CA Sunil Gabhawalla | S B Gabhawalla & Co. | Chartered Accountants | Mumbai 12 La Bella Azad Lane Andheri East Mumbai 400069 www sbgco co in sunil@sbgco in 12 La Bella, Azad Lane, Andheri East, Mumbai 400069 www.sbgco.co.in sunil@sbgco.in
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CA Sunil Gabhawalla | S B Gabhawalla & Co. | Chartered Accountants | Mumbai12 La Bella Azad Lane Andheri East Mumbai 400069 www sbgco co in sunil@sbgco in12 La Bella, Azad Lane, Andheri East, Mumbai 400069 www.sbgco.co.in [email protected]
1. Short Title & Commencement
3. Determination of POT ‐General
2. Definitions
Unless otherwise provided
5 New services
4. Change in effective rate of tax Notwithstanding Rule 3
S ifi d i /
6. Continuous supply of services
5. New services
N t ith t di ll th l
Notwithstanding Rules 3,4 & 8
8. Copyrights
7. Specified services/ persons Notwithstanding all other rules
9. Transitional Provisions
16 November 2011
Notwithstanding all other rules
If i i i i d i hi d f If invoice is raised within 14 days ofcompletion of service
Invoice Date or Receipt Date, whichever is earlier
If invoice not raised within 14 days ofcompletion of serviceco p et o o se ce
Date of Completion of Service or Receipt Date, p p ,whichever is earlier
16 November 2011
“A” Li it d l t i l d t R “A” Limited completes a service valued at Rs.1,00,000 on 29th August 2011 and records“Unbilled Revenue” in its’ accounts on 31st3August 2011.
However, due to internal processes, it has notraised the invoice till 6th September 2011 theraised the invoice till 6 September 2011, thedue date of payment of service tax for August2011.Should the accountant of “A” Limited discharge Should the accountant of “A” Limited dischargethe service tax liability in the month of August2011 or not?
16 November 2011
When is a service said to be complete ? When is a service said to be complete ? The invoice needs to indicate interalia the value of service so
completed. Thus it is important to identify the service socompleted This would include not only the physical part ofcompleted. This would include not only the physical part ofproviding the service but also the completion of all otherauxiliary activities that enable the service provider to be in aposition to issue the invoice. Such auxiliary activities couldincl de acti ities like meas rement q alit testing etc hichinclude activities like measurement, quality testing etc whichmay be essential pre‐requisites for identification of completionof service. The test for the determination whether a service hasbeen completed would be the completion of all the relatedp pactivities that place the service provider in a situation to be ableto issue an invoice. However such activities do not includeflimsy or irrelevant grounds for delay in issuance of invoice
16 November 2011
Intangibility Undocumented Scope of Work
b l Possibility to Issue an Invoice
b k h Care to be taken where Documentary trail is available Deeming Fiction – “Continuous Services”
16 November 2011
Wh t i t b t t d i i ? What is to be treated as an invoice? Proforma Invoice Debit Note Debit Note Statement of Work Done Unnamed document containing the particulars Unnamed document containing the particulars mentioned in Rule 4A
Pl b Please remember, Issue of invoice is a must, at some point of time There are two sides of each coin There are two sides of each coin
16 November 2011
Description Amt. Linkage with Accounts
Invoices Raised during the month Sales RegisterInvoices Raised during the month Sales Register
Services Completed but invoices not raised within 14 days
Unbilled Revenue /MIS
Ad R i d d i th th D bt ’ L dAdvances Received during the month Debtors’ Ledger
LESS Invoices Raised during the month but tax paid on provision of services/advances in earlier months
Contra from earlier workings
in earlier months
