Service Tax - Rate of Exchange for value - Board should clarify

By Vijay Kumar

WITH effect from 01.10.2014 vide Notification 19/2014 ST dt 25.08.2014, the rate of exchange for determination of value of taxable service shall be the applicable rate of exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011.

What are the generally accepted accounting principles?

For example, in respect of payment to non-resident for import of service, point of taxation is date of payment (if payment is made within 3 months form the invoice) the payment consists of two parts:

(i) payment of income tax deducted at source and

(ii) payment to the party for the balance amount (Invoice value less Income tax amount)

First Income tax is paid at IT Buying Rate available as on date of payment as per Income Tax Rules and then payment is made to party as per the exchange rate charged by bank.

In a recent RAC meeting of Chennai Central Excise zone, an assessee wanted to know whether it is a satisfactory compliance if Service Tax is paid on sum total of Income Tax paid and balance amount paid to the party as per the exchange rate charged by Bank.

One of the Commissioners present in the meeting said that as per the Point of Taxation Rules, 2011, the date of payment should be taken as the relevant date. The exchange rate on the relevant date has to be reckoned for payment of tax.

Commissioner, Service Tax observed that since the issue is a policy decision, needs Board's clarification. And the Chief Commissioner agreed and informed the assessee that the matter would be taken up with the Board for clarifications.

When will the Board clarify? And until then what is to be done?