Point of Taxation Rules - Clarification
[Service Tax Circular No.
162 dated 6th July 2012]
Subject: Clarification on Point of Taxation
Rules.
Consequent to the changes introduced at the time of Budget 2012 in the
Point of Taxation Rules, 2011, together with revision of the service tax rate
from 10% to 12% and the subsequent changes that have been made effective from
01.07.2012, the following clarifications have been desired:
(a) Point of taxation and the
rate applicable in respect of continuous supply of services at the time of
change in rates effective from 01.04.2012;
(b) Applicability of the
revised rule 2A of the Service Tax
(Determination of Value) Rules, 2006 to ongoing works contracts for
determination of value when the value was being determined under the erstwhile
Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007; and
(c) Applicability of partial
reverse charge provisions in respect of specified services.
2.1 The issues have been examined. The continuous supply of services was
governed by rule 6 until 31.03.2012. The
rule started with the wordings “notwithstanding anything contained in rules 3,
4 …” Therefore, the point of taxation in respect of services provided in terms
of the said rule on or before 31.03.2012 would remain unaffected by rule 4.
2.2 To clarify the matter further,
if the invoice had been issued or payment received in respect of such services
on or before 31.03.2012, the point of taxation would stand determined under
rule 6 accordingly and shall not alter due to the subsequent changes in the
Point of Taxation Rules, 2011 that became effective only from 1.4.2012.
3.1 However the position has
undergone a change at the time of transition towards the Negative List and the
introduction of other accompanying changes in Service Tax (Determination of
Value) Rules, 2006 and partial reverse charge.
At the said time rule 6 stood omitted and the point of taxation was
required to be determined ordinarily in such cases under the main rule i.e.
rule 3. This rule is, however,
overridden by rule 4 when there is a change in effective rate of tax. The “change
in effective rate of tax” has been defined in clause (ba)
of rule 2 to include a change in the portion of value on which tax is payable.
3.2 To illustrate, the following
would be changes in effective rate of tax:-
(i) the change in the portion of
total value liable to tax in respect of works contract other than original
works (from @ 4.8% earlier to @ 12% on 60% of the total amount charged, or
effectively @ 7.2% now).
(ii) exemption
granted to certain works contracts w.e.f. 1st
July 2012 which were earlier taxable.
(iii) taxability
of certain works contracts which were hitherto exempted.
(iv) change
in the manner of payment of tax from composition scheme under the Works
Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 to payment
on actual value under clause (i) of rule 2A of the Service Tax (Determination
of Value) Rules, 2006.
3.3 However, the following will not
be a change in effective rate of tax:-
(i) works contracts earlier
paying service tax @ 4.8% under Works Contract (Composition Scheme for Payment
of Service Tax) Rules, 2007 and now required to pay service tax @12% on 40% of
the total amount charged, keeping the effective rate again at 4.8% (as only the
manner of expression has been altered).
(ii) works contracts which were
outside the scope of taxation (and not merely exempted) but have become now
taxable e.g. construction of residential complex comprising of 2 to 12 residential units, construction of buildings meant for use by
NGOs etc. (Rule 5 of the Point of Taxation Rules, 2011 shall apply to such
services.)
3.4 Thus the point of taxation for
services provided in respect of taxable works contracts in progress on
01.07.2012 would need to be determined under rule 4 of the Point of Taxation
Rules unless there is no change in effective rate of tax.
4. It is further clarified that
the provisions of partial reverse charge would also be applicable in respect of
such services where point of taxation is on or after 01.07.2012 under the
applicable rule in respect of the service provider.
5. This Circular may be
communicated to the field formations and service tax assessees,
through Public Notice/ Trade Notice. Hindi version to follow.
F. No. 354/111/2012-TRU