Whether the Rate of Service tax will be 12% or 10% in case of payment received after 01.04.2012 for six categories of service providers?

PJ/Case Laws/2012-13/1180

Citation:2012-TIOL-585-HC-DEL-ST

Case:Delhi Chartered Accountants Society (REGD) Vs Union of India and Ors.

Issue:Whether the Rate of Service tax will be 12% or 10% in case of payment received after 01.04.2012 for six categories of service providers?

Reasoning of Judgement:-
The contention of petitioner that circular dated 08/05/2012 is ultra vires the point of Taxation Rules, 2011 and even the provisions of Finance Act, 1994. The petitioner has drawn High Court’s attention to Point of Taxation Rules, 2011, Rule 2(e) whereof defines Point of Taxation as under:-

“(e) “Point of taxation” means the point in time when a service shall be deemed to have been provided.”
The determination of point of taxation is provided in Rule 4 in the case of change in effective rate of tax. Sub-Rule (a) thereof is relevant for our purpose which reads as under:-

“4. Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a 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 change in effective rate of tax.

(i) Where the invoice for the same has been issued and the payment received after the 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 change in effective rate of tax but the payment is received after the 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 change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment.”

The High court further considers that the service tax in respect of a category of services was @ 10% before 31.03.2012 which has been increased to 12% with effect from 01/04/2012. The petitioner has raised the issue in respect of those services which were provided before 01/04/2012 and even invoices were issued before 01/04/2012 and payment is received after 01/04/2012. By impugned circular dated 08/05/2012, it is clarified that even in respect of those services which were provided before 01/04/2012 and invoices issued before that date but payment is received on or before 01/04/2012, the service tax needs to be paid at the rate of 12%. The High Court finds that from the reading of Rule 4, it becomes apparent that in such case, the rate of tax would be 10% and not 12%.The High Court also consider that it is clear that in this matter question of law is involved, and ordered that no coercive action shall be taken for non payment of differential service tax till the matter shall be heard finally.

Decision:-Appeal Allowed, subject to just exceptions.

Comment:-This was stay matter only and not final decision. The CBEC has clarified that those assesses who are paying service tax on receipt basis has to pay the service tax on enhanced rate. Though the service is provided before 1.4.2012 and the invoice is also raised before that date. But since the service tax is payable by six categories of assesses (including CA, lawyers, consultant engineers etc) has to pay the tax @ 12% on receipt basis. Even these assesses have charged the tax from their client @ 10% only. Hence this was conflicting matter and High Court has granted the stay.

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PJ/Case Laws/2012-13/1180

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