2013 (1) TMI 434 - HC - Service Tax

Court affirms service tax rate based on service provision date, not payment date, emphasizing taxable event.

COMMISSIONER OF SERVICE TAX Versus CONSULTING ENGINEERING SERVICES (I) PVT. LTD.

The court dismissed the appeal and affirmed the Tribunal's decision in favor of the respondent, determining the service tax rate based on the date of ... Service tax rate - chargeable @ 5% or @8% - services provided prior to 14.05.2003 in respect of which payments were received on or after 14.05.2003 - Held that:- In the present case, the relevant period is April, 2003 to September, 2003 therefore, none of the above provisions of Rule 5B of the Service Tax Rules, 1994 will apply as same came into effect on 01.04.2011. Moreover, even Rule 4(a)(i) of the Point of Taxation Rules 2011 is not applicable because those Rules came into effect on 01.03.2011. The taxable event as per the Finance Act, 1994 is the providing of the taxable service. In the present case, as found that not only were the services admittedly provided prior of 14.05.2003 but also the bills have been raised prior to 14.05.2003. The only thing that happened after 14.05.2003 was that the payments were received after that date. That, would not change the date on which the taxable event had taken place. Since the taxable event in the present case took place prior to 14.05.2003, the rate of tax applicable prior to that date would be the one that would apply, thus the rate of 5% and not the rate of 8%. Issues: Determination of service tax rate for services provided before 14.05.2003 but payments received after that date.Analysis:The primary issue in this judgment revolves around the determination of the applicable service tax rate for services provided before 14.05.2003 but with payments received after that date. The Tribunal had ruled in favor of the assessee, applying a 5% service tax rate based on the date of service provision. The appellant challenged this decision, arguing that the Gujarat High Court's view, which favored the service tax rate based on the service provision date, was not binding. The appellant sought to rely on specific rules and provisions, including Rule 5B of the Service Tax Rules, 1994, Rule 4(a)(i) of the Point of Taxation Rules, 2011, and Section 67A of the Finance Act, 1994.However, the court found that none of the cited provisions were applicable to the case at hand, as they came into effect after the relevant period of April 2003 to September 2003. With no specific rules governing the situation, the court delved into determining the taxable event, which, as per the Finance Act, 1994, is the provision of the taxable service. In this case, the services were provided and billed before 14.05.2003, with only the payments being received after that date. The court emphasized that the date of the taxable event is crucial, and since it occurred before 14.05.2003, the applicable service tax rate would be 5% rather than 8%.Consequently, the court dismissed the appeal, affirming the Tribunal's decision in favor of the respondent based on the date of service provision as the determining factor for the service tax rate. The judgment highlights the significance of the taxable event date in establishing the applicable tax rate and clarifies that the payment date alone does not alter the rate if the service provision occurred before any rate changes.