Pradeep Jain - Chartered Accountant

TRANSITION OF ASSESSEES PAYING SERVICE TAX ON RECEIPT BASIS IN GST

GST DAILY DOSE OF UPDATION

TRANSITION OF ASSESSEES PAYING SERVICE TAX ON RECEIPT BASIS IN GST:

In the current service tax regime, the rate of service tax is determined by the Point of Taxation Rules, 2011. However, to provide relief to specified professionals working on small scale, special provision was introduced for individuals, partnership firms, LLPs wherein specified professionals having total receipts of Rs. 50 Lakhs or less in the previous financial year from all premises. The point of taxation for such specified professionals was stated to be date of receipt of payment in order to enable them to pay service tax on receipt basis rather than accrual basis. It is pertinent to mention that prior to 01.04.2012, the provision was contained in Rule 7(c) of the Point of Taxation Rules, 2011 but the same has been omitted w.e.f. 1.4.2012. However, the benefit has been continued to be provided to the assessee and only the position of the benefit has been changed. The provision has been shifted to fourth proviso to Rule 6(1) of the Service Tax Rules, 1994 containing the provisions pertaining to payment of service tax. It has been provided that the individuals, partnership firm and one man companies whose aggregate value of taxable services provided from one or more premises is 50 lakh rupees or less in the previous financial year, the service provider has the option to pay tax on taxable services provided or agreed to be provided by the specified dates in which payment is received. The effect of shifting the provision is that prior to 01.04.2012, the point of taxation for specified assessees was date of receipt of payment but now, the benefit has been extended by way of facility to pay service tax on receipt of consideration. Hence, the point of taxation for such specified assessees is governed by general rule and only the benefit of payment of service tax is given on receipt of consideration.

The present update is concerned with the difficulties that the specified assessees would be facing while switching to the new GST regime because there is no such benefit under the proposed GST regime. Now, a big question stands in front of the assessees that have opted for payment of service tax on receipt basis that how they will be discharging their service tax liability in the GST regime for the payments received relating to prior periods. The answer probably lies in section 188 of the revised GST draft law pertaining to transitional provisions which states that:

Taxability of supply of services in certain cases

Notwithstanding anything contained in section 13 or 14, the tax in respect of the taxable services shall be payable under the earlier law to the extent the point of taxation in respect of such services arose before the appointed day.

Explanation: Where the portion of the supply of services is not covered by this
Section, such portion shall be liable to tax under this Act.

This section probably resolves the problem that the specified assessees would face on implementation of GST. This is for the reason that the general rules of point of taxation would apply for specified assessees also according to which if the invoice has been issued and service has been provided prior to implementation of GST, the point of taxation would be in the present service tax law and the tax shall be payable as per the present service tax laws. However, no mechanism of payment has been prescribed as to whether the amount would be payable as service tax or GST and how will it be reflected in the returns by the assessee is also question that remains unanswered. Moreover, if the tax is required to be paid as GST, whether the possible GST rate of 18% would be payable ? In our opinion, since the point of taxation has arose prior to GST, the service tax applicable during the relevant period will only be payable but the government is very unpredictable as similar problem was faced by such specified assessees when the rate of service tax was increased from 10.3% to 12.36%. It is pertinent to mention that during that time, clarification was issued vide Circular No. 154/5/2012-ST dated 28.03.2012 and Circular No. 158/9/2012-ST dated 08.05.2012 wherein it was stated that such specified assessees were required to pay increased service tax. However, these two circulars were challenged and quashed by the Hon’ble Delhi High Court in the case of DELHI CHARTERED ACCOUNTANTS SOCIETY VERSUS UNION OF INDIA [2013 (29) S.T.R. 461 (DEL)]. It is submitted that although, as per provisions it is understood that the service tax applicable during the material time will be payable by specified assessees but government is free to issue clarifications as mentioned above. Moreover, if the assessee is compelled to pay GST at the rate of 18%, what will be the fate of extra 3% payable by him? Whether the extra 3% can be recovered from the service recipients and whether credit will be passed on is also not clear. Well, the true colours of the proposed law and the difficulties faced by the assessees on transition will be revealed only after implementation of the revolutionary taxation reform.

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TRANSITION OF ASSESSEES PAYING SERVICE TAX ON RECEIPT BASIS IN GST

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