- Prior to 2011, service tax was collected on a cash basis and was due by the 5th/6th of the month after the service was provided, regardless of whether payment was received. This led to delays or non-payment of taxes. - In 2011, Point of Taxation Rules (POTR) were introduced to shift the tax collection basis from cash to accrual. Now, the service tax due date depends on the service completion date or invoice date, not payment receipt. - POTR define the point in time when the service is deemed provided and tax becomes due. This aims to better align the service tax regime with the proposed GST regime.

1. Anshul Jain
Indirect Taxation

2.  Since its inception in 1994, Service tax was to be deposited to the credit of the central government by the
5th/6th of the month immediately following the calendar month in which the payments are received
towards the value of the taxable service provided or to be provided.
 In other words the person liable to pay service tax had to remit his liability on a cash basis, without any
reference to the amount receivable as per the invoice issued by such person.
 With this methodology the tax although became due but did not reach the government’s credit i.e. it
either got delayed or it never reached.
 To plug this lacuna, in 2011 (i.e. w.e.f 01-04-2011)the finance minister proposed the adoption of“ Point
of Taxation rules (POTR)” to achieve a fit between the present Service tax regime and the proposed
GST regime.
 The expression “Point of taxation” means the point in time when a service shall be
deemed to have been provided i.e. the time when the tax becomes due to be paid.
 The POTR shifted the basis of tax collection from “cash” to “accrual basis” like the other tax laws.
 In other words the remittance of Service tax by the person liable to pay Service tax need not depend on
whether he has actually received the payment for the services provided, It shall depend upon the date of
completion of the provision of service or at the best the date of issuance of invoice since such date marks
the day on which the payment accrues.

3. Rule 3:
 Rule 3 is the general rule or the residual rule i.e. when any of the following specific rules are not
applicable in a given scenario, Rule 3 shall be attracted. Though numbered as rule 3, but it is to be read at
last.
 It says that when none of the specific rules are applicable, the POT shall be:
◦ The time when invoice is issued for the service. ( provided or agreed to be provided). BUT, if the
invoice is not issued as per rules ( within 30 days from provision of service or 45 days in case of banking
concerns) then the POT shall go back to the day of completion of service.
◦ If the person providing the service receives any advance i.e. before the service is completed, then the
POT ( to the extent of such payment) will be the date of such advance.
 In case of continuous supply (services which are provided regularly for a period exceeding 3 months like
telecommunication service, construction service under works contract etc) of service where the provision
of the whole or part of the service is determined periodically on the completion of an event as per the
terms of a contract ( for e.g. laying foundation or flooring or any other milestone event as per the contract),
which requires the receiver of service to make any payment to the service provider, the date of completion
of provision of service.
 CBEC vide Circular No.144/13/2011-ST dated 18th July, 2011 has clarified the term “Completion of Service”
to mean that all the other auxiliary activities such as measurement, quality testing etc. besides the
physical part of providing prime service also to be completed, which enable the service provider to be in a
position to issue an invoice. However, such auxiliary activities shall not be flimsy or irrelevant grounds for
delay in issuance of invoice

4. S.
No
Date of
completion
of service
Date of
invoice
Date on
which
payment
received
Point of
taxation
Remarks
1 April 10,
2012
April 20,
2012
April 30,
2012
April 20,
2012
Invoice issued in 30 days of completion of
service and before receipt of payment
2 April 10,
2012
May 26,
2012
April 30,
2012
April 10,
2012
Invoice not issued within 30 days and
payment received after completion of
service
3 April 10,
2012
April 20,
2012
April 15,
2012
April 15,
2012
Invoice issued in 30 days but payment
received before invoice
4 April 10,
2012
May 26,
2012
April 5,
2012
(part) and
April 25,
2012
(remaining)
April 5, 2012
And April 10,
2012 for
respective
Amounts
Invoice not issued in 30 days. Part payment
before completion, remaining later
A few examples have been illustrated as follows.
Note: w.e.f 1st April, 2012, the time period for issuance of an invoice specified in Rule 4A of the Service Tax
Rules, 1994 has been increased from 14 days to 30 days from the date of completion of service or receipt of
any payment towards the value of such taxable service, whichever is earlier. In case service provider is
banking company or a financial institution including NBFC, the time period has to be read as 45 days.

