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No.1 for CA/CWA & MEC/CEC Q.No. 3. What is the procedure for payment of service tax?

MASTER MINDS

According to Section 68 of the Finance Act, 1994 read with Rule 6(1) of the Service Tax Rules 1994, the service tax shall be paid to the credit of the Central Government in the following manner Payment Duration Individual, Proprietary Quarterly firm, of, a Partnership firm [Partnership firm includes limited liability partnership (LLP) Rule 2(cd).] Assessee Time of payment 1. If tax is paid electronically through internet banking: by 6th of the month 2. In any other case: by the 5th of the month, immediately following the quarter in which the service is deemed to be provided as per the rules framed in this regard (i.e., as per the Point of Taxation under POT Rules).** Option to pay service tax on receipt basis if value of services provided is upto 50 lakhs [W.e.f. 1-4-2012]: In case of individuals and partnership firms (including LLP) whose aggregate value of taxable services provide from one or more premises is 50 lakh or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or to be provided by him up to a total of 50 lakhs in the current financial year, by the dates specified above with respect to the quarter in which payment is received.** Any other assessee Monthly 1. If tax is paid electronically through internet banking: by 6th of the month 2. In any other case: by the 5th of the month Immediately following the month in which the service is deemed to be provided as per the rules framed in this regard (i.e., as per the Point of Taxation under POT Rules).** **Services deemed to be provided in month/ quarter ending on 31st March Service Tax payable by 31st March itself: The service tax on the service deemed to be provided in the month of March or the quarter ending in March of the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year. Export of Service Service tax to be paid if payment not received within time period specified by RBI [W.e.f. 1-4-2012]: In case of taxable services exported under Rule 3(1) of the Export of Services Rules, 2005, the payment under Rule 6(1) shall not apply if that the payment is received within the period specified by RBI, including such extended period as may be allowed from time to time. Thus, if payment is not received within original time/extended time allowed by RBI, service tax shall be required to be paid under this Rule 6(1) irrespective of the fact that the service was exported. Payment by electronic mode: Further, as per clarification issued by CBEC, where the tax is paid electronically, the same should be paid by 8 p.m. on the due date. If the same is paid later than 8 p.m. on the due date, it shall be deemed to have been paid on the next date.

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Adjustment of excess payment of service tax: Where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month/ quarter, The assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month / quarter, Subject to the condition that the excess amount paid is on account of reasons n not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification. Q.No.4. Write a note on SSI Exemption (i.e. exemption for small service providers) under Service Tax Law? Exemption for aggregate value up to 10 Lakhs 1. Eligible small service providers: This exemption applies to a small service provider. Small service provider means a service provider, the aggregate value of taxable services rendered by whom, form one or more premises, does not exceed 10 lakhs in the preceding financial year. Aggregate value [Explanation (B), as amended w.e.f. 1-4-2012]: Aggregate Value means i. The sum total of value of taxable services charged in the first consecutive invoices issued or required to be issued, as the case may be, during a financial year

ii. But does not include value charged in invoices issued towards such services which are exempt form whole of service tax leviable thereon under any other notification. 2. Quantum of exemption: A small service provider is entitled to 100% exemption from service tax during the current financial year. Exemption shall be operative only for aggregate value not exceeding 10 lakh in any financial year. If the aggregate value in any financial year exceeds 10 lakhs, then such excess over 10 lakhs shall be chargeable to service tax. However, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency for which the person liable for paying service tax is a person other than the goods transport agency, shall not be taken into account. Q.No.5. Give a brief account of various composition schemes for payment of service tax. Write a note on option of the person liable to pay service tax to discharge liability of service tax at specified percentage of the gross/consolidated price? Life insurance business - 3% of gross premium in 1st year and 1.5% in others [Rule 6(7A)]: An insurer carrying on life insurance business shall have the option to pay tax : i. On the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of policy holder, if such amount is intimated to the policy holder at the time of providing of services ; ii. In all other cases, 3% of the premium charged from policy holder in the 1st year and 1.5% of the premium charged from policy holder in the subsequent years; towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of the Finance Act, 1994.
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No.1 for CA/CWA & MEC/CEC

