TOPIC

SERVICE TAX
IN PARTIAL FULFILMENT OF THE REQUIREMENT UNDER SEMESTER
BASED CREDIT & GRADING SYSTEM FOR POST GRADUATE SEMESTER IV

Program under faculty of commerce

MASTER OF COMMERCE (EVENING)

SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

SUBMITTED BY:
AKASH MAHADEV TOKE
ROLL NO: 37
PROJECT GUIDE:

Prof.Paras Jain
SYDENHAM COLLEGE OF COMMERCE & ECONOMICS
2015-2016

DECLARATION

I Mr. AKASH TOKE

the student of M.Com- II (Evening) 4TH

Semester (2015-2016), hereby declare that I have completed

the project on SERVICE

TAX

. The information submitted is

true and original to the best of my knowledge.

Signature of student:
_________________
AKASH MAHADEV TOKE

Roll No: 37

CERTIFICATE

This is to certify that Mr. AKASH MAHADEV TOKE of M.Com -II

(Evening) Semester-IV (2015-2016) has successfully
completed the Project on SERVICE TAX under the guidance of
Prof. Paras Jain

Project Guide: ___________________

Internal Examiner: ________________

External Examiner: ________________

DATE: ____________________
PLACE: ___________________

ACKNOWLEDGEMENT
3

I would firstly like to thank the UNIVERSITY OF MUMBAI for giving

us the liberty of choosing such topic which will be benefited to us in future. I
would like to thanks the Principal of Sydenham College Dr. Annasaheb
Khemnar for giving me the opportunity to study in this esteemed college and
doing the course of Accountancy. I would like to express my sincere
gratitude and thanks to Prof. Paras Jain who is my project guide, as he has
been the guiding light for this project and has also provided me with the best
of my knowledge, advice and encouragement which helped me in successful
completion of my project.
My colleagues and specially my parents who have also supported and
encouraged me, the success of this project to the large extent is also
dedicated to them.
I would also like to thank all those who have helped me and whom I have forgotten to
mention in this space

SIGNATURE OF STUDENT:
____________

INDEX
4

Page
No.

Sr. No.

Topic

SERVICE TAX HISTORY

NEED FOR THE NEW SYSTEM

SERVICE TAX IN INDIA

RATES

NEW CONCEPTS

13

DECLARED SERVICE

15

NEGATIVE LIST

16

EXEMPTED SERVICE LIST

23

POINT OF TAXATION RULE 2011

10

BIBLIOGRAPHY

11

27
33

Service Tax History

Service tax was initially introduced in the year 1994, when service tax was
made applicable on only three services. The scope of applicability of service
tax has been widened over the years, covering almost 119 services under the
ambit of taxability by 2012. However, the concept was based on the positive
list of services, wherein the services specified under Section 65(105) of the
Finance Act, 1994 (as amended) were taxable. Under this scenario, one had
to analyze the various services and to seek whether the service provided is
covered under any of the taxable service under the list.
A new service tax regime has been introduced with the announcement of
budget 2012 wherein all services will be taxed unless they are specified
under the negative list entry or are otherwise exempted. Under the new
system, the services will be taxed comprehensively, except the few ones
which have been specified under the negative list. The Central Board of
Excise and Customs [CBEC] has further issued "Mega Exemption
Notification" vide Notification No. 25/2012-Service Tax dated 20th June,
2012, enlisting the services which shall be exempt from the payment of
service tax with effect from 1st July, 2012.
With the enforcement of Finance Act 2012, Section 65 relating to the
"definitions" of the various terms relating to the service tax has been omitted.
However, two important sections which have been introduced defining the
new service tax code are Section 65B which provides for a whole new set of
definitions in context of taxable services under the head "Interpretations"
and Section 66D which states the "Negative list of service".
Further, for the purpose of payment of service tax under the new approach, a
new Minor Head- "All taxable Services" has been allotted under the Major
Head "0044-

Need for the new system

There have always been disputes about taxability of a particular activity and
also its classification in a particular taxable head. The provisions of the
Chapter V of the Finance Act, for levying service tax on various activities
had been challenged under different grounds before the Courts in India.
Some of the major grounds upon which the validity had been challenged
includes violation of Article 14 of the Constitution of India, noncompetency
of the Parliament to levy tax on the activity within the domain of the State
power, discriminatory nature of the provisions etc. Also, the definitions of
each service as provided under Chapter V were often vague and broad.
In order to mitigate the administrative difficulties in defining a service and
administering the service tax, the concept based on negative list of service
was first floated last year. However, the final set of notifications has come
out on 20th June, 2012. This new approach towards the service tax
applicability has simplified and resolved the issue relating to whether any
particular service is liable to be taxed.

