This document summarizes changes made to Point of Taxation (POT) Rules and Cenvat Credit rules in 2012. It discusses key provisions related to determining the taxable event for service tax levy. It explains how the POT Rules help determine the applicable tax rate in cases where the rate is changed. It also summarizes the effect of various POT Rules when the service tax rate is increased or decreased.

1. Changes in POT and Cenvat
Credit – 2012
Puneet Agrawal,
B. Com (H), CA, LLB
Partner
ATHENA LAW ASSOCIATES
1

2. Words of Hon’ble Finance Minister
Mr. Pranab Mukherjee
“The life of a Finance Minister is not easy. Various players, including policy
makers, politicians, agriculturists and business houses, participate in the
making of the economy. When everything goes well with the economy, we
all share in the joy. However, when things go wrong, it is the Finance
Minister who is called upon to administer the medicine. Economic policy,
as in medical treatment, often requires us to do something, which, in the
short run, may be painful, but is good for us in the long run. As Hamlet, the
Prince of Denmark, had said in Shakespeare’s immortal words, “I must be
cruel only to be kind”.”
7/19/2012

3. Point of Taxation Rules

4. Point of Taxation Rules
Is it determining the taxable event
for levy of Service Tax?
7/19/2012

5. Beginning para of POT Rules
“In exercise of the powers conferred under clause (a) and
clause (hhh) of subsection (2) of section 94 of the Finance
Act, 1994, the Central Government hereby makes the
following rules for the purpose of collection of service tax
and determination of rate of service tax,”
7/19/2012

6. Point of Taxation Rules
• Section 94(2)(a) and Section 94(2)(hhh) of the
Finance Act
“(2) In particular, and without prejudice to the
generality of the foregoing power, such rules may
provide for all or any of the following matters, namely :-
– (a) collection and recovery of service tax under sections 66 and
68;
– [(hhh) the date for determination of rate of service tax and the
place of provision of taxable service under section 66C”
7/19/2012

7. Point of Taxation Rules
• Answer is No
– Section 66 of the Finance Act
» Charge of service tax: There shall be levied a tax (hereinafter
referred to as the service tax) at the rate of twelve per cent. on
the value of all services, other than those specified in the
negative list, provided or agreed to be provided in the taxable
territory by one person to another and collected in such manner
as may be prescribed.
– Section 68
» Payment of service tax: (1) Every person providing taxable
service to any person shall pay service tax at the rate specified in
section 66B in such manner and within such period as may be
prescribed.
• Also see new amended Rule 6(3) of the Service Tax Rules
7/19/2012

8. Point of Taxation Rules
CCE, Hyderabad V. Vazir Sultan Tobacco Co. Ltd. 83 ELT 3 (SC)
• The Apex Court interpreted the Section 3(1) of the Central Excise Act as
was exist which says :
– “(1) There shall be levied and collected in such manner as may be prescribed duties of
excise on all excisable goods other than salt which are produced or manufactured in
India and a duty on salt manufactured in, or imported by land into, any part of India as,
and at the rates, set forth in the First Schedule.”
• The Court held that:
– Para 7: It is evident that the words “in such manner as may be prescribed” qualify the
word “collected” and not the word “levied”. While the levy is created by Section 3
itself, the collection of the duty is left to be regulated by the Rules made under the Act
as the expression “prescribed” is defined in clause (g) of Section 2 to mean prescribed
by Rules made under the Act.
7/19/2012

9. Point of Taxation Rules
• Consequential amendment in Service Tax Rule, 1994
• Rule 5B is inserted:
– “Date of determination of rate: The rate of tax in case of services provided, or
to be provided, shall be the rate prevailing at the time when the services are
deemed to have been provided under the rules made in this regard.“
Now deleted w.e.f. 01.07.12
• Amended Rule 6(1) shall be read as under:
– The service tax shall be paid to the credit of the Central Government,
(i)by the 6th day of the month…………….; and
(ii) by the 5th day of the month, in any other case,
immediately following the calendar month in which the “service is deemed
to be provided as per the rules framed in this regard” (“payments are
received, towards the value of taxable services”)
Notification 3/2011-ST effective from 01.04.2011
7/19/2012

10. Amendment in Rule 6(3) also clarifies that point of taxation rule is not to
determine the taxable event
• When service is ultimately not provided
(3) Where an assessee has issued an invoice, or received any
payment, against a service to be provided which is not so provided by
him either wholly or partially for any reason, the assessee may take
the credit of such excess service tax paid by him, if the assessee.-
(a) has refunded the payment or part thereof, so received
alongwith the service tax payable thereon for the service to be
provided by him to the person from whom it was received; or
(b) has issued a credit note for the value of the service not so
provided to the person to whom such an invoice had been
issued.
7/19/2012

