Point of taxation - Controversies galore!

I agree with the conclusion of the authors to the effect that there is controversy in determination of rate of service tax as to whether it should be the rate prevailing at the time of provision of service as per Section 67A or it should be determined as per PoT Rules.

The intention behind introduction of Section 67A has been mentioned in the Explanatory Memorandum to Union Budget 2012-13, which is as under:

“III. Amendments in the Finance Act, 1994:
Chapter V of the Finance Act, 1994 is being amended:
(1) A new section 67A is being inserted to prescribe that the value of taxable service (particularly in the case of import and export of taxable services) and the rate of tax shall be determined in terms of Point of Taxation Rules, 2011.”

Thus, it appears that the intention of Govt. behind introduction of Section 67A was to prescribe the method for determination of value in the case of import and export of services; however the rate of service tax has to be determined as per the PoT Rules.

The reason behind deletion of Rule 5B has been mentioned in the D.O. Letter F.No. 334/1/2012-TRU dated 16.03.2012 of the Joint Secretary (TRU-II), which is as under:

“C. Other legislative changes:
C.1. General Changes
… … …
2. A new section: 67A is being inserted to prescribe the relevant date for the application of rate of exchange, valuation or rate of service tax. Rule 5B of ST Rules, which covers this aspect partially will be deleted.”

The authors have mentioned at several places to the effect that the PoT would be the EARLIER of following THREE: (i) Date of Invoice (ii) Receipt of consideration (iii) Completion of service. However, it may not be so. The THUMB RULE is that the PoT would be considered as the date when TWO OUT OF THE AFORESAID THREE events completed. This has been well illustrated in DDT 2598 dated 15.05.2015 and DDT 2601 dated 20.05.2015.

As regards the levy and collection of tax and taxable event, Supreme Court’s Judgement in the case of Vazir Sultan Tobacco Co. Ltd. - 2002-TIOL-215-SC-CX-LB may also be referred in addition to the Judgement in case of Wallace Flour Mills.

The views expressed are personal views.

S B Parikh 16/06/2015