We are a private limited company providing consulting services. We understand that the rate of service tax has increased to 14% from 12.36% from June 1. We have provided consulting services to some of our clients in May 2015 and have raised the invoice for the services on May 31, but the payment will come later. Please let us know the service tax rate on this, 12.36% or 14%? Similarly, for some of the services have been provided in May, the client has requested us to raise the invoice after June 1 and they will be making the payment after raising the invoice; in such cases, what will be the rate of service tax? We also have a few clients from whom we had received advance payments for services to be provided in June-July. What will be the applicable rate in such cases?

The rate of service tax has been increased from 12.36% to 14% with effect from June 1. In order to determine when a service shall be deemed to have been provided and the rate at which service tax liability is to be discharged, reference needs to be made to the Point of Taxation Rules 2011 (POT Rules). Usually, as per Rule 3 of the POT Rules, the point of taxation is the time when the invoice for service provided or agreed to be provided is issued or date of receipt of payment, whichever is earlier. However, where the invoice is not issued within the prescribed time period, the point of taxation is the date of completion of provision of service. Rule 4 of the POT Rules provides for the determination of the point of taxation in case of change in effective rate of tax.

In terms of Rule 4(a)(i) of POT Rules, in case of change in effective rate of tax, if the service has been provided before the change in effective rate of tax but the invoice has been issued and payment has been received after the change of rate of tax, the point of taxation would be the date of raising the invoice or receipt of payment, whichever is earlier.

As per Rule 4(a)(ii) of the POT Rules, where the service has been provided and the invoice has been issued before the change in effective rate of tax but the payment is received after the change in rate of tax, the point of taxation would be the date on which the invoice is issued. Further, as per Rule 4(a) (iii) of the POT Rules, where the service has been provided and the payment has been received before the change in rate of tax, but the invoice is raised after the change in rate of tax, the point of taxation would be the date on which payment was received.

As per Rule 4(b)(i) of the POT Rules, if the service has been provided after the change in effective rate of tax and payment has been received after such change, but the invoice was issued before the change in effective rate of tax, the point of taxation would be the date of payment.

Further, as per Rule 4(b)(ii) of the POT Rules, if the service has been provided after the change in effective rate of tax but the invoice has been issued and payment has been received before such change, the point of taxation would be the date of invoice or date of payment, whichever is earlier.

As per Rule 4(b)(iii) of the POT Rules, if the service has been provided and invoice is issued after the change in effective rate of tax, but payment has been received before such change, the point of taxation would be the date of the invoice.

Accordingly, the rate of tax to be applied in different scenarios in the present case is as follows:

—In the first scenario, where the service has been provided and invoice has been raised before change in rate of tax i.e. before June 1, the rate of tax would be the rate applicable on the date of raising the invoice, ie 12.36%.

—In the second scenario, where the service has been provided before June 1 but the invoice has been issued after the change in rate of tax i.e. after June 1, with its payments being received subsequently, the rate of tax would be the date on which the invoice is raised. Hence, service tax on such transactions would be applicable at the rate of 14%.

—In the third scenario, where the service will be provided after June 1 and the invoice will also be issued after this date but advance payments have been received, the rate of service tax would be the date on which the invoice was raised. Hence, service tax on such transactions would be applicable at the rate of 14%.
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