Circular No. 162/13 /2012 –ST
F. No. 354/111/2012-TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
(Tax Research Unit)
*******
Room No 146, North Block, New Delhi-1,
Dated the 6th July 2012.
To
Chief Commissioner of Customs and Central Excise (All)
Chief Commissioner of Central Excise & Service Tax (All)
Director General of Service Tax
Director General of Central Excise Intelligence
Director General of Audit
Commissioner of Customs and Central Excise (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)
Madam/Sir,
Subject: Clarification on Point of Taxation Rules – regarding.
Consequent to the changes introduced at the time of
Budget 2012 in the Point of Taxation Rules, 2011, together with revision
of the service tax rate from 10% to 12% and the subsequent changes that
have been made effective from 01.07.2012, the following clarifications
have been desired:
(a) Point of taxation and the rate applicable in respect
of continuous supply of services at the time of change in rates
effective from 01.04.2012;
(b) Applicability of the revised rule 2A of the Service
Tax (Determination of Value) Rules, 2006 to ongoing works contracts for
determination of value when the value was being determined under the
erstwhile Works Contract (Composition Scheme for Payment of Service Tax)
Rules, 2007; and
(c) Applicability of partial reverse charge provisions in respect of specified services.
2.1 The issues have been examined. The continuous supply of
services was governed by rule 6 until 31.03.2012. The rule started
with the wordings “notwithstanding anything contained in rules 3, 4 …”
Therefore, the point of taxation in respect of services provided in
terms of the said rule on or before 31.03.2012 would remain unaffected
by rule 4.
2.2 To clarify the matter further, if the invoice had been
issued or payment received in respect of such services on or before
31.03.2012, the point of taxation would stand determined under rule 6
accordingly and shall not alter due to the subsequent changes in the
Point of Taxation Rules, 2011 that became effective only from 1.4.2012.
3.1 However the position has undergone a change at the time
of transition towards the Negative List and the introduction of other
accompanying changes in Service Tax (Determination of Value) Rules, 2006
and partial reverse charge. At the said time rule 6 stood omitted and
the point of taxation was required to be determined ordinarily in such
cases under the main rule i.e. rule 3. This rule is, however,
overridden by rule 4 when there is a change in effective rate of
tax. The “change in effective rate of tax” has been defined in clause (ba) of rule 2 to include a change in the portion of value on which tax is payable.
3.2 To illustrate, the following would be changes in effective rate of tax:-
(i) the change in the portion of total value liable to tax
in respect of works contract other than original works (from @ 4.8%
earlier to @ 12% on 60% of the total amount charged, or effectively @
7.2% now).
(ii) exemption granted to certain works contracts w.e.f. 1st July 2012 which were earlier taxable.
(iii) taxability of certain works contracts which were hitherto exempted.
(iv) change in the manner of payment of tax from composition
scheme under the Works Contract (Composition Scheme for Payment of
Service Tax) Rules, 2007 to payment on actual value under clause (i) of
rule 2A of the Service Tax (Determination of Value) Rules, 2006.
3.3 However, the following will not be a change in effective rate of tax:-
(i) works contracts earlier paying service tax @ 4.8% under
Works Contract (Composition Scheme for Payment of Service Tax) Rules,
2007 and now required to pay service tax @12% on 40% of the total amount
charged, keeping the effective rate again at 4.8% (as only the manner
of expression has been altered).
(ii) works contracts which were outside the scope of
taxation (and not merely exempted) but have become now taxable e.g.
construction of residential complex comprising of 2 to 12 residential
units, construction of buildings meant for use by NGOs etc. (Rule 5 of
the Point of Taxation Rules, 2011 shall apply to such services.)
3.4 Thus the point of taxation for services provided in
respect of taxable works contracts in progress on 01.07.2012 would need
to be determined under rule 4 of the Point of Taxation Rules unless
there is no change in effective rate of tax.
4. It is further clarified that the provisions of partial
reverse charge would also be applicable in respect of such services
where point of taxation is on or after 01.07.2012 under the applicable
rule in respect of the service provider.
5. This Circular may be communicated to the field
formations and service tax assessees, through Public Notice/ Trade
Notice. Hindi version to follow.
Yours faithfully,
(Dr. Shobhit Jain)
O.S.D. (TRU)
Fax: 23093037
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