The Point Of Taxation Rules has been amended with effect from 1.10.2014 and ,it states that As per existing Rule 7 of the Point of Taxation Rules, 2011, the
point of taxation is respect of persons required to pay tax as recipients of
service under reverse charge mechanism is the date on which payment is made.
However, the first proviso of said Rule mandates that where the payment is not
made within a period of six months of the date of invoice, the point of
taxation shall be determined as if this Rule did not exist, i.e., we need to
fall back on Rule 3 of the Point of Taxation Rules which states that point of
taxation shall be time when invoice for service provided or agreed to be
provided is issued (completion of service where invoice is not issued within
30/45 days as the case may be) or date of payment whichever is earlier.
Thus, effectively as per said Rule, Point Of Taxation of
services under Reverse Charge Mechanism is the date of payment of invoice or in
case invoice is not paid within six months, the point of taxation would be the
date of invoice.
Union Budget 2014-15 has amended the first proviso of Rule 7 to
provide that point of taxation in respect of reverse charge will be the payment
date or the first day that occurs immediately after a period of three months
from the date of invoice, whichever is earlier.
From the first blush, it appears that the only amendment made is
curtailing of earlier time limit of six months for payment of invoice to three
months. However, there is a positive side of amendment as well. Under the
existing Rule, in case the payment is not made within six months the point of
taxation is shifted to date of invoice and thus such person apart from payment
of service tax was also obligated to pay interest thereon. However, under the
new provision though the time limit has been curtailed to three months, but if
this limit is breached the point of taxation would be the first day that occurs
immediately after period of three months and POT is not shifted to date of
invoice. This would avoid payment of interest for the intermittent period.
It is important to note here that this amendment will only apply to
invoices issued after 1stOctober, 2014.
ADMIN : NISHANT JAIN
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