11. New section 67A
• The rate of service tax, value of a taxable service and rate of
exchange, if any,
• shall be the rate of service tax or value of a taxable service or
rate of exchange, as the case may be, in force or as applicable
• at the time when the taxable service has been provided or
agreed to be provided
• Seems to be the enabling provision
• The underlined portion shall derive its meaning from the time
determined as per POT rules
• Rule 5B has therefore been amended
7/19/2012

12. Rule 5
• Where service is taxed for the first time, no tax
payable to the extent
– the invoice has been issued and payment received before
such service became taxable;
– If payment has been received before service became
taxable and invoice issued within 14 days of the date when
service became taxable
• Where services provided prior to the service being
taxable – no ST
7/19/2012

13. Excess payment upto Rs 1,000
• Rule 3 of POT Rules read with R 4A of ST Rules–
• For excess amount upto Rs. 1,000 POT may be the issue of
invoice itself
• Invoice not required to be issued if amount received is upto
Rs. 1,000 in excess of the amount indicated in the Invoice.
7/19/2012

14. Raising of invoice
• Invoice should be raised within 30 days
(earlier 14 days) from the date of completion
of service or receipt of payment.
• POT shall be determined based upon raising of
invoice if issued within the said 30 days
7/19/2012

15. Point of Taxation Rules
Rule 4 - Determination of point of taxation in case of change in rate of
tax. The effect of this be summarised as under:
Relevant Date - Before change in rate Date – after change in Effect
Rules (assume 10%) rate (assume 12%)
4(a)(i) Service provided Raised Invoice 12%
Payment received [WEE]
4(a)(ii) Service provided Payment received 10%
Invoice issued
4(a)(iii) Service provided Invoice raised 10%
Payment received
4(b)(i) invoice raised Service provided 12%
payment received
4(b)(ii) Raised Invoice Service provided 10%
Payment received [WEE]
4(b)(iii) Payment received Service provided 12%
Invoice raised
WEE – Whichever is earlier
7/19/2012

16. Rule 2A inserted to clarify Date of payment
2A. Date of payment.— For the purposes of these rules, “date of payment”
shall be the earlier of the dates on which the payment is entered in the books
of accounts or is credited to the bank account of the person liable to pay tax:
Provided that —
(A) the date of payment shall be the date of credit in the bank account
when —
(i) there is a change in effective rate of tax or when a service is taxed for the
first time during the period between such entry in books of accounts and its
credit in the bank account; and
(ii) the credit in the bank account is after four working days from the date
when there is change in effective rate of tax or a service is taxed for the first
time; and
(iii) the payment is made by way of an instrument which is credited to a bank
account,
7/19/2012

17. Rule 4 contd…
• Change in effective rate includes change in
portion of value on which ST payable
• If it is a case of change in rate, the tax shall
apply relatable to the period as per rule 4
7/19/2012

18. Rule 6 deleted
• Till 31.03.2012 – continuous services covered under
R. 6
• W.e.f. 01.04.12 – R. 12 deleted and continuous
services put in R. 3
• Rate change as on 01.04.12 – rule 6 alone applicable
– savings section in CE Act applicable to ST
• Rate change as on 01.07.12 – on account of change
in composition rate – R. 4 shall apply
7/19/2012

19. Special POT for specified services
Individuals and partnership firms (including LLP)
• If aggregate value of taxable services is less than Rs. 50 lakh in
the previous financial year, the service provider shall have the
option to pay tax on receipt basis on taxable services upto Rs.
50 lakhs in the current financial year.
• The special rule for specified service providers namely
CA/CS/CWA, Consulting engineer, architect, interior decorator,
scientific or technical consultant and legal consultant to pay
service tax on receipt basis has been removed. They would
not have option to pay tax on receipt basis unless covered
above.
7/19/2012

20. Point of Taxation in case of exports
• Point of taxation in case of export of services – If payment is
received within period specified by RBI or period as extended
by it, then no service tax need to be paid.
• Now exports not taxable – therefore deleted
7/19/2012

21. Best judgment
Determination of Point of taxation on best judgment basis -
In case the point of taxation cannot be determined as per the
rules, the Central excise Officer have been empowered to
ascertain the point of taxation to the best of his judgment
7/19/2012