16 November 2011
“continuous supply of service” means continuous supply of service means any service which is provided, or to be provided continuously,
under a contract, for a period exceeding three months, or where the Central Government by a notification in the Official where the Central Government, by a notification in the Official
Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any conditionClause Deals with
(zzq) Commercial or Industrial Construction
(zzzh) Construction of Residential Complexp
(zzzx) Telecommunication Services
(zzzu) Internet Telecommunication Services
(zzzza) Works Contract Services(zzzza) Works Contract Services
16 November 2011
Wh h i i f h h l f Where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contractcompletion of an event in terms of a contract,
which requires the service receiver to make any payment to service provider, payment to service provider,
the date of completion of each such event as specified in the contract shall be deemed to pbe the date of completion of provision of service
16 November 2011
A t ti t t id f t d d A construction contract provides for a standard rate of Rs. 500/‐ per sq. ft. of work done to be billed monthly by the 3rd of the next month. y y 3However, the payments shall be released only after certification, which takes around a month
In a particular case an invoice for 100o sq ft (Rs In a particular case, an invoice for 100o sq. ft (Rs. 5 lakhs) of work was raised on 3rd September. However, the client certified only to the extent of 800 sq ft (Rs 4 lakhs) on 10thOctober and of 800 sq. ft (Rs. 4 lakhs) on 10thOctober and paid an amount of Rs. 3 lakhs after deducting TDS and retention moneysy
How should service tax be discharged?16 November 2011
Description Amt. Linkage with Accounts
Invoices Raised during the month Sales RegisterInvoices Raised during the month Sales Register
Services Completed but invoices not raised within 14 days
Unbilled Revenue /MIS
Ad R i d d i th th D bt ’ L dAdvances Received during the month Debtors’ Ledger
Services deemed to be completed on achievement of milestone but invoices not raised within 14 days
Project Teams & Client Communications
not raised within 14 days
LESS Invoices Raised during the month but tax earlier
Contra from earlier workings
16 November 2011
Copyrights, Trademarks, Designs or Patents Where consideration determined by a subsequent use ▪ Invoice or Receipt whichever is earlier
Whether of Relevance?ff Difference between continuous service and single
service
16 November 2011
N t ith t di thi t i d i th l Notwithstanding anything contained in these rules
Export of servicesp Payment to be received within RBI stipulated time frame
Import of services & other Reverse Charge Cases Import of services & other Reverse Charge Cases Payment to be made within 6 months from date of invoice Except in case of Associated Enterprisesp p
▪ Earliest of date of credit or payment
What about transactions with AE located within India?What about transactions with AE located within India?
16 November 2011
E t f S i Export of Services: Impact on Bad Debts/Write Offs/ Direct Adjustments Reasons for relaxation as stated in CircularReasons for relaxation as stated in Circular Is there an exposure for AE Related Exports in the past?
How to reconcile with exemption available for small How to reconcile with exemption available for small service providers – Notification 6/2005‐ST
Import of Services/Other Reverse Charge Cases What if contractually the payment is to be made after 6 months of invoice?
How to ensure compliance with invoicing p grequirements
16 November 2011
Individuals & Partnerships providing certain professional services CA, CWA, CS, Lawyers, Architects, IDs, STC, Consulting Engineers
Wh b h i id d b h ? What about other services provided by them? What about other service providers?