MASTER MINDS

However, such option shall not be available in cases where the entire premium paid by the policy holder is only towards risk cover in life insurance. A. Promotion or marketing, etc. of lottery Optional composite payment: The distributor or selling agent (including distributor or selling agent authorized by the lottery organising state), liable to pay service tax for the taxable service of promotion, marketing, organising or in any other manner assisting in organizing lottery, shall have the option to pay service tax as follows instead of paying service tax at normal rate No. Case If the lottery or lottery scheme is one where the guaranteed prize payout is more than 80% If the lottery or lottery scheme is one where the guaranteed prize payout is less than 80% Service Tax (as amended w.e.f 1-4-2012) 7,000/- on every 10 Lakh (or part of 10 Lakhs) of aggregate face value of lottery tickets printed by the organizing State for a draw 11,000/- on every 10 Lakh (or part of 10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw

2.

Aggregate face value in case of online lottery: In case of online lottery, the aggregate face value of lottery tickets shall be taken as the aggregate value of tickets sold. Option to be exercised within one month & not with drawable: The distributor or selling agent shall exercise such option within a period of one month of the beginning of each financial year and such option shall not be withdrawn during the remaining part of the financial year. In case of new service provider, the option shall be exercised within one month of providing of taxable service. Exemption to marketers of lottery, if this option availed: The persons marketing the lottery tickets, other than the distributors or selling agents appointed or authorized by the lottery organizing State, shall be exempt from service tax if the optional composition scheme under Rule 6(7C) is availed of by such distributor or selling agent, in respect of such lottery. If no such option has been availed of any distributor or selling agent, this exemption shall not apply to the value of service provided to the distributors or selling agents who have not so opted. [Authors Note: The lottery or other games of chance service is taxable as separate service.] B. Money-changing services provided by a foreign exchange broker Option to discharge service tax at specified percentage of gross amount of currency exchanged [Rule 6(7B) of Service Tax Rules, 1994, AMENDED W.E.F. 1-4-2012] : The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorized dealer in foreign exchange or an authorized money changer shall have the option to pay an amount calculated at the following rate towards discharge of his service tax liability instead of paying service tax at the rate specified in section 66 a. 0.12% of the gross amount of currency exchanged for an amount upto 1,00,000, subject to the minimum amount of 30; and b. 120 + 0.06% of the gross amount of currency exchanged for an amount of rupees exceeding 1,00,000 and upto 10,00,000; and

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c. 660 + 0.012% of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of 6,000. Option once exercised to apply for that financial year and not to be withdrawn : The person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. Q.No.6. Explain composition scheme for payment of service tax on Works Contract? Composition Scheme - Option to discharge service tax @ 4.8% of gross amount charged [Works Contract (Composition Scheme for Payment of Service Tax): These rules provide for composite payment of service tax. The person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4.8% of the gross amount charged for the works contract. Gross amount charged: For this purpose, gross amount charged for the works contract shall a. Include : i. the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and

ii. the value of all the services that are required to be provided for the execution of the works contract; b. Exclude : i. The value added tax or sales tax as the case may be paid on transfer of property in goods involved; and

ii. The cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire. No CENVAT credit on inputs: The Provider of taxable service, opting for this option, shall not take CENVAT credit of duties or cess paid on any inputs, used on or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004. Q.No.7. Determination of value of service in relation to money changing? Determination of value of service in relation to money changing [Rule 2B of the Service Tax (Determination of Value): Subject to the provisions of section 67, the value of taxable service provided, so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:a. For a currency, when exchanged from, or to, Indian Rupees (INR): Value = Difference in the buying rate or selling rate and the RBI reference rate for that currency at that time x Total units of currency. Example 1 Purchase of foreign currency by money-changer: US$1000 are sold by a customer at the rate of 45 per US$ RBI reference rate for US$ is 45.50 at that time. The taxable value = (RBI Rate Buying Rate) x No. of units of foreign currency bought = (45.5 45) per US$ X 1000 US$ = 500.