SERVICE TAX IN INDIA

Service tax is a tax levied by Central Government of India on services
provided or to be provided excluding services covered under negative list
and considering the Place of Provision of Services Rules, 2012 and collected
as per Point of Taxation Rules, 2011 from the person liable to pay service
tax. Person liable to pay service tax is governed by Service Tax Rules, 1994
he may be service provider or service receiver or any other person made so
liable. It is an indirect tax wherein the service provider collects the tax on
services from service receiver and pays the same to government of India.
Few services are presently exempt in public interest via Mega Exemption
Notification 25/2012-ST as amended up to date & few services are charged
service tax at abated rate as per Notification No. 26/2012-ST as amended up
to date. Presently from 1 June 2015, service tax rate has been increased to
consolidated rate @ 14% of value of services provided or to be provided.
The service tax rate now is consolidated rate as education cess & secondary
higher education cess are subsumed with 2% of "Swachh Bharat
Cess(0.50%)" has been notified by the Government.
From 15 November 2015, the effective rate of service tax plus Swachh
Bharat Cess, post introduction of Swachh Bharat Cess, will be 14.5%.

Dr. Raja Chelliah Committee on tax reforms recommended the introduction

of service tax. Service tax had been first levied at a rate of five per cent flat
from 1 July 1994 till 13 May 2003, at the rate of eight percent flat w.e.f 1
plus an education cess of 2% thereon w.e.f 10 September 2004 on the
services provided by service providers. The rate of service tax was enhanced
to 12% by Finance Act, 2006 w.e.f 18.4.2006. Finance Act, 2007 has
imposed a new secondary and higher education cess of one percent on the
service tax w.e.f 11.5.2007, increasing the total education cess to three
8

percent and a total levy of 12.36 percent. The revenue from the service tax to
the Government of India have shown a steady rise since its inception in
1994. The tax collections have grown substantially since 1994-95 i.e.
from 410 crore (US$61 million) in 1994-95
to 132518 crore (US$20 billion) in 2012-13. The total number of Taxable
services also increased from 3 in 1994 to 119 in 2012. However, from 1 July
2012 the concept of taxation on services was changed from a 'Selected
service approach' to a 'Negative List regime'. This changed the taxation
system of services from tax on some Selected services to tax being levied on
the every service other than services mentioned in Negative list.[1]
under the Service tax from the year of original levying year of 1994 are
constantly growing. The collections are shown as in the following table:
Financial
Year

Revenue Rupees(in
crores)

Number of
services

Number of
Assessees

1994-1995

407

3943

1995-1996

862

4866

1996-1997

1059

13982

1997-1998

1586

18

45991

1998-1999

1957

26

107479

1999-2000

2128

26

115495

2000-2001

2613

26

122326

2001-2002

3302

41

187577

2002-2003

4122

52

232048

2003-2004

7891

62

403856

2004-2005

14200

75

774988

2005-2006

23055

84

846155

2006-2007

37598

99

940641

2007-2008

51301

100

1073075

2008-2009

60941

106

1204570

2009-2010

58422

109

1307286

2010-2011

71016

117

1372274

2011-2012

97509

119

1535570

2012-2013

132518

Negative List
Regime

1712617

10

Rates
Service Tax @ 14% is applicable from 1st June 2015. Moreover from 15th
Nov 2015, Swachh Bharat Cess @ 0.5% also got applicable. Therefore the
effective rate is currently at 14.5% with effect from 15th Nov 2015. From 01
June 2016 is will be 15. 2016 Union budget of India has proposed to impose
a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services
effective from 1 June 2016. The new effective service tax could henceforth
be 15%]
Small Scale Exemption
Service tax is only liable to be paid in case the total value of the service
provided during the financial year is more than10 lakh (US$15,000). If the
value of services provided during a financial year is less
than 10 lakh (US$15,000), it is optional for he wants to avail this
exemption or not.