5. Rule 4: Determination of point of taxation in case of change in effective rate of tax
 Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change
in effective rate of tax (to include a change in rate of abatement or any other notification issued,
altered, or amended and which has the effect of change in taxability, if any, of the service will also be
construed as change in effective rate of tax.) in respect of a service, shall be determined in the following
manner, namely:—
Provision
of Service
Issuance
of Invoice
Payment Point of
Taxation
Applicable
Rate of
Service Tax
Before
change of
Rate (Prior
to
01.04.2012)
After change of
rate
After change of rate Date of invoice or payment,
whichever is earlier
12%
Before change of
rate
After change of rate Date of invoice 10%
After change of
Rate
Before change of rate Date of payment 10%
After
change of
Rate ( After
01.04.2012)
Before change of
rate
After change of rate Date of payment 12%
Before change of
rate
Before change of rate Date of invoice or payment,
whichever is earlier
10%
After change of
rate
Before change of rate Date of invoice 12%

6.  When a service is taxed for the first time, no service tax is payable:
• In case invoice as well as payment are received against such invoice before such service became taxable;
• In case payment is received before such service became taxable & the service provider has issued invoice
within the period of 30/45 days of the date when such service is taxed for the first time. The provisions of
Rule 5 are explained with an example here below.
For example: The services of cricket commentators are made liable to service tax w.e.f. 1st July, 2012. In a
case where payment is made to the commentator on or before 30th June, 2012 for which invoice is raised
on or before 30th July, 2012, no service tax would be payable in view of Rule 5 of POTR, 2011 inspite of
the fact that the match for which the commentator is giving his services is scheduled on or after 1st July,
2012 i.e., at the time when the services are liable for service tax.
 Rule 5 covers only two issues which are specifically mentioned above. Any other situation shall be covered
under the general rule, i.e., rule 3.
 For example, in case where the date of invoice and the date of completion of service is before the service
became taxable but the payment has been received after the date the service became taxable then as per
rule 3, the POT shall be the date of issuance of invoice or receipt of payment, whichever is earlier.

7.  Rule 2(c) defines “continuous supply of service” to mean any service which is provided, or agreed to be
provided continuously or on recurrent basis, under a contract, for a period exceeding 3 months with the
obligation for payment periodically or from time to time or 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 condition.
 Central Government vide Notification No. 28/2011-ST dated 1st April, 2011 had notified following services
as “continuous supply of service” for the purpose of Point of Taxation Rules, 2011.
• Commercial or Industrial Construction
• Construction of Residential Complex
• Internet telecommunication Services
• Telecommunication Services
• Works Contract Service
 Rule 6 has been omitted w.e.f 1st April, 2012. For determining POT in case of continuous
supply of services, Rule 3,4,5 as the case may be will be applicable with effect from 1st
April, 2012

8.  Rule 7 provides that notwithstanding anything contained in these Rules, POT shall be the date on which
payment is received or made, as the case may be, in respect of persons required to pay tax as recipients of
service in respect of services notified under section 68(2) for reverse charge mechanism ( Old rule 7)
 CBEC vide Notification No.4/2012 changed the erstwhile rule 7 as follows:
 In respect of services notified under section 68(2) where payment is not made within a period of 6
months of the date of invoice, the point of taxation shall be the
◦ Time when invoice for service provided or agreed to be provided is issued.
◦ In case the invoice is not issued within the time period specified in Rule 4A of the Service Tax Rules,
1994, point of taxation shall be the date of the completion of such service
 For example : We have received the Taxable invoice under Reverse Charge in the month of say August 1,
2012, however the payment made to the party in the month of March 01, 2012.
Accounting Treatment in the Month of August 2012: -
At the time of booking the Expense for the service received we don’t need to book the Service Tax liability
i.e.
Expense Account .Dr
To Party
To TDS Payable
Note: -TDS will be deducted on the payment made to the party i.e. Service Tax need not be considered.

