33120ipcc Idtc Rev Nov14 Pm3

8/10/2019 33120ipcc Idtc Rev Nov14 Pm3

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3 Point of Taxation

For the sake of brevity, Point of Taxation Rules, 2011 have been referred to as POTR.

Question 1

Determine the point of taxation in the following cases with reference to POTR:-(i) Mugdha Private Limited is engaged in providing taxable services. It receives advances

of `1,00,000 from clients on 23rd February, 2014 for the service to be rendered in the

month of March, 2014.

(ii) Rohan & Co. provided management consultancy services to M/s Bhatia & Sons on 5th

January, 2014 and billed it for ` 1,20,000 on 10th February, 2014. It received the

payment for the same on 14th February, 2014.

An sw er

(i) As per rule 3 of the POTR, advances received are taxable at the time when such

advances are received. Thus, point of taxation is 23rd

February, 2014.(ii) Rule 3 of the POTR provides that in case invoice has not been issued within 30 days of

completion of service, point of taxation is date of completion of service or date of receipt

of payment, whichever is earlier. Thus, point of taxation is 5thJanuary, 2014.

Question 2

Determine the point of taxation in the following cases with reference to POTR:-

(i) Rahu & Co. received advance of ` 1,12,360 from a client on 30.04.2013, for providing

advertising services in the month of May, 2013. However, due to some unavoidable

reasons, said services could not be provided and the advance money (including service

tax) was returned to the client on 12.05.2013.(ii) Suraksha Security Services Ltd. provided security services to M/s KP & Sons for the

month of January, 2014 and billed it for ` 1,20,000 on 10th February, 2014. It received

the payment for the same on 4th February, 2014.

The Institute of Chartered Accountants of India


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Point of Taxation 3.2

An sw er

(i) As per rule 3 of the POTR, advances received are taxable at the time of receipt when

such advances are received. Thus, the point of taxation of the advance received by

Rahu & Co. from the client is 30.04.2013. It is immaterial that services have not been

provided subsequently and the money was returned on 12.05.2013.

Further, the amount of service tax included in the amount refunded (` 12,360) in the next

month i.e. May, 2013 would be adjusted against service tax liability of subsequent

periods.

(ii) Rule 3 of the POTR provides that in case invoice has been issued within 30 days of

completion of service, point of taxation is date of invoice or date of receipt of paymentwhichever is earlier. In this case, provision of services has been completed on 31st

January, 2014 and invoice has been issued on 10.02.2014 (within 30 days of completion

of service). Thus, point of taxation, in the given case, is date of invoice (10.02.2014) or

date of receipt of payment (04.02.2014) whichever is earlier, i.e., 4thFebruary, 2014.

Question 3

Henna Builders Ltd. entered into an agreement on 28 thMarch, 2013 for providing construction

services to Mirage Hotel for an agreed consideration of `8,00,000. The construction started

on 20th April, 2013. As per the terms of the contract, Mirage Hotel made the payment of

`3,00,000 in advance on 28th March, 2013 and paid the balance amount in two equal

installments each on 26thMay, 2013 and 31stJuly, 2013 on completion of 50% and 100% ofthe construction project on 15th May, 2013 and 28th July, 2013 respectively. The invoices

raised by Henna Builders Ltd. were as follows:-

Date of invoice Amount (

)

28thMarch, 2013 3,00,000

20thMay, 2013 2,50,000

31stAugust, 2013 2,50,000

Determine the point of taxation in each of the above cases.

An sw er

Since, in the given case, the construction service has been provided on a continuous basis

under a contract, for a period exceeding three months with the obligation for payment from

time to time, it is a continuous supply of service. Further, in case of continuous supply of

service 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 receiver of service to



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3.3 Indirect Taxes

make any payment to service provider, the date of completion of each such event as specifiedin the contract shall be deemed to be the date of completion of provision of service.

The point of taxation for a continuous supply of service shall be determined as per rule 3 of

the POTR in the following manner:-

Date of

completion of

the event

Date of invo ice Date of

payment

Point of taxation as per rule

3 of the POTR

28thMarch, 2013 28thMarch, 2013 28th March,

2013

28thMarch, 2013 as advance

received is taxable at the time

when such advance isreceived.

