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Delhi Chartered Accountants Society vs. UOI (Delhi High Court)
February, 04th 2013

CBEC Circulars on CA’s liability to pay higher service tax rate on services rendered/ invoice raised before 01.04.2012 but payment received thereafter is ultra vires

Rule 2(e) of the Point of Taxation Rules, 2011 inserted w.e.f. 01.04.2011 defined “point of taxation” as the point in time when a service shall be deemed to have been provided. Consequent to the insertion of s. 66B, the rate of service tax was enhanced from 10% to 12% w.e.f. 01.04.2012. The High Court had to consider what would be the rate of tax where (a) the service is provided by the chartered accountants prior to 01.04.2012 (b) the invoice is issued by the CAs prior to 01.04.2012 but (c) the payment is received after 01.04.2012. On facts, as the services were rendered before 01.04.2012 and even the invoices were raised before that date and it was only that the payment was received after the said date, the Petitioner claimed that Rule 4(a)(ii) of the Point of Taxation Rules, 2011 applies and the point of taxation shall be the date of issuance of the invoice. However, the service tax authorities issued Circular No.154 dated 28.03.2012 and Circular No.158 dated 08.05.2012 that in respect of invoices issued on or before 31st March 2012 the point of taxation shall be the date of payment. The Petitioner filed a Writ Petition to challenge the said Circulars. HELD by the High Court upholding the plea:

Rule 4 of the Point of Taxation Rules, 2011 which has continued even after 01.04.2012 is clearly the answer. It provides for a specific situation namely determination of the point of taxation in case of change in effective rate of tax. As per Rule 4, whenever there is a change in the effective rate of tax in respect of a service, the point of taxation shall be determined in the manner set out in the Rule. Sub-clause (ii) of Clause (a) of Rule 4 provides that where the taxable service has been provided before 01.04.2012 and the invoice was also issued before 01.04.2012, but the payment is received after 01.04.2012, then the date of issuance of invoice shall be deemed to be the date on which the service was rendered and, consequently, the point of taxation. The result is that where the services of the chartered accountants were actually rendered before 01.04.2012 and the invoices were also issued before that date, but the payment was received after the said date, the rate of tax will be 10% and not 12%. The circulars in question have not taken note of this aspect, and have proceeded on the erroneous assumption that the old Rule 7 continued to govern the case notwithstanding the introduction of the new Rule 7 which does not provide for the contingency that has arisen in the present case. Consequently, the circulars are quashed as being contrary to the Finance Act, 1994 and the Point of Taxation Rules, 2011. A Circular which is contrary to the Act and the Rules cannot be enforced (Ratan Melting & Wire Industries followed)

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