9. Accounting Treatment in the Month of February 2013 –
 In the month of February 2013, service tax liability needs to be provided as the payment has not been
made within the prescribed period as per Rule 7 ( i.e. 6 months), so the transaction will shift under Rule 3
and the service tax liability needs to be paid with interest from the due date as per Rule 3 of the point of
Taxation Rules, 2011
Service Tax Input Dr
Interest on Service Tax Dr
To Service Tax Payable
To Interest on Service Tax Payable
 Accounting Treatment at the time of payment of Service Tax -
Input Credit for the Service Tax payable is available only after the payment of Service Tax on the basis of
Challan evidencing the payment of Service Tax. (Credit under reverse charge is available only on payment
basis)
Service Tax Payable Dr
Interest on Service Tax Payable Dr
Service Tax Input Dr
To Bank
To Service Tax Input
 Accounting Treatment in the Month of March 2013
Party Dr
To Bank

10.  In case of associated enterprises where the person providing the service is located outside India, the
point of taxation shall be the date of credit in the books of account of the person receiving the service or
date of making the payment whichever is earlier.
 CBEC vide Circular No.154/5/2012-ST dated 28th March, 2012 has clarified that in respect of invoices
issued on or before 31st March, 2012, the point of taxation in respect of specified taxable services
rendered by individuals/proprietary firms/partnership firms shall be the date of receipt of payment as
provided by erstwhile Rule 7 of the Point of Taxation Rules, 2011. The specified taxable services are:
i) Architects
ii) Interior Decorators
iii) Practicing Chartered Accountants
iv) Practicing Cost & Works Accountants
v) Practicing Company Secretaries
vi) Scientific & Technical Consultancy
vii) Legal Services
viii) Consulting Engineer Services
 CBEC vide Circular No.158/9/2012-ST dated 8th May, 2012 has clarified that since the point of taxation in
respect of 8 specified taxable services rendered by individuals/proprietary firms/partnership firms shall be
the date of receipt of payment, service tax is required to be paid @12.36% in respect of
invoices raised before 1st April, 2012 for which payment is received after 1st April, 2012.
The service provider may issue supplementary invoice to recover the differential amount
of service tax which would be eligible as CENVAT credit to service recipient subject to
fulfillment of various conditions prescribed under the CENVAT Credit Rules, 2004.

11.  The above circular has been quashed as being contrary to the Finance Act, 1994 and the Point of
Taxation Rules, 2011 by the Delhi High Court in the case of Delhi Chartered Accountants Society (Regd) v.
Union of India and ors. W.P. (C) 4456/2012 & C.M. No. 9237/201. The Delhi High Court has held that the
Point of Taxation Rules, 2011 have the force of law and the circulars have to be in conformity with the
Act and the Rules and if they are not, they cannot be allowed to govern the controversy. It is well-settled
that a Circular which is contrary to the Act and the Rules cannot be enforced.
 Therefore since the point of taxation in respect of 8 specified taxable services rendered by
individuals/proprietary firms/partnership firms shall be the date of receipt of payment, service tax is
required to be paid @10.3 % in respect of invoices raised before 1st April, 2012 for which
payment is received after 1st April, 2012

12.  In respect of royalties & payments pertaining to copyrights, trademarks, designs or patents, where the whole
amount of the consideration for the provision of service is not ascertainable at the time when service was
performed and subsequently the use or the benefit of these services by a person other than the provider
gives rise to any payment of consideration, the service shall be deemed to have been provided each time
when a payment in respect of such use or the benefit is received by the provider or an invoice is issued by
the provider, whichever is earlier.
Rule 8A: Point of Taxation to the Best of Judgment
 Rule 8A gives powers to the Central Excise Officer to determine the point of taxation to the best of his
judgment in cases where the point of taxation cannot be determined as per POT Rules, 2011 as the date of
invoice or the date of payment or both are not available. In such cases, the Central Excise Officer is required
to give the concerned person opportunity of being heard before passing such order in writing.

