Issues addressed:
(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.
Issues raised due to:
1. Changes introduced at
the time of Budget 2012 in the Point of Taxation Rules, 2011.
2. Revision of the
service tax rate from 10% to 12%
3 .Subsequent changes
that have been made effective from 01.07.2012
Clarifications:
A: On invoices / payments received in respect of
such services on or before 31.03.2012.
1.
The continuous supply of services
was governed by rule 6 until 31.03.2012. Since it starts with a
notwithstanding clause with regard to rule 3 and 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.
And therefore 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.
B
: Current Position
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.
2. Now 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.
3. However this
rule is, overridden by rule 4 when there is a change in effective
rate of tax.
4. 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.
Illustrations for changes in effective tax
rate:
(i)
The change in the portion of total value liable to tax in respect
of works contract other than original works (Earlier
@ 4.8%,Current 7.2% (ie,12% on 60% of the total amount charged).
(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.
Illustrations for
changes which do not constitute change
in effective tax rate:
(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.)
Conclusion:
1. 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.
2. 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.
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