Negative List

Budget 2012 revamped the taxation provisions for services by introducing a

new system of taxation of services in India. In the new system all services,
except those specified in the negative list, are subject to taxation. Earlier the
levy of service tax was based on positive list specified 119 taxable
services.
As per clause (34) of section 65B of the Finance Act, 1994, the term
"Negative List" means the services which are listed in section 66D.
Service Tax Return, Records & Invoices]
Records
According to Rule 5 of Service Tax Rules, 1994, records include
computerized data and means the record as maintained by an assessee in
11

accordance with the various laws in force from time to time. Records
maintained as such shall be acceptable to Central Excise Officer. Every
assessee is required to furnish to the Central Excise Officer at the time of
filing his return for the first time a list of all accounts maintained by the
assessee in relation to Service Tax including memoranda received from his
branch offices. This intimation may be sent along with a covering letter
while filing the service tax return for the first time
Invoice
Rule 4A prescribes that taxable services shall be provided and input credit
shall be distributed only on the basis of a bill, invoice or challan. Such bill,
invoice or challan will also include documents used by service providers of
banking services (such as pay-in-slip, debit credit advice etc.) and
consignment note issued by goods transport agencies. Rule 4B provides for
issuance of a consignment note to a customer by the service provider in
respect of goods transport booking services.

12

New concepts
The new concepts introduced under the new Service Tax Regime based are
being discussed below.
1. Meaning of Service
Earlier the word "Service" was not defined anywhere in Chapter V of the
Finance Act, 1994. In order to ensure wide coverage of services under the
ambid of service tax, the term 'Service' has been defined under the new
inserted section 65B(44) in the Finance Act, 2012, which reads as follows"Service" means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include
a) an activity which constitutes merely,
i) a transfer of title in goods or immovable property, by way of sale, gift or in
any other manner; or
ii) such transfer, delivery or supply of any goods which is deemed to be a
sale within the meaning of clause (29A) of article 366 of the Constitution; or
iii) a transaction in money or actionable claim.
b) a provision of service by an employee to the employer in the course of or
in relation to his employment;
c) fees taken in any Court or tribunal established under any law for the time
being in force."2
13

The definition prescribes the following three essential ingredients that must
be present in order to call an activity as 'service'a) it must be an activity;
b) it must be performed by a person for another person;
c) the activity is performed for a consideration.
In the absence of any of these essential ingredients, the activity will be not
be considered as service. Also, the activities which are covered under the
declared service category will automatically become service.
Thereafter, the definition expressly excludes the activities from the provision
of "Service". Thus, except for the activities as mentioned in the definition of
the term "Service", all other activities shall be covered which involves the
above three essential ingredients.

14

2. Meaning of Declared Services

As per the definition of "Service" as contained under Section 65B (44) of the
Finance Act, the term service includes declared services. The phrase
"Declared Service" has also been defined under section 66E as "an activity
carried out by a person for another for consideration". Further, the section
specifically mentions the following nine services as 'declared services':
a) renting of immovable property
b) construction of a complex, building, civil structure or a part thereof,
including a complex or building intended for sale to a buyer, wholly or
partly, except where the entire consideration is received after issuance of
completion-certificate by the competent authority.
c) temporary transfer or permitting the use or enjoyment of any intellectual
property right.
d) development, design, programming, customisation, adaptation,
upgradation, enhancement, implementation of information technology
software.

15

e) agreeing to the obligation to refrain from an act, or to tolerate an act or a

situation, or to do an act. f) transfer of goods by way of hiring, leasing,
licensing or in any such manner without transfer of right to use such goods.
g) activities in relation to delivery of goods on hire purchase or any system
of payment by installments. h) service portion in the execution of a works
contract.
i) service portion in an activity wherein goods, being food or any other
article of human consumption or any drink (whether or not intoxicating) is
supplied in any manner as a part of the activity.

3. Negative List
Services provided by Government or Local authority
Most of the services provided by the Central or State Government or Local
authorities are in the negative list except the following:
a) Services provided by the Department of Posts by way of speed post,
express parcel post, life insurance and agency services carried out on
payment of commission on non government business;
b) Services in relation to a vessel or an aircraft inside or outside the precincts
of a port or an airport;
c) Transport of goods and/or passengers;

