Point of Taxation

[puneet virmani]

'A' registered under complex construction category as a builder/ promorter taking 75% abetment and paying service tax, not availing any cenvat credit. After enactment of Point of Taxation Rules, 2011 wht's the provision for promorter or builder to pay service tax as continuing service.

'B' registered under Works Contract Tax as contractor doing construction for 'A' builder/ promorter paying service tax @4.12%, also not availing cenvat credit. After enactment of Point of Taxation Rules, 2011 wht's the provision for contractor as providing continuing service to pay service tax. 

[ROHAN THAKKAR]

• “Continuous supply of service” means

1. Any service which is provided, or to be provided continuously, under a contract, for a period exceeding 3 months,  (like renting of immovable property, supply of tangible goods, for service) or
2. 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;

• Following services have been notified as “continuous supply of services” in terms of clause 2(c) of the rules vide notification No. 28/ST-2011 dated 01.04.2011:

1. Telecommunication service [65(105)(zzzx)]
2. Commercial or industrial construction [65(105)(zzq)]
3. Construction of residential complex [65(105)(zzzh)]
4. Internet Telecommunication Service [65(105)(zzzu)]
5. Works contract service [65(105)(zzzza)]

• These services will constitute “continuous supply of services” irrespective of the period for which they are provided or agreed to be provided.
• Notwithstanding anything contained in rules 3, 4 or 8, in case of continuous supply of service, the ‘point of taxation’ shall be,-

a) the time when the invoice for the service provided or to be provided is issued. However, where the invoice is not issued within 14 days of the completion of the provision of the service, the point of taxation shall be date of such completion.

b) In a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment. [Rule 6 of the Point of Taxation Rules, 2011]

• For the purpose of this rule, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service. [Explanation 1 to Point of Taxation Rules]
• For the purpose of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.” [Explanation 2 to Point of Taxation Rules]

Thus, both commercial / residential construction as well as work contract service will be considered as continuous supply service irrespective of the period involved. In this case, the tax liability will arise as under:

• If the payment is received in advance, then the date of payment will be considered as point of taxation; otherwise
• The invoice is required to be issued within 14 days of the completion of service, in that case date of completion of service shall be considered as point of taxation. However, if the invoice is not issued within 14 days, then the point of taxation shall be the date of completion of service.

The earliest of the above two events shall be considered as point of taxation.

AI Summary

Builder and Contractor Seek Clarity on Service Tax Obligations Under Point of Taxation Rules, 2011 for Continuous Supply Services. A builder registered under the complex construction category and a contractor under Works Contract Tax are inquiring about service tax obligations following the Point of Taxation Rules, 2011. The rules define 'continuous supply of service' for services like construction, and specify that the point of taxation is either the date of invoice issuance (within 14 days of service completion) or the date of payment receipt if received earlier. Both commercial/residential construction and works contract services are treated as continuous supply services, with tax liability arising based on the earliest of these events.