16 November 2011
Description Amt. Linkage with Accounts
Invoices Raised during the month Sales Register
Services Completed but invoices not raised within 14 days Unbilled Revenue /MIS
Advances Received during the month Debtors’ Ledger
Services deemed to be completed on achievement of milestone but invoices not raised within 14 days
Project Teams & Client Communications
Non AE Related Foreign Remittances made during the month
Foreign Currency Remittances
Non AE Related Expenditure for which no foreign remittances are made within 6 months
Revise old working
AgeingAnalysis
AE Related Foreign Currency Expenditure booked in books of accounts
Provisions of accounts
Export Invoices not realised within RBI Stipulated time frame
Revise old working
Correspondences with Authorised Dealers & Ageing Analysis
LESS I i R i d d i th th b t t d li C t f li kiLESS Invoices Raised during the month but taxed earlier Contra from earlier workings
16 November 2011
h d h b l h ll b l bl Nothing contained in this sub‐rule shall be applicable where:
▪ Provision of service is complete prior to 1 April 2011 or▪ Provision of service is complete prior to 1 April 2011 or▪ Invoice is issued prior to 1 April 2011
Option to pay service tax on receipt basis where Provision is complete on or before 30 June 2011 or Invoice is issued on or before 30 June 2011
16 November 2011
Description Amt. Linkage with Accounts
I i R i d d i th th S l R i tInvoices Raised during the month Sales Register
Services Completed but invoices not raised within 14 days Unbilled Revenue /MIS
Advances Received during the month Debtors’ Ledger
Services deemed to be completed on achievement of Project Teams & Client Services deemed to be completed on achievement of milestone but invoices not raised within 14 days
Project Teams & Client Communications
Non AE Related Foreign Remittances made during the month
Foreign Currency Remittances
N AE R l t d E dit f hi h f i R i ld A i A l iNon AE Related Expenditure for which no foreign remittances are made within 6 months
Revise old working
AgeingAnalysis
AE Related Foreign Currency Expenditure booked in books of accounts
Provisions
Export Invoices not realised within RBI Stipulated time frame
Revise old working
Correspondences with Authorised Dealers & Ageing Analysis
Invoices raised under older provisions but realised during h i d
Debtors Reconciliation Sthe current period Statement
LESS Invoices Raised during the month but tax earlier Contra from earlier workings
16 November 2011
Provision Issuance
of invoice
of service
Date of payment
l bl Applicable ST rate 2/3
16 November 2011
Provision of Raising of Invoice Receipt of Money Effective Rate Reference to the Point of TaxationService RulesPrior to the Rate Change
Prior to the Rate Change
Prior to the Rate Change
Old Rate No Need to refer to the Rules
Invoicing or Receipt whichever is earlier
Prior to the Rate Change
Prior to the Rate Change
After the Rate Change
Old Rate Rule 4(a)(ii) Invoicing
Prior to the Rate Change
After the Rate Change
Prior to the Rate Change
Old Rate Rule 4(a)(iii) Receipt
Prior to the Rate Change
After the Rate Change
After the Rate Change
New Rate Rule 4(a)(i) Invoicing or Receipt whichever is earlier
After the Rate Ch
Prior to the Rate Ch
Prior to the Rate Ch
Old Rate Rule 4(b)(ii) Invoicing or Receipt hi h i liChange Change Change whichever is earlier
After the Rate Change
Prior to the Rate Change
After the Rate Change
New Rate Rule 4(b)(i) Receipt (even though it is subsequent to invoicing)
After the Rate Change
After the Rate Change
Prior to the Rate Change
New Rate Rule 4(b)(iii) Invoicing (even though it is subsequent to Change Change Change it is subsequent to receipt)
After the Rate Change
After the Rate Change
After the Rate Change
New Rate No Need to refer to the Rules
Invoicing or Receipt whichever is earlier
16 November 2011
O A t th i id i i On 27 August 2011, the service provider invoices a customer for AMC from October 2011 till September 2012 for Rs. 100000 + 10300 service p 3tax and pays the tax to the Department on 5 September 2011
Assume that on 25th September 2011 an Assume that on 25 September 2011, an abatement of 50% is provided for AMCs.
The payment is received on 12 October 2011Issues Issues What is the point of taxation? How will the tax liability be discharged?o t e ta ab ty be d sc a ged
16 November 2011
Wh i t b i CSS i t d fi t Where a service not being a CSS, is taxed first time then, no ST payable if Invoice and Receipt are before date of introduction Invoice and Receipt are before date of introduction Receipt is before date of introduction and invoice is issued within 14 days from collection
What happens to invoice raised before the introd ction b t receipt after the introduction but receipt after the introduction?
16 November 2011
Service Tax to be paid as and when services are deemed to be provided
Subsequent Adjustment Permitted in the following cases:
N P i i f S i h ll ti ll▪ Non Provision of Service, wholly or partially▪ Deficiency in Provision of Service▪ Renegotiation of Invoice as per the terms of the contract
Subject to the following conditions▪ Amount Refunded▪ Credit Note Issued▪ Credit Note Issued
16 November 2011
• Cancellation after advance• Mistakes in Invoices
Non Provision of Service
Deficiency in • Quality DiscountDeficiency in Provision of Service
• Volume Discount• Performance Driven Waivers
Renegotiation of Invoice Amount due
• Performance Driven Waiversto terms in contract
16 November 2011
C dit A il bl ft th i t f i i Credit Available on or after the receipt of invoice Payment to be made within 3 months otherwise credit to be reversedcredit to be reversed
Once reversed, fresh credit can be claimed on payment basis Whether “Expense Off Ratio” applicable to such fresh claim of credit?