16

d) Support services, other than those covered by clauses (a) to (c) above, to
business entities.
2) Services provided by Reserve Bank of India
All services provided by the Reserve Bank of India are in the negative list.
Services provided to the Reserve Bank of India are not in the negative list
and would be taxable unless otherwise covered in any other entry in the
negative list.
3) Services by a Foreign Diplomatic Mission Located in India
Any service that is provided by a diplomatic mission of any country located
in India is in the negative list. This entry does not cover services, if any,
provided by any office or establishment of an international organization.
4) Services relating to agriculture
The services relating to agriculture that are specified in the negative list are
as below:
a) agricultural operations directly related to production of any agricultural
produce including cultivation, harvesting, threshing, plant protection or seed
testing;
b) supply of farm labour;

c) processes carried out at the agricultural farm including tending, pruning,

cutting, harvesting, drying cleaning, trimming, sun drying, fumigating,
curing, sorting, grading, cooling or bulk packaging and such like operations
which do not alter essential characteristics of agricultural produce but makes
it only marketable for the primary market;
d) renting of agro machinery or vacant land with or without a structure
incidental to its use;
e) loading, unloading, packing, storage and warehousing of agricultural
produce;
17

f) agricultural extension services;

g) services provided by any Agricultural Produce Marketing Committee or
Board or services provided by commission agent for sale or purchase of
agricultural produce;
h) Testing activities in relation to agriculture and agricultural produce
Further the activities like breeding of fish (pisciculture), rearing of silk
worms (sericulture), cultivation of ornamental flowers (floriculture)
and horticulture, forestry is also included in the definition of agriculture.
The plantation crops like coffee, tea are also covered in agricultural produce.
5) Trading of Goods
Transfer of title of goods is one of the essential conditions for a transaction
to come under the ambit of trading of goods. However, the services
supporting or ancillary to the trading of goods would not come under the
above item of Negative List.
6) Processes amounting to Manufacture or Production of Goods
The phrase processes amounting to manufacture or production of goods has
been defined in section 65B of the Act as a process on which duties of excise
are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or
any process amounting to manufacture of alcoholic liquors for human
consumption, opium, Indian hemp and other narcotic drugs and narcotics on
which duties of excise are leviable under any State Act.
This entry, therefore, covers manufacturing activity carried out on contract or
job work basis provided duties of excise are leviable on such processes under
the Central Excise Act, 1944 or any of the State Acts.
7) Selling of Space or Time Slots for Advertisements other than
Advertisements Broadcast by Radio or Television
Sale of space for advertisement in print media, bill boards, public
places, buildings, conveyances, cell phones, automated teller machines,
internet, Aerial advertising are covered in negative list.

18

However, Sale of space or time for advertisement to be broadcast on radio or

television and sale of time slot by a broadcasting organization are the taxable
services.
8) Access to a Road or a Bridge on Payment of Toll Charges
The negative list entry covers access to a road or a bridge on payment of toll
charges. The access to National highways or state highways, which are also
roads, is hence covered in this entry.
9) Betting, Gambling or Lottery
Betting or gambling has been defined in section 65B of the Act as putting on
stake something of value, particularly money, with consciousness of risk and
hope of gain on the outcome of a game or a contest, whose result may be
determined by chance or accident, or on the likelihood of anything occurring
or not occurring. The State Government levy a betting tax on such activities.
10) Entry to Entertainment Events and access to Amusement Facilities
Entertainment event has been defined in section 65B of the Act as an event
or a performance which is intended to provide recreation, pastime, fun or
enjoyment, such as exhibition of cinematographic films, circus, concerts,
sporting events, fairs, pageants, award functions, dance performances,
musical performances, theatrical performances including cultural programs,
drama, ballets or any such event or program.
Amusement facility has been defined in the Act as a facility where fun or
recreation is provided by means of rides, gaming devices or bowling alleys
in amusement parks, amusement arcades, water parks, theme parks or such
other place but does not include a place within such facility where other
services are provided.

11) Transmission or Distribution of Electricity

An electricity transmission or distribution utilityhas also been defined in
section 65B of the act to means the following:
19

 the Central Electricity Authority

a State Electricity Board
the Central Transmission Utility (CTU)
a State Transmission Utility (STU) notified under the Electricity Act, 2003
(36 of 2003)
a distribution or transmission licensee licensed under the said Act
any other entity entrusted with such function by the Central or State
Government
12) Specified services relating to Education
The following services relating to education are specified in the negative list

a) pre-school education and education up to higher secondary school or

equivalent
b) education as a part of a prescribed curriculum for obtaining a qualification
recognized by any law for the time being in force;
c) education as a part of an approved vocational education
course Approved vocational education courses have been specified in section
65B of the Act. These are
a) a course run by an industrial training institute or an industrial training
centre affiliated to the National Council for Vocational Training, offering
courses in designated trades as notified under the Apprentices Act, 1961 (52
of 1961)