15thMay, 2013 20thMay, 2013 26thMay, 2013 20thMay, 2013. Since invoice

has been issued within 30

days of completion of service,

point of taxation will be date of

invoice or payment, whichever

is earlier.

28thJuly, 2013 31stAugust, 2013 31stJuly, 2013 28thJuly, 2013. Since invoice

has not been issued within 30

days of completion of service,

point of taxation will be date of

completion of service or

payment, whichever is earlier.

Question 4

Determine the point of taxation in each of following independent cases in accordance with the

POTR:

S.

No.

Date of completion

of service

Date of

invoice

Date on which payment is received

1. 16.07.2013 11.08.2013 26.08.2013

2. 16.07.2013 11.08.2013 01.08.2013

3. 16.07.2013 11.08.2013 01.08.2013 (Part) and 26.08.2013

(remaining)

4. 16.07.2013 11.08.2013 12.07.2013(Part) and 15.07.2013 (remaining)



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An sw er

As per rule 3 of the POTR, in case the invoice is issued within the prescribed period of 30

days from the date of completion of provision of service, point of taxation is:-

(i) date of invoice

or

(ii) date of payment

whichever is earlier.

However, in case the invoice is not issued within 30 days of the completion of the provision of

the service, point of taxation is:-

(i) date of completion of service

or

(ii) date of payment


Further, advances received are taxable at the time when such advances are received.

Accordingly, the point of taxation in each of the given cases is as follows:

S.No.

Date ofcompletion

of s ervice

Date ofinvoice

Date on whichpayment is

received

Point of taxation

1. 16.07.2013 11.08.2013 26.08.2013 11.08.2013

2. 16.07.2013 11.08.2013 01.08.2013 01.08.2013

3. 16.07.2013 11.08.2013 Part payment on

01.08.2013 and

remaining on

26.08.2013

01.08.2013 for the part payment

and 11.08.2013 for the remaining

amount

4. 16.07.2013 11.08.2013 Part payment on

12.07.2013 and

remaining on

15.07.2013

12.07.2013 for the part payment

and 15.07.2013 for the remaining

amount



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3.5 Indirect Taxes

Question 5

The effective rate of service tax was 10.30% up to 31.03.2012. However, with effect from

01.04.2012, the effective rate of service tax has been increased to 12.36%. With reference to

POTR. Determine the point of taxation as well as the applicable rate of service tax in each of

the following independent cases:

Case Date of provision of

service

Date of issue of

invoice

Date of receipt of

payment

I 28.03.2012 02.04.2012 08.04.2012

II 28.03.2012 29.03.2012 08.04.2012

III 28.03.2012 04.04.2012 30.03.2012

IV 03.04.2012 31.03.2012 06.04.2012

V 03.04.2012 29.03.2012 30.03.2012

VI 03.04.2012 07.04.2012 31.03.2012

An sw er

Rule 4 of the POTR determines the point of taxation in case of change in effective rate of tax.

Point of taxation means the point in time when a service shall be deemed to have been

provided. Further, the rate of service tax is the rate of service tax as applicable at the timewhen the taxable service has been provided.

The point of taxation as well as applicable rate of tax in the present case as per rule 4, will be

determined as under:

Case Date of

provision

of service

Date of

issue of

invoice

Date of

receipt of

payment

Point of taxation Ap pl icable rate

of tax

I 28.03.2012 02.04.2012 08.04.2012 02.04.2012, being

earlier of date of

issuance of invoice

[i.e. 02.04.2012] or

receipt of payment

[08.04.2012.]

