Service Tax Applicable @ 10% (Not 12%) in case of invoice issued prior to 01/04/2012 and amount revived post 01/04/2012(Receipt Basis).

Prior to 01/04/2012 the Point of Taxation (POT) in case of the “Chartered Accountants Service” was prescribed as the date of receipt of payment u/r. 7(c) of the POT Rules, 2011 and hence service tax was payable at the rate applicable on the date of receipt. However, pursuant to budget, 2012 (w.e.f. 01/04/2012) the rate of tax was increased change to 12% from 10% and the erstwhile Rule 7 of POT Rule was made applicable to the CA’s service w.e.f. 01/04/2012. An issue arouse in case of a CA who had provided services and issued invoices prior to 01/04/2012 but received the payment post 01/04/2012 – What could be the rate of service tax. To resolve this issue, Board issued 2 Circular Nos. 154/5/2012-S.T dated 28/03/2012 and 158/9/2012-S.T. dated 08/05/2012 and clarified that the POT in the present situation would be governed by the erstwhile rule 7 (c) of the POT Rules and service tax @ 12% would be payable on payment received post 01/04/2012. In a writ challenging the validity of these circulars, the High Court struck down the said circulars and observed as follows:

(i) Both the circulars were erroneous and contrary to the law since they refereed  to the erstwhile rule 7 (c) of the POT Rules which did not exist at the time of receipt of payment i.e. post 01/04/2012:

(ii) The present issue was squarely covered by Rule 4(a) (ii) of the POT rules which prescribes the POT of service in case of changes in the rate of tax as the date of issuance of invoice.

Hence, the rate of service tax applicable to the present case was held to be 10% i.e. the rate of service tax applicable as on the date of issuance of invoice.

[Delhi Chartered Accountant’s Society (Regd.) vs. UOI (2013) 29STR 461 (Del.)]