b) a Modular Employable Skill Course, approved by the National Council of

Vocational Training, run by a person registered with the Directorate General
of Employment and Training, Ministry of Labour and Employment,
Government of India;
20

c) a course run by an institute affiliated to the National Skill

Development Corporation set up by the Government of India.
d) Vocational courses offered by institutes affiliated to the State Council of
Vocational Training;
13) Services by way of Renting of residential dwelling for use as
residence
Renting has been defined in section 65B as allowing, permitting or
granting access, entry, occupation, usage or any such facility, wholly or
partly, in an immovable property, with or without the transfer of possession
or control of the said immovable property and includes letting, leasing,
licensing or other similar arrangements in respect of immovable property.
14) Financial Sector
The services of loans, advances or deposits are in the list in so far as the
consideration is represented by way of interest or discount. Any charges or
amounts collected over and above the interest or discount amounts would
represent taxable consideration. Some examples:
Fixed deposits or saving deposits or any other such deposits in a bank for
which return is received by way of interest.
Providing a loan or over draft facility for a credit limit facility in
consideration for payment of interest.
Mortgages or loans with a collateral security to the extent that the
consideration for advancing such loans or advances are represented by way
of interest.
Corporate deposits to the extent that the consideration for advancing such
loans or advances are represented by way of interest or discount.

The Invoice discounting is covered only to the extent consideration it

is represented by way of discount. Any charges or amounts collected over
and above the interest or discount amounts would represent taxable
21

consideration. Services provided by banks or authorized dealers of foreign

exchange by way of sale of foreign exchange to general public are not
covered in Negative List.

15) Service relating to Transportation of Passengers

The following services relating to transportation of passengers, with or
without accompanied belongings, have been specified in the negative list.
Services by:
a stage carriage;
railways in a class other than (i) first class; or (ii) an AC coach;
metro, monorail or tramway;
inland waterways;
public transport, other than predominantly for tourism purpose, in a vessel
between places located in India ; and
metered cabs, radio taxis or auto rickshaws.
The various other equivalent modes of transport not specified herein could
be cause of dispute as the above list is not complete within each segment.
16) Service relating to Transportation of Goods
The following services provided in relation to transportation of goods are
specified in the negative list:a) by road except the services of (i) a goods transportation agency; or (ii) a
courier agency
b) by aircraft or vessel from a place outside India up to the customs station
of clearance in India; or

22

c) By inland waterways. (Services provided as agents for inland waterways

are not covered in the negative list.)
17) Funeral, Burial, Crematorium or Mortuary services including
transportation of the deceased
This entry exempts services in relation to cremation, etc. of dead.
Two more services have been included in the negative list services in
interim Budget 2014, as mentioned below:a) loading, unloading, packing, storage and warehousing of rice and
b) Services provided by cord blood banks

4. Exempted service list

23

1 Exemptions
In addition to negative list, there is a huge list of 39 services which have
been exempted, vide Mega Exemption Notification No. 25/2012-ST dated
20-6-2012.

In addition, some other exemption notifications are there

2 Exemption and Negative List

Distinction between exemption and Negative List is that service in
negative list is service but not taxable at all,
Exempted services are taxable but are exempted by Central Government
by issue of a notification

Exemption can be changed easily but not Negative List.

Activity excluded from definition of service under section 65B(44) is

not service at all. Hence, rule 6 of Cenvat Credit Rules will not apply.
3 Exemption to main service is not exemption to auxiliary Services
As per section 66F(1); reference to a service (i.e. main service) shall not
include reference to a service which is used for providing main service.
Thus, even if main service is either excluded or exempt from service
tax, service provided to the main service provider can come under Tax net.
Advertisement is in negative list but service tax is payable on services of
Advertisement Agents and services of design of advertisements
Construction of public road is exempt but service like hire of equipment,
excavation, manpower supply will be subject to service tax.
Exemption to service provider in SEZ does not mean that sub-contractor
is also exempt.
One exception is that Sub-contractor under works contract providing
service to main contractor (who is also under works contract) will be exempt
from service tax, when service of main contractor is exempt.
Other exception is that sub-contractor will be exempt if he himself is
providing the exempt service
24

4 Important Exemptions

Services by UN and international organisations

Health care and veterinary services

Services by Charitable Organisations in respect of specified charitable

activities only and construction of building for religious purposes for
Charitable Organisation registered under section 12AA of Income Tax Act.
Services imported by Charitable Organisations are also exempt from service.