In some cases Government is ‘out of pocket’ In some cases, Government is out of pocket Professional Services Transitional CasesTransitional Cases
16 November 2011
X Li it d i D it P ti i t It X Limited is a Depository Participant. Itmaintains accounts of various investors and hasentered into contracts with them. As per thepagreement with the investor, the Annual Feecharged is Rs. 2000/‐ and is billed at the start ofthe year In case the investor does not pay thethe year. In case the investor does not pay thefees within 60 days of the invoice, the account isblocked for debit transactions. If the amountsremain outstanding for more than one year Xremain outstanding for more than one year, XLimited provides for doubtful debts in its’ booksand stops raising fresh invoices to the investor.p g
16 November 2011
Is service tax payable on the amount billed but not received?
d f h Can an adjustment of the service tax component be claimed when the amount is
d d d b f l f ll ffprovided as doubtful/ finally written off? Can the DP discontinue billing such investors
h h b l f d d b f lwho have been classified as doubtful?
16 November 2011
f f Amendment in Definitions of Inputs & Input Servicesh f f l Shift from Payment Basis to Accrual Basis
Amendment in Rule 6d l bl h b f Credit available on the basis of
supplementary invoice except in case of suppression
Provision granting FULL Credit for specified d l dservices is deleted
16 November 2011
C C l I di P i t Li it d CCE ( ) STR Coca Cola India Private Limited vs. CCE 2009 (15) STR 657 (BomHC) Credit of service tax paid on advertisement of aerated pdrinks eligible against excise duty payable on concentrates
CCE vs. Manikgarh Cement 2010 (20) STR 456 (BomHC)HC) Credit of service tax paid on repairs and maintenance of staff quarters not eligible
CCE Ult t h C t ( ) STR (B HC) CCE vs. Ultratech Cement 2010 (20) STR 577 (BomHC) Credit of service tax paid on outdoor catering services is eligibleg
16 November 2011
Means…
Used for
Includes… But Excludes…
Used for providing output
services
Specified Overheads
Construction Related Services
Used whether directly or indirectly in or in relation to
manufacture of final products and clearance …
Vehicle Related Services
Employee Related Services
16 November 2011
Nature of Input Service EligibilityNature of Input Service Eligibility
Services used for providing output service Yes
Services used in relation to manufacture of final goods Yes
M d i ti R i R ti f P i YModernisation, Repairs or Renovation of Premises Yes
Advertisement, Sales Promotion, Market Research, Storage, Procurement of Inputs, Accounting, Auditing, Financing, Recruitment and Quality Control Coaching and Training
Yes
Recruitment and Quality Control, Coaching and Training, Computer Networking, Credit Rating, Share Registry, Security, Business Exhibition, Legal Services
16 November 2011
Nature of Input Service Eligibility
Architect, Port, Airport, Construction & Works Contract Services used for construction
No, unless used forproviding specified output services
Insurance, Rent a Cab, Repairs or Supply of Tangible Goods Services connected with motor vehicles
No, unless the credit is available on the motor vehicle itselfmotor vehicle itself
Outdoor Catering, Beauty Treatment, Health Services, Cosmetic Surgery, Club, Health Club. Life Insurance, Health Insurance Travel Benefits to employees
No
Insurance, Travel Benefits to employees
16 November 2011
Nature of Transaction Eligibility Further Nature of Transaction Eligibility Further Restrictions, if any
Goods used for construction of building or civil structure or foundation for capital
No N.A.p
goods (In General)
Goods used for construction of building or civil structure or foundation for capital
d f k
Yes, if service tax paid on full
l l d
Service Tax not eligible as credit to h fgoods (for port, airport, construction, works
contract service providers)value including materials
the manufacturer
Architect, Port, Airport, Construction & Works Contract Services used for