22. Amendments in Cenvat Credit Rules,
2004
Effective w.e.f. 01.04.2012
(unless some other date is specified)

23. Amendment in Cenvat Credit Rules
• Capital goods definition amended to include motor vehicles and parts, etc –
Part 1
– All motor vehicles except covered under CETH 8702, 8703, 8704 and 8711
are eligible as capital goods both for manufacturers and service providers
– Dumpers and tippers are specifically included
Part 2
– Motor vehicles designed for transportation of goods including their chassis
– registered in the name of service provider when used for –
• Service of renting of motor vehicle
• Transportation of inputs and capital goods used for providing output service
• Providing courier service
7/19/2012

24. Capital goods contd…
Part 3
– Motor vehicles designed to carry passengers including their chassis
– registered in the name of service provider when used for providing–
• Service of transportation of passengers
• Service of renting of motor vehicle
• Imparting motor driving skills
Part 4
– Components, spares and accessories of above (Part 1-3)
7/19/2012

25. Capital goods contd…
• Earlier (till 01.04.12) credit on all motor vehicles was available to a few specified service providers.
• This was liberalised w.e.f. 01.04.12
• Now (w.e.f. 01.07.12) further liberalised
• e.g. Tractors, Crane Lorries, Mobile drilling derricks, Fire fighting vehicles, Concrete mixer lorries
are not covered below
S.No. Tariff Heading Description of Motor Vehicle
1 8702 Motor Vehicles for the transport of ten or more persons, including
driver
2 8703 Motor Cars/ other motor vehicles principally designed for the
transport of persons including station wagons and racing cars
3 8704 Motor Vehicles for transport of goods
4 8711 Motor Cycles (including mopeds) and cycles fitted with an auxiliary
motor, with or without side-cars
5 Chassis of all the Motor Vehicle prescribed above
7/19/2012

26. Capital goods contd…
• Specified Service Providers till 30.06.12:
– Courier Agency
– Tour Operator
– Rent a cab
– Cargo Handling Agency – now would not get credit – doesn’t carry
inputs/capital goods of service provider
– Goods Transport Agency - now would not get credit - – doesn’t carry
inputs/capital goods of service provider
– Outdoor Caterer
– Pandal or Shamiana Contractor
7/19/2012

27. Input services
Input Services amended to include
• ‘General Insurance’, ‘servicing, repair and maintenance’, of
motor vehicles covered as input service in case of vehicle
manufacturers and insurance companies;
• Renting of motor vehicle availed by a person for whom motor
vehicle is capital goods, shall be considered as input services;
• For others these services are excluded
7/19/2012

28. Input services and inputs – works
contracts and builder’s services
Input definition
….. but excludes-
(B) any goods used for -
(a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of service portion in the execution of a works
contract or construction service as listed under clause (b) of section 66E of
the Act;
7/19/2012

29. Input services and inputs – works
contracts and builder’s services
but excludes-
(1) service portion in the execution of a works contract and
(2) construction services including
(3) service listed under clause (b) of section 66E of the Finance Act
(hereinafter referred as specified services)
in so far as they are used for -
(a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
- except for the provision of one or more of the specified services; or]
7/19/2012

30. Contd..
• Bonanza for developers
7/19/2012

31. Service tax paid on reverse charge
Output service
2(p) “output service” means any service provided by a provider of service located in the taxable
territory but shall not include a service,-
(1) specified in section 66D of the Finance Act; or
(2) where the whole of service tax is liable to be paid by the recipient of service
3. CENVAT credit.-
(1) A manufacturer or producer of final products or a provider of output service shall be allowed
to take credit (hereinafter referred to as the CENVAT credit) of
5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge
basis.-
• A provider of service providing services notified under sub-section (2) of section 68 of the
Finance Act and
• being unable to utilise the CENVAT credit
• availed on inputs and input services for payment of service tax on such output services,
• shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards,
conditions and limitations, as may be specified by the Board by notification in the Official
Gazette
7/19/2012

32. Service tax paid on reverse charge
• Service provider in which case 100% ST
payable by receiver may not be able to take
benefit of 5B
7/19/2012

33. Removal of CG
Duty payable on Capital Goods if after being used removed
as capital goods or as waste or scrap [R. 3(5A)]
• at transaction value/ Depreciated value which more [effective
from 17.03.12]
7/19/2012

