Cases where you can apply Old service tax rate of 12.36% after 01.06.2016 (point of taxation)

As all of you may know that Effective date of Change in Rate of service tax is 01.06.2015.From 01.06.15 general rate of service tax rate has been increased to 14 % applicable . However due to some concessions /Abatements ,valuation rules and composition schemes the effective rate are less than 14% (complete table can be checked from here )

Now question is here that what rate should be the correct service tax rate

• ☻If service has been provided before /on or after 01.06.2015  
• 
  
• ☻Bill/Invoice has been raised on or after /before 01.06.2015
• 
  
• ☻Date of Payment is  on or after/before  01.06.2015

We have covered all these situation and determined the correct rate under each situation.Read post by CA Bimal Jain 

Point of Taxation for Service Provider 

Point of taxation involving change in effective rate of tax is governed by Rule 4 of the POT Rules, which provides for determination of Point of taxation when there is change in effective rate of tax as mentioned in the table below:

S. No.	In case a taxable service has been provided	Invoice has been issued	Payment received for the invoice	Point of taxation shall be	Applicable Rate
1.	BEFORE the change in effective rate of tax	On or AFTER the change in effective rate of tax	On or AFTER the change in effective rate of tax	Date of issuance of invoice or Date of receipt of payment, whichever is earlier	14%
2.		BEFORE  the change in effective rate of tax	On or AFTER the change in effective rate of tax	Date of issuance of invoice	12.36
3.		On or AFTER the change in effective rate of tax	BEFORE  the change in effective rate of tax	Date of receipt of payment	12.36
4.	On or AFTER the change in effective rate of tax	BEFORE the change in effective rate of tax	On or AFTER the change in effective rate of tax	Date of receipt of payment	14
5.		BEFORE the change in effective rate of tax	BEFORE the change in effective rate of tax	Date of issuance of invoice or Date of receipt of payment, whichever is earlier	12.36
6.		On or AFTER the change in effective rate of tax	BEFORE the change in effective rate of tax	Date of issuance of invoice	14

Accordingly, the above scenario of advance payments may have exemplary situation and countered as under:

a) Services are completed after June 1, 2015 but the invoice is raised before change in rate: In terms of Rule 3 read with Rule 4(b)(ii) of the POT Rules, no differential payment may be required (Refer S. No. 5 of the table);

b) Services are completed after June 1, 2015 and the invoice is also raised after change in rate: In terms of Rule 3 read with Rule 4(b)(iii) of the POT Rules, differential payment (i.e. 14% - 12.36%) will have to be paid at the time of such invoice (Refer S. No. 6 of the table).

Note :Meaning of Date of  Payment is important and has been explained as per rule 2A of the Point of Taxation rules ,2011.

Point of Taxation for Service receiver under Partial Reverse charge or Full reverse charge. 

In case of reverse charge, rate would be decided according to Rule 7 of Point of taxation Rules 2011.

If payment is made on or after 1-06-2015	14%
If payment is made before 01-06-2015	12.36%
If payment not made within 3 months from date of Invoice and 3 months ends before 31.05.2015	12.36%
If payment not made within 3 months from date of Invoice and 3 months ends on or after 01.06.2015	14%

Key Concerns:

Whether Rule 4 of the POT Rules can override Section 67A of the Finance Act: 

Question is whether Rule 4 of the POT Rules can override the Section 67A of the Finance Act, 1994 (“the Finance Act”), inserted therein w.e.f. May 28, 2012, this reads as under:

“67A. Date of determination of rate of tax, value of taxable service and rate of exchange. - 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.”

Bare perusal of Section 67A of the Finance Act makes it clear that the rate of Service tax to be applied is the rate in force at the time when the taxable service has been provided or agreed to be provided. 

Hence, considering Rule 4(a)(i) of the POT Rules (Refer S. No. 1 of the Table), question arise why new rate would be applicable when services are rendered before change in effective rate of tax but invoice is raised and payment is made after change of rate when as per Section 67A of the Finance Act, applicable rate of Service tax is the rate in force at the time when the taxable service has been provided or agreed to be provided.

Here, we would also like to draw your attention towards the decision of the Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST]wherein it was held that “a tax on a thing or goods can only be with reference to a taxable event” and the same contention was upheld again in the case of Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], wherein the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service;

In view of the above discussed provisions, the matter is subjected to debate as to what would be the applicable rate of Service tax in respect of ongoing transactions and whether the same should be determined by applying Rule 4 of the POT Rules or as per Section 67A of the Finance Act.

Here it would not be out of place to mention that the POT Rules were framed by the Central Government in exercise of the powers conferred under Section 94 of the Finance Act and such delegated legislation cannot be extended to go beyond the vires of the Finance Act.

Hence, an illustrative clarification to this effect is much warranted from the Board before the new rate of Service becoming effective from June 1, 2015.