No N.A.Works Contract Services used for construction (In General)
Architect, Port, Airport, Construction & Works Contract Services used for
Yes Credit restricted to 40% if ED Credit Works Contract Services used for
construction (For Contractors)40% if ED Credit claimed by subcontractor
16 November 2011
Nature of Transaction Taxable Exempted
Manufacture of Excisable Goods Yes No
Manufacture of Exempted Goods No Yes
Manufacture of Goods cleared at 1% Rate No Yes
Cl t SEZ U it /D l Y NClearances to SEZ Units/Developers Yes No
Export ofGoods and Services Yes No
Provision of Taxable Services Yes No
Provision of Exempted Services No YesProvision of Exempted Services No Yes
Services on which Abatement is claimed under Notification 1/2006‐ST
No Yes
Services on which Composition Scheme /Special Rates A ailed
Yes, value corresponding to ta
NoRates Availed corresponding to tax
amount
Trading No Yes, to the extent of gross profits
Services to SEZ Units/Developers Yes No
TOTAL SAY 1,00,00,000 ~ 40% 1,50,00,000 ~ 60%
16 November 2011
Total Credit Available
Specific Identification and claim for taxable goods / services (Option I)
2,00,000Say 1,10,000 + 90,000
Claim 1,10,000
No identification – composite scheme for manufacturers / service providers based on output (ad hoc payment) –OPTION II
2,00,000 Claim 2,00,000Pay 7,50,000
N id tifi ti it h f Cl i No identification – composite scheme for manufacturers / service providers based on input & input services (proportionate payment) –OPTION III
2,00,000 Claim 2,00,000Pay 1,20,000
p y
No identification – composite scheme for manufacturers / service providers based on input services (proportionate payment) –
2,00,000Say 60,000 + 20,000 +
Claim 60,000 + 1,20,000 Pay 72,000
OPTION IV 1,20,000
16 November 2011
ff f Effective date of the Amendment Scope of Coverage: Trading in Goods Trading in Services “Goods” Component of Works Contract Trading in Securities and Shares
Impact of Valuation Gross Margin to be not less than 10% of the cost gof goods sold
16 November 2011
Hotels & Restaurants Construction Contractors
k k Stock Brokers Traders & Commission Agents
16 November 2011
Taxable S i
Registration
Premises 1Services
Exempted Services
Registration 1
Premises 2
Division 1 Taxable Services
Taxable Entity
Premises 2
Division 2
Taxable Services
Exempted Services
Registration 2
Taxable Services
ServicesInput Service Distributor
16 November 2011
f Is the ratio applicable only for common services or for all?
l bl Is it applicable vis a vis Division, Premises, Registration or Entity?h h l f Which ratio to apply to ISD transfers,
granting ratio or receiving ratio?
16 November 2011
16 November 2011
This presentation summarises the thoughts and views of the speaker. They are not intended tobe comprehensive but merely an aid for presentation The views expressed by the speaker (inbe comprehensive but merely an aid for presentation. The views expressed by the speaker (inhis detailed deliberations) are based on general facts. Each live case can have varying facts andthe conclusions may be different.
All examples in the presentation and the deliberations are fictitious and any resemblance to anyAll examples in the presentation and the deliberations are fictitious and any resemblance to anycompany is purely un‐intentional.
The presentation summarises the legal position as on the date of the presentation. There maybe subsequent amendments/developments which may render this presentation obsolete.be subsequent amendments/developments which may render this presentation obsolete.
No responsibility is accepted either by the speaker, the firm or the organiser for theconsequences of any action done or omitted to be done on the basis of this presentation
CA Sunil Gabhawalla | S B Gabhawalla & Co. | Chartered Accountants | Mumbai12 La Bella Azad Lane Andheri East Mumbai 400069 www sbgco co in sunil@sbgco in12 La Bella, Azad Lane, Andheri East, Mumbai 400069 www.sbgco.co.in [email protected]
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