34. Removal of CG
Amended Rule 3(5A) of CCR, 2004
If the capital goods, on which CENVAT credit has been taken, are removed after being used,
whether as capital goods or as scrap or waste, the manufacturer or provider of output
services shall pay an amount equal to the CENVAT Credit taken on the said capital goods
reduced by the percentage points calculated by straight line method as specified below for
each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely:-
(a) for computers and computer peripherals :
– for each quarter in the first year @ 10%
– for each quarter in the second year @ 8%
– for each quarter in the third year @ 5%
– for each quarter in the fourth and fifth year @ 1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each
quarter:
Provided that if the amount so calculated is less than the amount equal to the duty leviable
on transaction value, the amount to be paid shall be equal to the duty leviable on
transaction value.
7/19/2012

35. Removal of CG
Example:
 Capital Goods purchased on 01.04.2012 for Rs. 1,00,000
 Used for 5 months i.e. upto 31.08.2012
 Sold either as capital goods or as scrap for Rs. 10,000
 Value on which duty is payable is higher of following:
 Depreciated Value: 1,00,000-(5% of 1,00,000)= 90,000
 Transaction Value: 10,000
 i.e. Duty is payable on Rs. 90,000
Position before amendment:
• If sold as capital goods, duty is payable on Rs. 90,000 (i.e. on depreciated
value)
• If sold as scrap, duty is payable on Rs.10,000 (i.e. on transaction value)
7/19/2012

36. CC of inputs and CG - evidence
Documentary evidence for delivery and location of inputs
and capital goods
• To avail Cenvat credit, service provider has to maintain
documentary evidence for delivery and location of inputs and
capital goods at its premises.
Cont…
7/19/2012

37. Refund of Cenvat Credit
Rule 5. Refund of Cenvat Credit:
• New provision has been brought for refund of Cenvat credit to
exporters of goods/ services [rule 5].
• The new scheme does not require correlation between
exports and ‘inputs and input services’
• But proportion is applied across the board – even if used fully
for export
• This problem not in rebate Notn – 39/2012-ST
7/19/2012

38. Refund of Cenvat Credit
Relevant Extract of old RULE 5 - Refund of CENVAT credit
• Where any input or input service is used in the manufacture of final product
which is cleared for export under bond or letter of undertaking, as the case may
be, or used in the intermediate product cleared for export, or used in providing
output service which is exported, the CENVAT credit in respect of the input or
input service so used shall be allowed to be utilized by the manufacturer or
provider of output service towards payment of,
(i) duty of excise on any final product cleared for home consumption or for
export on payment of duty; or
(ii) service tax on output service,
and where for any reason such adjustment is not possible, the manufacturer or the
provider of output service shall be allowed refund of such amount subject to such
safeguards, conditions and limitations, as may be specified, by the Central
Government, by notification :
Cont…
7/19/2012

39. Refund of Cenvat Credit
Relevant Extract of New RULE 5 - Refund of CENVAT credit
• (1) A manufacturer who clears a final product or an intermediate product for
export without payment of duty under bond or letter of undertaking, or a service
provider who provides an output service which is exported without payment of
service tax, shall be allowed refund of CENVAT credit as determined by the
following formula subject to procedure, safeguards, conditions and limitations, as
may be specified by the Board by notification in the Official Gazette:
Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit
Total turnover
Where,-
(A) Refund amount‖ means the maximum refund that is admissible;
(B) Net CENVAT credit means total CENVAT credit availed on inputs and input services by
the manufacturer or the output service provider reduced by the amount reversed in terms
of sub-rule (5C) of rule 3, during the relevant period
7/19/2012

40. Rule 6
Reversal of Cenvat Credit for exempt service/goods in rule 6(3):
• Increased from 5% to 6%.
• In case of transportation of goods/passengers by train – 2%
Banking Co/Financial Instt/NBFC
• Earlier – if services provided under 65(105)(zm)
• Now – only if extends deposits, loans and advances
…. Then 50% CC reversal
• Now no problem to investment NBFCs
Reversal of credit where business of sale of securities
• Value of service - 1% of Purchase price or SP-PP (whichever higher)
Export of services
• If all conditions of r 6A of ST Rules satisfied and the payment to be received in foreign
exchange but actually not received within time allowed by RBI
• Still not considered as exempt service
7/19/2012

