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    POT for Specified Services


    As we know ‘Service’ is intangible, it is this nature which makes difficult to identify the point of time at which service was provided or completed. Therefore,Point of Taxation Rules 2011 (for brevity ‘POTRules’) was introduced in Service Tax Law to ensure tax collection on accrual basis and is in harmony with other Indirect tax laws.‘Point of taxation’ means the point in time a service is deemed to have been provided/received and such framework is based on the principleof ‘Specific rule over General rule’. 


    There are certain services where Reverse charge mechanism is applicable in terms of section 68(2).Accordingly, instead of service provider, the receiver of the service is required to pay tax to the Government. The following are the list of services which are notified for reverse charge mechanism. 

    • Provision of service by insurance agent to Insurance company
    • Provision of service by recovery agent to a banking company/ financial institutions/ NBFC
    • Sponsorship service
    • Service of arbitral tribunal
    • Legal consultancy service
    • Provision of service of Director
    • Service provided by Government/Local authority
    • Renting of motor vehicles
    • Manpower supply service /Security service
    • Works contract
    • Aggregator service
    • Import of service 

    These are called the specified services for the purpose of POT Rules. Accordingly, the specific rule i.e. Rule 7 is applicable to determine the point in time when service is deemed to be received. Accordingly, in terms of Rule 6 of Service Tax Rules, the said service receiver is required to pay the applicable service tax amount by 6thof month immediately following the month in which service is deemed to be received. 


    This rule determines the point of time when the service recipient is liable to pay service tax. Generally, the point of taxation shall be the date on which payment is made by the service recipient. However, if the payment is not made within three months from the date of invoice, then the date immediately following the said period of three months is the Point of Taxation for such service received. 

    For better understanding, let us pick cases under this rule: 

    CASE 1: M/s New Indian Security Services, a firm, provided security service to M/s APC Co. Ltd. in the month of August’2016 charging Rs. 20,000. Invoice was raised on 01.09.2016. However, APC Co. Ltd. made the payment on 02.11.2016. 

    Taxable point: The service was provided in August and the date of invoice is 01.09.2016. As the three months from such date expires on 30.11.2016 and the payment is made on 02.11.2016 which is within the stipulated period of three months. Therefore, the point of taxation shall be date of payment and so M/s APC Co. Ltd. shall pay service tax by 06.12.2016 as per Rule 6 of Service Tax Rules,1994. 

    CASE 2: In this case, payment was made by M/s APC Co. Ltd. on 15.12.2016. Since the period of three months already expired on 30.11.2016 i.e. November month. Point of taxing service tax shall be 01.12.2016 and so the company should pay service tax by 06.01.2017. Failing to pay the tax by 06.01.2017 would attract interest u/s 75 of the Finance Act 1994. 


    This amendment rule came into effect on 30.03.2016 vide Notification no. 21/2016 – ST which has added a new proviso to Rule 7 of point of taxation which states that: 

    “ Provided also that where there is change in the liability or extent of liability of a person required to pay tax as recipient of service notified under sub-section (2) of section 68 of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice.". 

    As we know that Krishikalyan cess of 0.5% has been levied w.e.f 01.06.2016, the total tax rate charged on service changed from 14.5% to 15%. The service recipient’s liability has increased, in such case if the service was received in ,say, April and the invoice was raised on 20.05.2016 and the payment is made on 20.10.2016 . Though, the payment is made post levy of krishikalyan cess and completion of the service neither Rule 3 (General rule) nor Rule 5 (POT for new levy) would be applicable since the Point of Taxation Rules follows specific rule over general rule. Rule 7 is applied as this rule speaks about point of taxation in the hand of service recipient and so the said rule shall be followed in this case . Hence even if the payment is made on 20.10.2016 when 15% rate was applicable, point of taxation shall be date of invoice i.e. 20.05.2016 and so receiver is liable to pay service tax of 14.5% by 06.06.2016. Default in the same would attract interest from 07.06.2016 till the date of payment. 


    This amendment rule came into effect on 13.04.2016 vide Notification no. 24/2016 –ST which modifies the point of taxation for service received from Government. 

    As we are aware that service received by business entity from Government or local authority is covered under reverse charge mechanism, the point of taxation post this notification is date on which payment is due or date when payment is made, whichever is earlier. Hence, for such service, date of payment is not the sole criteria to decide point of taxation. We should also consider the date on which any communication is received from Government intimating the dues. 


    In case of services received from an associated enterprise located outside India, then as per the proviso to the rule, point of taxation shall be earlier of date of payment or date of debit in books of accounts by the receiver. 


    This rule guides the service recipient to determine the time of payment, rate applicable and the adjustment of credit on non-payment of service tax within 3 months. In case there is no appropriate information available about the invoice/payment made then the Central Excise Officer may resort to best judgment assessment based on the information gathered from accounts and other documents maintained in the regard. 

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