12.36%

II 28.03.2012 29.03.2012 08.04.2012 29.03.2012, being

date of issuance of

10.30%



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Case Date of

provision

of service

Date of

issue of

invoice

Date of

receipt of

payment

Point of taxation Ap pl icable rate

of tax

invoice

III 28.03.2012 04.04.2012 30.03.2012 30.03.2012, being

date of receipt of

payment

10.30%

IV 03.04.2012 31.03.2012 06.04.2012 06.04.2012, being

date of receipt of

payment

12.36%

V 03.04.2012 29.03.2012 30.03.2012 29.03.2012, being

earlier of date of

issuance of invoice

[29.03.2012] or

receipt of payment

30.03.2012]

10.30%

VI 03.04.2012 07.04.2012 31.03.2012 07.04.2012, beingdate of insurance

of invoice

12.36%

Question 6

Konark Services Ltd. started providing services with effect from 01.04.2013. It rendered

services to XYZ Ltd. on 15.09.2013 for which payment was received on 20.09.2013. With

effect from 01.10.2013, the said services became taxable. On 13.10.2013, Konark Services

Ltd. raised the invoice on XYZ Ltd. You are required to examine whether service tax is

payable on the said services.

Will your answer be different if Konark Services Ltd. raised the invoice on XYZ Ltd. on16.10.2013?

An sw er

As per rule 5 of the POTR, where a service is taxed for the first time, no tax shall be payable if

the payment has been received before the service becomes taxable and invoice has been

issued:-



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3.7 Indirect Taxes

(a) within 14 days of the date when the service is taxed for the first time

or

(b) before such service became taxable.

In the given case, since the payment has been received before service became taxable and

Konark Services Ltd. has issued the invoice on 13.10.2013 i.e. within 14 days of the service

becoming taxable, no service tax is payable on the said transaction.

However, if the invoice is raised on 16.10.2013, i.e. after 14 days of the service becoming

taxable, service tax will be payable on the said transaction.

Question 7A particular service has been brought into service tax net with effect from 1.7.2013. Mr.

Vignesh has provided this service on 20.6.2013 and issued the invoice on 2.07.2013, the

payment for the same was received on 10.7.2013. Is service tax payable on the same?

An sw er

As per rule 5 of the PORT, where a service is taxed for the first time, then,

(a) no tax shall be payable to the extent the invoice has been issued and the payment

received against such invoice before such service became taxable;

(b) no tax shall be payable if the payment has been received before the service becomes

taxable and invoice has been issued within 14 days of the date when the service is taxed

for the first time.

The facts given in the question do not fall under any of the above two clauses. Hence, service

tax is payable on the same.

Question 8

Mihir of Assam received some taxable services from Freddie Enterprises of U.K on 20.09.2013

for which an invoice was raised on 19.10.2013. Determine the point of taxation in accordance

with POTR if Mihir makes the payment for the said services on:-

Case I: 17.01.2014

Case II: 25.05.2014

An sw er

In respect of any taxable services provided or agreed to be provided by any person who is

located in a non-taxable territory and received by any person located in the taxable territory,

person liable to pay service tax is the recipient of such service, i.e. service tax has to be paid



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under reverse charge mechanism. Hence, in the given case, service tax is to be paid by Mihirof Assam.

Further, rule 7 of the POTR provides that the point of taxation in respect of the persons

required to pay tax under reverse charge mechanism, shall be the date on which payment is

made provided that the payment for the same is made within a period of 6 months of the date

of invoice, otherwise the point of taxation shall be determined as if this rule does not exist.

In the light of the aforesaid provisions, point of taxation will be as follows:-

Case-I: Since the payment has been made within 6 months from the date of invoice, point of

taxation shall be the date of payment i.e. 17.01.2014.

Case-II: Since the payment has been made after 6 months from the date of invoice, point of

taxation will be determined as if rule 7 does not exist, i.e. one has to proceed sequentially

starting from rule 3. Since, the invoice has been issued within 30 days of completion of

service, point of taxation will be date of invoice or date of payment, whichever is earlier i.e.

19.10.2013 [Rule 3].

Question 9

Sambhav Industries Ltd. (SIL) is an Indian Company. It has received taxable services from a

UK based company-George Ltd. on 01.01.2014. George Ltd. raised on SIL an invoice of

45,000 on 27.01.2014. SIL debited its books of accounts on 07.02.2014 and made the

payment on 25.03.2014.George Ltd. and SIL are associated enterprises. Determine the point of taxation using

aforesaid details.