13.  The provisions of these rules are not applicable in case where provision of services is completed or
invoices are issued prior to 1st April, 2011. In case where provision of services is completed or the
invoices are issued prior to 30th June, 2011, the point of taxation, at the option of taxpayer, shall be the
date on which the payment is received or made, as the case may.

14. Q 1: The service was provided in August 2010 when the rate was 10%, however the payments are
received in January 2013 when the rate was 12%. What should be the rate applicable and what are the
related consequences?
Ans: Rule 3 read with Rule 4 of POTR read with section 66B of the Finance act 1994, since the payment
for consideration was made years after provision of service, rate of tax prevalent at the time of provision
of service will be applicable. Hence tax will be payable at 10% plus cess. (European Court of Justice,
Impresa Cotruzioni comm. Quirino Mazzalai v/ Ferrovia del Renon (2013) 39 STT (ECJ)
Q 2: A person makes advance payments to one of its vendors for supply of services, in general, in
future. The nature/description of services to be received could be altered at any time by the person and
even the contract can be cancelled by the person leading to refund of balance advance. The vendor
company charges service tax on the invoice. Can the person avail CENVAT credit on such invoice?
Ans: Tax is leviable on advance payments for services only if all the relevant information concerning
chargeable event, namely future delivery or future performance is already known and the services are
precisely identified. Since the advance payments in this case, were made prior to identification of services
themselves, such general payments cannot be subject to service tax ( Since the assessee has the right to
alter the nature of the services to be rendered. Accordingly no service tax shall be leviable and therefore
no question of allowing CENVAT credit to the vendor. (ECJ 2013, 39 STT 733, BUPA hospitals ltd v/s
commissioner of customs and excise)

15. Q 3: A CA firm performs the following audit functions like, preparation of audit programme, performing
audit, preparing draft reports, discussing issues, finalizing the audit report and affixing signatures on the
report. What event can be regarded as the completion of provision of service?
Ans: It was clarified in a board circular 144/13/2011 ST that service is complete when not only service
is complete physically but all auxiliary activities that are required for issuing invoice are complete like
measurement, quality etc. But flimsy or irrelevant grounds for delay are not admissible. In view of the
above, date of finalization of audit report is the date of completion of provision of service. It is generally
followed by affixing of signature.
However, delay in affixation of signatures may be due to some activity remaining undone. In that case
date of affixation of signature would be POT.
Q 4: As chartered accountants we send reminder letters to our existing clients, so that no important
due date is missed. In that reminder we also mention fees relating to each work. Can such activity be
regarded as issuing invoice for the purpose of POTR.
Ans: A similar issue arose in insurance sector. It was clarified in circular no 166/1/2013 that In terms of
practice followed, reminder/notices/letters are issued by life insurance companies to policy holders to pay
renewal premiums. Under POTR the point of taxation is date of issuance of invoice or receipt whichever is
earlier. An invoice means invoices as described under Rule 4A of service tax rules 1994. Therefore
reminders cannot be construed as invoices for the purposes of POTR.

16. Q 5: An airline company has agents to issue tickets on their behalf. The rate of service tax was
increased from 10.3% to 12.36% w.e.f. 01/04/2012. Now what would be the rate applicable in case the
ticket is issued on 31/03/2012 on receipt of payment by agent from client but the journey is performed on
10/04/2012. The agent remits the money to the airline company on 30/04/2012.
Ans: In case of change in rate of tax, Rule 4(b)(ii) of POTR provides that if service is provided after
change in rate of tax but invoice is issued and payments are received prior to change in rate, the POT shall
be the date of payment or date of invoice whichever is earlier.
Here the issue of invoice i.e. the ticket is done by the agent and money is received by him on behalf of the
company. Circular 155/6/2012 ST clarifies that acts done by agent on behalf of the principal shall be
deemed to be done by the principal. Hence the date of payment in this case would be 31/03/2012 and the
rate of 10.3% shall be applicable.
Q 6: A builder is in the process of constructing 20 units of flats of Rs 1.2 Cr each since 01/03/2013. A
payment of Rs 50 lakh on each flat has been received upto 07/05/2013. corresponding bills were raised
and construction was also done accordingly. A part of the construction would be carried after 08/05/2013
and bills would be raised accordingly. What would be the implication when abatement has been opted?
Ans: Construction of residential complex upto Rs 1 Cr before 07/05/2013 was eligible for a 75%
abatement. However w.e.f 08/05/2013, the rate of abatement has been reduced to 70%. This would
amount to change in rate of tax and Rule 4 of POTR shall apply.
Under Rule 4, to the extent of invoice has been raised and payment received prior to change in rate, the
rate of tax aplicable shall be the old one i.e. 75% abatenment. However in respect of bills raised and
collections made after 08/05/2013 the rate of abatement shall be 70%.

