POT (Point Of Taxation) Rules Effective from Today
DDT is no kettle to call the POT black, but the dreaded POT (Point Of Taxation) Rules are here effective today, albeit a revised and confused one. Massive amendments have been made to the POT Rules. Let us start at the end.
Rule 9 has been substituted and will now read as:
“9. Transitional Provisions.- Nothing contained in this sub-rule shall be applicable,-
(i) where the provision of service is completed; or
(ii) where invoices are issued
prior to the date on which these rules come into force.
Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued upto the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be.”.
The intention is to give an option to the assessee to come into POT from today or 1 st July 2011. But the rule says, “ Nothing contained in this sub-rule shall be applicable…”. The only problem is that there is no ‘sub-rule'. What they should have written is, “Nothing contained in these rules…”
This is what happens when you rush in with legislation! When there is an option to the assessee to join the scheme after three months, what is the point in rushing through with the Point. Couldn't they issue draft rules and wait for a month for comments? And when there is an option to join after three months, who will get into this boiling POT now? Unfortunately the option is also not clear!
Rule 3 Of the POT Rules have been substituted with a new Rule whereby Point Of Taxation shall be:
1. the time when invoice is issued and if no invoice is issued within 14 days, it will be the date of completion.
2. If payment is received before that, the time of receipt of payment.
3. If advance is received, the date of receipt of advance.
Fair enough! But…
Suppose I completed the service on 25th April. If I issued the invoice on 9th May, I am liable to pay service tax in May which can be paid by 5th June. Now, If I fail to issue invoice within 14 days, my liability will be on 25th April and I have to pay service tax on 5th May. But, on 5th May, I did not even know about my failure to issue invoice. So if you are not issuing invoices within 14 days, you have to pay interest. Thank god there are no default provisions ( Rule 8 of CER) in ST as of now.
And as a lawyer when do I complete the service? Is it when I appear before the Tribunal or when I collect the order and give to the client or when I advise him to appeal or when I win in the Supreme Court or when the Government gets the Supreme Court order over-ruled by retrospective legislation or when the issue starts all over again? (It must be fairly conceded that this question has been answered in Rule 7)
Rule 4 has been amended to clarify that change in the effective rate of tax shall also include change in that portion of value on which tax is payable in terms of an exemption notification or rules made in this regard.
Rule 6 has been substituted with a new rule with an explanation that 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.
Rule 7 has been substituted with a new rule whereby the point of taxation shall be the date of making or receiving the payment for:
(i) Export of services;
(ii) Persons, where the obligation to pay tax is on the service recipient in terms of rule 2(1)(d) of the Service Tax Rules, 1994 in respect of services notified under section 68(2) of the Finance Act, 1994.
(iii) Individuals, proprietorships and partnership firms providing specified services (Chartered Accountant, Cost Accountant, Company Secretary, Architect, Interior Decorator, Legal, Scientific and Technical consultancy services). The benefit shall not be available in case of any other service also supplied by the person concerned along with the specified services.
The Point about Point is that there is no Point in Point (of taxation).
Notification No. , Dated : March 31, 2011