Religious ceremony and renting of religious places

Advocate or Advocate firm to non-business entity or business entity with

turnover upto ` 10 lakhs

Person on Arbitral Tribunal

Technical testing of new drugs

Recreation relating to arts, culture, sports

Services to or by recognised educational institution for auxiliary

educational services and renting of Immovable Property (but not placement
services)
Auxiliary educational Services Outsourced activities, Midday meals,
admission and examination related services, mid-day meals, transport of
students, staff, faculty

Services to recognised sports body (but brand ambassadors not exempt)

Sports sponsorship to recognised bodies (not IPL)

Services provided to Government or local authority or governmental

authority for erection, construction, maintenance, repairs of non-commercial
or non-industrial use, educational purpose, sewage, residential colony etc.

25

 Infrastructure related civil construction services (discussed under

construction services)
Temporary transfer or permitting use of Copyright (except sound
recording)

Services of performing artists

Services of journalists

Hotels, guest houses with less than ` 1,000 per day tariff

Restaurants without AC/central heating and without bar

Goods transport upto ` 750 per consignee and ` 1,500 per vehicle and
specified agricultural commodities

Renting of motor vehicle to state transport or GTA

Transport of passengers (in specified cases only).

Parking for public exempt but not leasing for parking space

Specified general insurance schemes exempt.

Services by incubatee upto ` 50 lakhs

Services by Trade Union.

Housing Society or RWA to its members upto ` 5,000 p.m. contribution

to medical camps

Sub-brokers on stock exchange

Services of mutual fund agents or distributors of mutual fund, marketing

agents of lottery

Selling Agents or distributor of SIM card

Sub-contractor under works contract providing service to main

contractor (who is also under works contract), when service of main
contractor is exempt
Job work of agriculture, textile processing, diamonds and gemstones,
parts of cycles and sewing machine
26

 Job work exempt where principal manufacturer is paying excise duty

when material sent under rule 4(5)(a) of Cenvat Credit Rules

Business Exhibition held outside India (Really not taxable at all)

Public telephones

Services of slaughtering of animals.

Services from outside India to Government or Charitable Organisations

Public Libraries

Services by ESIC

Slump sale, sale of business, demergers

Public conveniences like toilets, bathrooms etc.

Services by Governmental authority.

5 Small Service Provider Exemption

Exemption if value of taxable services rendered in previous financial
year did not exceed ` 10 lakhs Notification No. 33/2012-ST dated 20-62012.

Exempted turnover not to be considered for 10 lakh limit.

Turnover of sale or manufacture of goods is not to be considered for

calculating the ten lakh limit.
If turnover crosses ` 10 lakhs in any financial year, tax payable after
Rs10 lakhs in that financial year. However, no exemption will be available in
next financial year.

He is required to register when his turnover crosses ` 9 lakhs.

6 Conditions for exemptions to small service providers

27

No Cenvat Credit should be availed

Clubbing provisions applicable

Registration if turnover exceeds ` 9 lakh

Service should not be under brand name of other. Thus, franchisees

cannot avail the exemption.
Mere authorised person does not mean that he is providing service under
brand name of other person.
Once assessee starts payment of service tax, option cannot be changed
during financial year
Exemption limit not available when service receiver liable to pay service
tax under reverse charge
GTA not required to register if value of services on which he is required
to pay service tax is less than ` ten lakhs.

Point of Taxation Rules, 2011

[18/2011-Service Tax dated 01.03.2011 as amended]
In exercise of the powers conferred under clause (a) and clause (hhh) of subsection (2) of section 94 of the Finance Act, 1994, the Central Government
hereby makes the following rules for the purpose of collection of service tax
and determination of rate of service tax, namely,1. Short title and commencement.(1) These rules shall be called the Point of Taxation Rules, 2011.
28

(2) They shall come into force on the 1st day of April, 2011.
2. Definitions.In these rules, unless the context otherwise requires,(a) "Act" means the Finance Act, 1994 (32 of 1994);
1

[(b) * * * * * ]