An sw er

In case of associated enterprises, where the person providing the service is located outside

India, the point of taxation shall be:-

(a) the date of debit in the books of account of the person receiving the service

or

(b) date of making the payment


Hence, in the given case, the point of taxation shall be earlier of the following two dates:-

(a) the date of debit in the books of account of SIL i.e. 07.02.2014

or

(b) date of making the payment i.e. 25.03.2014

Thus, the point of taxation is 07.02.2014.



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3.9 Indirect Taxes

Question 10

Pranav Desai is a well known author of a book on management. Hindustan Publishing House

enters into an agreement with him and obtains the copyright of the said book on 20.04.2011 at

a consideration fixed @ `15/- per book sold by Hindustan Publishing House. The no. of books

sold by Hindustan Publishing House during different financial years as well as other relevant

details is given in the following table:

Relevant

Year

No. of books

sold

Date of issuance of

invoice by Pranav Desai

Date of receipt of payment

from Hindustan Publishing

House

2011-12 5,00,000 29.07.2012 16.08.2012

2012-13 8,00,000 03.06.2013 23.05.2013

2013-14 2,00,000 16.06.2014 16.06.2014

Determine the point of taxation in each of the above financial years.

An sw er

Since in the given case, whole amount of the consideration for the provision of service is not

ascertainable at the time when service was performed and subsequently, the use of these

services by a person other than the provider gives right to any payment of consideration, both

the conditions specified in rule 8 get satisfied. The point of taxation for various financial years,determined as per rule 8, is as under:

Financial

Year

Point of

taxation

Reason

2011-12 29.07.2012 Date of issuance of invoice [29.07.2012] falls before date

of payment [16.08.2012]

2012-13 23.05.2013 Date of payment [23.05.2013] precedes date of issuance

of invoice [03.06.2013]

2013-14 16.06.2014 Date of issuance of invoice [16.06.2014] as well as date

of receipt of payment [16.06.2014] is same.

Exercise

1. Where a service provider maintains books of accounts on cash basis relating to taxable services

provided by him, will service tax be payable on accrual basis?

2. Determine the point of taxation in each of the following independent cases:-



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Date of completion of service Date of invoice Date of payment

10.03.2014 15.04.2014 12.04.2014

12.02.2014 15.04.2014 10.02.2014

31.03.2014 04.04.2014 15.04.2014

15.04.2014 30.04.2014 20.04.2014

20.02.2014 21.03.2014 25.03.2014

27.02.2014 15.04.2014 20.03.2014

3. Briefly explain how will the point of taxation be determined in case a service is taxed for the first

time and payment for the same is received and invoice has also been issued, prior to such

service becoming taxable.

4. Define the term continuous supply of service.

5. What will be the point of taxation where services have been received from associated

enterprises located outside India?

6. Determine the point of taxation in the following cases:-

(a) The invoice for a service rendered before the change in effective rate of tax has been

issued after the change in effective rate of tax and the payment is also received after the

change in effective rate of tax.

(b) The invoice for a service rendered before the change in effective rate of tax has been

issued prior to change in effective rate of tax, but the payment is received after the change

in effective rate of tax.

(c) The invoice for a service rendered after the change in effective rate of tax has been issued

prior to the change in effective rate of tax, but the payment is received after the change in

effective rate of tax.

(d) The invoice for a service rendered after the change in effective rate of tax has also been

raised after the change in effective rate of tax, but the payment has been received before

the change in effective rate of tax.

7. How is the point of taxation determined in case where a person is liable to pay service tax under

reverse charge mechanism and payment for the service rendered has been made within 6 months

of the service rendered?

8. Briefly explain how will the point of taxation be determined in case of continuous supply of service.

9. Nikhil Ltd. provides management consultancy services to its client Aggarwal Properties Ltd. for

agreed consideration of ` 1,50,000. Aggarwal Properties Ltd. makes the payment on 25th April,

2014. However, the date of completion of service is 15th April, 2014. The relevant invoice for

`1,50,000 is raised by Nikhil Ltd. as per following table:

Case I: 30th April, 2014

Case II: 16th May,2014

Case III: 20th April, 2014

Determine point of taxation in each of the above three cases.


33120ipcc Idtc Rev Nov14 Pm3

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