17. In certain cases where the service has been provided prior to 08/05/2013 and bills are raised before
08/05/2013 but the payments are received on or after 08/05/2013 the rate of abatement will continue to
be 75%.
Q7: A school plans to organize a summer camp for its students. The services are covered under
exemption upto 09/05/2013. Now in a case service is provided on say, 01/05/2013 (Value Rs 25,000)
Invoice was issued on 09/05/1013 and the payment was also received on the same day. The cheque
received for the payment was presented in bank on 14/05/2013 and cleared on 16/05/2013. Would the
service be liable to service tax?
Ans: In this case since the payment is received by a banking instrument. Rule 2A, which says that since
the payment is credited in bank on 16th I.e. after 4 working days from 10th being due date of charge of
service tax on such service for the first time, hence the date of payment shall be considered to be the date
of credit in the bank i.e. 16/05/2013.
Rule 5(a) and 5(b) of POTR require that payment must have been received prior to charge of service tax
for the first time which is not the case here. Therefore the services shall stand liable to tax here.

18. Q 8: An owner of a patent has hired it out to a commercial user on royalty basis at specific percent of
revenue earned by user on a half yearly basis i.e. 30th Sept and 31st March. For the period 31st march 2013
the bill is raised on 11-04-2013 and the payment is received on 13/04/2013. Now is the service tax
payable on 31st Match 2013 or 6th July 2013 ( Q1 assuming a non corporate assessee)
Ans: As per Rule 8 of POTR where whole amount of consideration for services is not ascertainable when
service is performed and subsequently the use or benefit of these services by a person other than the
provider gives rise to any payment of consideration, then the service shall be treated as having been
provided each time when:
1) A payment in respect of such use or the benefit is received by the provider, or
2) An invoice is issued by the provider
whichever is earlier
Hence like all other rules of POTR, this rule also works on the basis of accrual i.e. invocie or payment
whichever is earlier i.e. 11/04/2013 in this case.
Now since the date of POT falls in the month of April, the tax is payable at the end of quarter 1 ( for a non
corporate assessee)

19. Q 9: A company in India receives service from USA on 18/08/2012. The relevant invoice of $1,50,000/-
was raised by American vendor on 20/09/2012. The payment was made on 15/04/2013 and the relevant
service tax under reverse charge was paid on 6th of May (being a corporate assessee) . Was the service tax
payable on 6th September 2012 since the service was received in August 2012?
Ans: As per Rule 7 of POTR, in case of reverse charge, POT=date of payment, but in case payment is not
made within 6 months from the date of invoice, POT shall be determined as if this rule did not exist. The
implication would be: POT shall be date of payment or date of invoice whichever is earlier nd if invoice is
not raised within 30 days of provision of service then POT shall be date of provision of service.
Here payment is not made within 6 months from date of invoice hence rule 7 does not apply. Secondly the
invoice is also raised after 30days of provision of service ( 30 days from 18/8 is 17/09 but invoice is raised
on 20/09) hence the POT shall be the date of provision of service which is 18/08/2012.
Now because the assessee is a corporate, the service tax accruing in the month of August 2012 is payable
in September 2012. Since the tax is deposited in May 2013, interest for delay shall also become payable.