Point of Taxation Rules 2011

The much talked about Point Of Taxation Rules, 2011 (herein after referred to as ‘POTR’) regarding payment of service tax were brought to affect vide Notification No. 18/2011-Service Tax and subsequently amended vide Notification No. 25/2011 giving transitional provisions wherein there is an option to pay service tax on cash basis for invoices issued before June 30, 2011

As against earlier provisions where in service tax was payable on receipt basis for Non-Associated Enterprises, now it shall be payable on completion of service or issue of invoice basis. With a view to rationalize point of levy for service tax, the following proposals have been made:
1) Point of Taxation (POT) shall be deemed to be –
• Date of issue of invoice;
• Date of completion of service, where invoice not issued within 14 days of completion of provision of service;
• Date of receipt of payment when received before issuance of an invoice.
In case of advance, point of taxation shall be date of receipt of each of such advance

2) Apart from the above general rule, certain services have been defined wherein the aforementioned rule will not apply. The table below helps depict the point of taxation under different situations.

3) Changes have also made with regard to determination of point of taxation in case of change in effective rate of tax (which includes a change due to an exemption notification) and introduction of new services.

4) Specific Rule has been inserted to define Point of Taxation for continuous supply of service as services provided, or to be provided continuously, under a contract, for a period exceeding three months. The following services have been notified to be continuous supply of services, irrespective of the fact whether they were provided continuously or not:
• Telecommunication Services
• Internet Telecommunication Services
• Commercial or Industrial construction services
• Residential complex construction services
• Works contract services
The rule for Point of Taxation for continuous supply of services is the same as the general rule only, i.e., invoice or payment whichever is earlier if invoiced within 14 days. In this case the ‘completion of services’ has been given a deeming fiction as the date/milestone specified in the contract.

5) In addition to this, necessary changes have been made in the Service Tax Rules, 2002 and Cenvat Credit Rules, 2004, amongst which the crucial ones are:
• Credit for input services other than on import of services can be availed on the basis of invoice provided the payment is made within three months
• Service tax paid under reverse charge mechanism – output service provider entitled to take Cenvat credit on date of payment of service tax
• Supplementary invoices issued by input service provider also made an eligible document for taking Cenvat credit subject to certain stipulations

The POTR and other parallel changes in the existing legislation appear to be steps towards the proposed GST regime.

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