41. Amendment in Cenvat Credit Rules
Rule 7. Manner of distribution of credit by input service distributor. - The input service distributor
may distribute the CENVAT credit in respect of the service tax paid on the input service to its
manufacturing units or units providing output service, subject to the following conditions,
namely:—
(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of
service tax paid thereon;
(b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of
exempted goods or providing of exempted services shall not be distributed;
(c)credit of service tax attributable to service used wholly in a unit shall be distributed only to that
unit; and
(d)credit of service tax attributable to service used in more than one unit shall be distributed
prorata on the basis of the turnover of the concerned unit to the sum total of the turnover of all
the units to which the service relates.
Explanation 1.- For the purposes of this rule, ―unit‖ includes the premises of a provider of output
service and the premises of a manufacturer including the factory, whether registered or otherwise.
Explanation 2.- For the purposes of this rule, the total turnover shall be determined in the same
manner as determined under rule 5.’
- Now monthly calculation to be made
7/19/2012

42. Amendment in Cenvat Credit Rules
Old Rule 7:
Manner of distribution of credit by input service distributor. - The input
service distributor may distribute the CENVAT credit in respect of the
service tax paid on the input service to its manufacturing units or units
providing output service, subject to the following condition, namely:-
(a) the credit distributed against a document referred to in rule 9 does not
exceed the amount of service tax paid thereon; or
(b) credit of service tax attributable to service use in a unit exclusively
engaged in manufacture of exempted goods or providing of exempted
services shall not be distributed.
7/19/2012

43. Effect of the change
• CCE v ECOF Industries 2011 (23) S.T.R. 337 (Kar.)
10. Therefore, these are the only two limitations, which are imposed in Rule 7
preventing the manufacturer from utilizing the CENVAT credit, otherwise, he is
entitled to the said credit. Merely because the input service tax is paid at a
particular unit and the benefit is sought to be availed at another unit, the same is
not prohibited under law. It is in this context, the manufacturer is expected to
register himself as a input service distributor and thereafter, he is entitled to
distribution of credit of such input in the manner prescribed under law
• New provision has been brought for distribution of credit by the input
Service Distributor.
• Cenvat credit attributable to any particular unit is to be transferred only to
that particular unit; and
• If Cenvat credit is attributable to two or more units, it is to be transferred
to those units only in ratio of turnover.
7/19/2012

44. Amendment in Cenvat Credit Rules
Transfer of unutilised Cenvat credit of SAD
• Manufacturer having two or more factories can transfer
unutilized Cenvat credit of SAD from one excise unit to
another on strength of a transfer challan
7/19/2012

45. Amendment in Cenvat Credit Rules
“No interest” on Cenvat credit wrongly availed but not
utilised
• Rule 14 amended to provide that interest is chargeable if
Cenvat credit is “wrongly availed and utilized”. Thus, no
interest is chargeable if Cenvat credit is wrongly availed but
remains unutilized.
• However, rule 15 relating to penalty has not been amended
and therefore in deserving cases, penalty may be charged
even if wrongly availed Cenvat credit is not utilized.
7/19/2012

46. Services provided to SEZ Unit/ Developer
• Rule 6(6A) of CCR introduced w.e.f. 01.03.11
• Cenvat credit of inputs, input services and capital goods used
for providing services to a unit/developer of SEZ
• Services provided to SEZ even though exempt, Cenvat credit
of inputs, input services and capital goods allowed with
retrospective effect from 10.02.06
• Validation clause also introduced
• Now renamed as R 6(7)
7/19/2012

47. Reverse charge
• GTA – if any of the consignor or consignee is –
– Factory regd. under factories Act
– Coop Society
– Society regd. under Societies Regn. Act
– FSD/SSD
– Body corporate
– Partnership firm whether registered or not incl AOP
• Person liable to pay tax – person paying freight, if he
is in taxable territory.
• Otherwise service provider
7/19/2012

48. Contd…
• Advocate/ law firm/Arbitral tribunal – 100%
• Insurance agent to insurer – 100%
• Sponsorship to Body corporate/partnership located in taxable
territory – 100%
• Govt/Local authority by way of support services excluding
renting of immovable property and services in (1), (2), (3) of
66D
• To any business entity located in taxable territory
– Specified services by Post office
– Transport of goods and passengers
– Services in port or airport
7/19/2012

49. Contd…
• Following services
– provided by Ind/HUF/AOP/Partnership whether
regd or not located in taxable territory
– To a business entity regd as body corporate
located in taxable territory
• Renting of motor vehicle – 40% by receiver
• Manpower – 75% by receiver
• Works contract – 50% by receiver
7/19/2012

50. Contd…
• Import of services – 100% by receiver
7/19/2012

51. THANK YOU
Puneet Agrawal, Partner
ATHENA LAW ASSOCIATES
Contact:
puneet@athenalawassociates.com,
+91 9891 898911