[(ba) "change in effective rate of tax" shall include a change in the portion
of value on which tax is payable in terms of a notification issued in the
Official Gazette under the provisions of the Act, or rules made thereunder;]
(c) "continuous supply of service" means any service which is provided, 3[or
to be provided continuously or on recurrent basis, under a contract, for a
period exceeding three months with the obligation for payment periodically
or from time to time], or where the Central Government, by a notification in
the Official Gazette, prescribes provision of a particular service to be a
continuous supply of service, whether or not subject to any condition;
(d) "invoice" means the invoice referred to in rule 4A of the Service Tax
Rules, 1994 and shall include any document as referred to in the said rule;
(e) "point of taxation" means the point in time when a service shall be
deemed to have been provided;
4

[(f) * * * * * ]

[ 2A. Date of payment.-

For the purposes of these rules, "date of payment" shall be the earlier of the
dates on which the payment is entered in the books of accounts or is credited
to the bank account of the
person liable to pay tax: Provided that (A) the date of payment shall be the date of credit in the bank account when (i) there is a change in effective rate of tax or when a service is taxed for the
first time during the period between such entry in books of accounts and its
credit in the bank account; and

29

(ii) the credit in the bank account is after four working days from the date
when there is change in effective rate of tax or a service is taxed for the first
time; and
(iii) the payment is made by way of an instrument which is credited to a
bank account,
(B) if any rule requires determination of the time or date of payment
received, the expression "date of
payment" shall be construed to mean such date on which the payment is
received;]
RULE 3. 6[Determination of point of taxation.For the purposes of these rules, unless otherwise provided, 'point of taxation'
shall be,(a) the time when the invoice for the service 7[provided or agreed to be
provided is issued:]
1

Omitted (w.e.f. 1.7.2012) by Notification No. 37/2012-ST dated 20.062012.

2

Inserted (w.e.f. 1.4.2012) by Notification No. 04/2012-ST dated

17.03.2012.
3

Substituted (w.e.f.1.4.2012) by Notification No. 04/2012-ST dated

17.03.2012.
4

Omitted (w.e.f. 1.7.2012) by Notification No. 37/2012-ST dated 20.062012.

5

Inserted (w.e.f. 1.4.2012) by Notification No. 04/2012-ST dated

17.03.2012.
6

Substituted (w.e.f.1-4-2011) by Notification No.25/2011-Service Tax., dated

31.3.2011.
7

Substituted (w.e.f. 1.7.2012) by Notification No. 37/2012-ST dated 20.062012.

1

[Provided that where the invoice is not issued within the time period
specified in rule 4A of the Service Tax Rules, 1994, the point of taxation
shall be date of such completion of provision of the service.]
30

(b) in a case, where the person providing the service, receives a payment
before the time specified in clause (a), the time, when he receives such
payment, to the extent of such payment.
2

[Provided that for the purposes of clauses (a) and (b),-

(i)
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 make any payment to the service provider, the date of completion
of provision of service;
(ii)
wherever the provider of taxable service receives a payment
up to rupees one thousand in excess of the amount indicated in the invoice,
the point of taxation to the extent of such excess amount, at the option of the
provider of taxable service, shall be determined in accordance with the
provisions of clause (a).]
Explanation .- For the purpose of this rule, wherever any advance by
whatever name known, is received by the service provider towards the
provision of taxable service, the point of taxation shall be the date of receipt
of each such advance.].
4. Determination of point of taxation in case of 3[change in effective rate
of tax]. Notwithstanding anything contained in rule 3, the point of taxation in cases
where there is a 4[change in effective rate of tax] in respect of a service, shall
be determined in the following manner, namely:(a) in case a taxable service has been provided before the 5[change in
effective rate of tax],(i) where the invoice for the same has been issued and the payment
received after the 6[change in effective rate of tax], the point of taxation shall
be date of payment or issuing of invoice, whichever is earlier; or
(ii) where the invoice has also been issued prior to 7[change in effective
rate of tax] but the payment is received after the 8[change in effective rate of
tax], the point of taxation shall be the date of issuing of invoice; or
(iii) where the payment is also received before the 9[change in effective
rate of tax], but the invoice for the same has been issued after the10[change in
effective rate of tax], the point of taxation shall be the date of payment;
31

