Point of Taxation Rules

The Point of Taxation Rules, 2011 has come in force with effect from 1 April 2011. Service tax has become payable on accrual basis as against the cash basis. The Government has amended various provisions of the proposed rules to address concerns raised by the business community and professionals. Consequently, the Government has also amended provisions of the Service Tax Rules, 1994 and the CENVAT Credit Rules to align the same with the provisions of the Point of Taxation Rules.


Salient features of the Point of Taxation Rules, 2011 (POTR)


Point of Taxation for payment of service tax

Ø Point of taxation shall be the date of (i) issue of invoice for the service provided or to be provided, or (ii) receipt of payment whichever is earlier.

Ø Where the invoice is not issued within 14 days of the completion of the provision of the service, the point of taxation shall be date of such completion.

Ø Service shall be deemed to have been provided on the Point of taxation and service tax shall be payable on that basis

Ø Point of taxation for the following taxable services shall remain on cash basis:

· Export of taxable services provided that payment is received within the stipulated time

· The persons required to pay tax as recipients under reverse charge provided that payment is made within 6 months

· Following services provided by individuals or proprietary firms or partnership firms:

o Architect’s service

o Chartered accountant’s service

o Cost accountant’s service

o Interior decorator service

o Company secretary’s service

o Scientific or technical consultancy service

o Legal services



Point of Taxation in case of change of rate of service tax

Ø Taxable service has been provided before the change of rate

· Invoice is issued before change but payment received after change: old rate of tax and point of taxation is the date of invoice

· Payment is received before change but invoice is issued after change: old rate of tax and point of taxation is the date of payment

· Invoice is issued after change and payment also received after change: New rate of tax and point of taxation is the date of payment or invoice, whichever is earlier



Ø Taxable service has been provided after the change of rate· Invoice is issued before change but payment received after change: New rate of tax and point of taxation is the date of payment

· Payment is received before change but invoice is issued after change: New rate of tax and point of taxation is the date of payment

· Invoice is issued before change and payment also received before change: Old rate of tax and point of taxation is the date of payment or invoice, whichever is earlier



Point of Taxation in case of new services

Ø Invoice issued and payment received before levy: No tax

Ø Payment received before levy and invoice issued within 14 days: No tax

Ø Invoice issued before levy but payment received after levy: Taxable?? [Second proviso to Rule 6(1) omitted]

Ø Payment received before levy but invoice issued after 14 days: taxable??



Point of Taxation in case of continuous supply of service

Ø Continuous supply of service means any service which is provided, or to be provided continuously, under a contract, for a period exceeding three months, or where the Central Government notifies a particular service to be a continuous supply of service

Ø Point of taxation shall be the date of (i) issue of invoice for the service provided or to be provided, or (ii) receipt of payment, whichever is earlier

Ø Where the invoice is not issued within 14 days of the completion of the provision of the service, the point of taxation shall be date of such completion

Ø Where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service



Point of taxation in case of associated enterprises

Ø Where the person providing the service is located outside India: Date of credit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

Ø Where the both person are located inside India:



Determination of point of taxation in case of Intellectual Property:

Ø Royalties and payments pertaining to copyrights, trademarks, designs or patents: where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.



Transitional Provisions:


Ø Nothing contained in [(this sub-rule)-should be (these rules)] shall be applicable:

· where the provision of service is completed; or

· where invoices are issued

prior to the 1 April 2011.



Ø Taxpayer has an option to determine point of taxation either on accrual basis or cash basis:

· Provision of service is completed on or before 30 June 2011; or

· Invoices are issued up to 30 June 2011.



Amendment in the Service Tax Rules, 1994

Invoice for continuous supply of services:


Ø Every person is required to issue an invoice, bill or challan within 14 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed.



Payment of service tax:


Ø Point of taxation as determined under POTR is deemed as date of provision of service.

Ø Service tax is payable on 5/6 of the next month/quarter, as the case may be.



Adjustment of value of taxable service:


Ø Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract for any reason, the assessee may take the credit of such excess service tax paid by him, if the assessee:

· has refunded the payment or part thereof, so received along with the service tax payable thereon for the service to be provided by him to the person from whom it was received; or

· has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.

Ø There is no monetary limit on such credit.



Amendment in the CENVAT Credit Rules, 2004


Ø CENVAT credit on input service is allowed on the accrual basis provided payment of the value of input service and the service tax paid or payable thereon is made within 3 months of the date of invoice.

Ø If payment is not made within stipulated 3 months, such CENVAT credit shall be reversed and could be availed as and when payment is made.

Ø CENVAT credit of service tax paid under reverse charge is on payment basis.

Ø In case of adjustment of taxable value of service or refund, proportionate CENVAT credit shall be reversed.

Ø CENVAT credit of service tax against invoice issued before 1 April 2011 shall be on payment basis.

Ø A supplementary invoice issued by a provider of output service is an eligible document to avail CENVAT Credit.