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No.1 for CA/CWA & MEC/CEC Example 2 Sale of foreign currency by money-changer: INR 70000 is changed into Great Britain Pound (GBP) The exchange rate offered is 70, thereby giving GBP 1000. RBI reference rate at that time for GBP is 69.

MASTER MINDS

The taxable value = (Selling Rate RBI Rate) x No. of units of foreign currency sold = ( 70 69) per GBP X 1000 GBP = 1,000. If no RBI rate available, Value = 1% of INR : In case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money: b. In the where neither of the currencies exchanged is Indian Rupee (i.e. One foreign currency is exchanged for another foreign currency): Value shall be computed as follows Amount 1 = Foreign Currency sold x RBI Reference Rate of that currency to Indian rupees at that time Amount 2 = Foreign Currency Bought x RBI Reference Rate of that currency to Indian rupees at that time Gross Indian Rupees = Amount 1, or, Amount 2, whichever is less Value = 1% of the Gross Indian Rupees xxx

xxx xxx xxx

[Authors Note Service tax payable @ 12.36% on value : The value as computed under (a) or (b) above shall be liable to service tax at the normal rate of 12.36%.] Q.No.8. Explain the procedure for issuance of bill/invoice/challan? The provisions of Rule 4A and Rule 4B of the Service Tax Rules, 1994 for issuance of bill / invoice / challan are as follows 1. Invoice to be issued mandatorily : Every person providing taxable service shall issue and invoice /bill / challan signed by such person or a person or a person authorized by him in respect of such taxable service provided or to be provided. 2. Time limit for issue of invoice/bill/challan [as amended w.e.f. 1-4-2012] : The invoice / bill / challan shall be issued not later than 30 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. Continuous supply of service 30 days to be reckoned from each event obliging payment: In case of continuous supply of service, every person providing such taxable service shall issue an invoice, bill or challan within 30 days** of the date when each event specified in the contract, which requires the service receiver to make any payment of service provider, is completed. [Note: Continuous supply of service of service is already defined in Rule 2(c) of Point of Taxation Rules, 2011.]

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3. Contents : Such invoice / bill / challan shall be serially numbered and shall contain the following a. The name, address and the registration number of such person; b. The name and address of the person receiving taxable service; c. Description, classification and value of taxable service provided or to be provided; and d. the service tax payable thereon. **In case of banking and other financial services Time limit of 45 days : The time limit for issue of invoice shall be 45 days instead of 30 days as aforesaid. The invoice / bill / challan may not be serially numbered and may not contain the address of the person receiving taxable service, but, must contain other information as specified above. 4. Option not to issue invoice on receipt of advance of upto 1,000 [W.e.f. 1-4-2012]: Wherever a. The provider of taxable service receives an amount upto 1,000 in excess of the amount indicated in the invoice, and b. The provider of taxable service has opted to determine the point of taxation based on the option as given in Point of Taxation Rules, 2011 (i.e. POT under Rule 3(a) of the POT Rules), No invoice is required to be issued to such extent. Thus, in this case, the invoice is not required to be issued on receipt of advance, but, the invoice shall be required to be issued within 30 days (or 45 days) from the date of completion of service.

THE END THOSE WHO ARE INTERESTED IN ATTENDING A SPECIAL CLASS ON THESE AMENDEMENTS CAN REGISTER YOUR NAME BY CALLING 9248733313. CLASS WILL BE AT 4 PM ON SEPTEMBER 10TH. ONLY MASTER MINDS STUDENTS ARE ALLOWED. SHALL SHOW THEIR ID CARD FOR ENTRY.

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