(b) in case a taxable service has been provided after the 11[change in effective
rate of tax],(i) where the payment for the invoice is also made after the 12[change in
effective rate of tax] but the invoice has been issued prior to the13[change in
effective rate of tax], the point of taxation shall be the date of payment; or
(ii) where the invoice has been issued and the payment for the invoice
received before the 14[change in effective rate of tax], the point of taxation
shall be the date of receipt of payment or date of issuance of invoice,
whichever is earlier; or
(iii) where the invoice has also been raised after the 15[change in effective
rate of tax] but the payment has been received before the16[change in
effective rate of tax], the point of taxation shall be date of issuing of invoice.
1.
Substituted (w.e.f.1-4-2012)by Notification No.4/2012-S.T., dated
17-3-2012.
2.
Substituted (w.e.f.1-4-2012)by Notification No.4/2012-S.T., dated
17-3-2012.
3.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
4.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
5.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
6.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
7.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
8.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
9.
Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
10. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
32

11. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated

31-3-2011.
12. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
13. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
14. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
15. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011.
16. Substituted (w.e.f.1-4-2011)by Notification No.25/2011-S.T., dated
31-3-2011

[* * *]
RULE 2[5. Payment of tax in case of new services.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 fourteen days of the date
when the service is taxed for the first time.

33

RULE 4[7. Determination of point of taxation in case of specified services

or persons.-Notwithstanding anything contained in these rules, the point of taxation in
respect of the persons required to pay tax as recipients of service under the
rules made in this regard in respect of services notified under sub-section (2)
of section 68 of the Act, shall be the date on which payment is made :
Provided 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
does not exist:
Provided further that in case of "associated enterprises", where the person
providing the service is located outside India, that point of taxation shall be
the date of debit in the books of account of the person receiving the service
or date of making the payment whichever is earlier.]
8. Determination of point of taxation in case of copyrights, etc. .In respect of royalties and payments pertaining to copyrights, trademarks,
designs or patents, where the whole amount of the consideration for the
provision of service is not ascertainable at the time when service was
performed, and subsequently the use or the benefit of these services by a
person other than the provider gives rise to any payment of consideration,
the service shall be treated as having been provided each time when a
payment in respect of such use or the benefit is received by the provider in
respect thereof, or an invoice is issued by the provider, whichever is earlier.
RULE 5[8A. Determination of point of taxation in other cases.Where the point of taxation cannot be determined as per these rules as the
date of invoice or the date of payment or both are not available, the Central
Excise officer, may, require the concerned person to produce such accounts,
documents or other evidence as he may deem necessary and after taking into
account such material and the effective rate of tax prevalent at different
points of time, shall, by an order in writing, after giving an opportunity of
being heard, determine the point of taxation to the best of his judgement.]
RULE 6[9. Transitional Provisions. Nothing contained in 7[these rules] shall be applicable,34

(i)

Where the provision of service is completed; or

(ii)

Where invoices are issued

Prior to the date on which thses rules come into force.

Provided that services for which provision are completed on or before
30th day of June, 2011 or where the invoices are issued up to the 30thday 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.].
1.
Omitted (w.e.f.1-4-2012) by Notification No.4/2012-Service Tax.,
dated 17-3-2012.
2.
Substituted (w.e.f.1-4-2012) by Notification No.4/2012-Service
Tax., dated 17-3-2012.
3.
Omitted (w.e.f.1-4-2012) by Notification No.4/2012-Service Tax.,
dated 17-3-2012.
4.
Substituted (w.e.f.1-4-2012) by Notification No.4/2012-Service
Tax., dated 17-3-2012.
5.
Inserted (w.e.f.1-4-2012) by Notification No.4/2012-Service Tax.,
dated 17-3-2012.
6.
Substituted (w.e.f.1-4-2011) by Notification No.25/2011-S.T., dated
31-3-2011.
7.
Corrected by M.F.(D.R.) Corrigendum F.No.334/3/2011-TRU,
dated 4-4-2011.
Commercial or Industrial construction service, construction of residential
complex service, Telecommunications services, internet telecommunication
services and works contract service be treated as continuous supply service
for the purpose of Point of Taxation Rules, 2011. -In exercise of the powers
conferred under clause (a) and clause (hhh) of sub-section (2) of section 94
of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance
Act), read with clause (c) of rule (2) of the Point of Taxation Rules, 2011
(hereinafter referred to as the said rules), the Central Government hereby
notifies that the provision of taxable services 1[of telecommunication service
and service portion in execution of a works contract]n shall be treated as
continuous supply of service, for the purpose of the said rules.

35

BIBLIOGRAPHY
WWW.TAXGURU.IN
WWW.TAXCLICK.ORG
WWW.TOPCAFIRMS.COM
WWW.CBEC.GOV.IN

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