SERVICE TAX LIABILITY OF ROYALTY

[RAM SHARMA]

Dear Experts,

We have made provision  from 1.1.2012 to 31.03.2012 on Service Tax of Royalty @10% under reverse charge machenism and payment made to foreign in may 2012. As per finance bill 2012 the rate of service tax is 12% from 1.4.2012. Now  i am confuse what will be the rate of charged either it is 10% or 12% for service receiver under reverse charge machenism beacuse service tax liability should be payment basis. Pl clerify.

Thanks 

[Vijay Chitte]

As per CBEC, Circular No. 158/9/2012 Dt.08.05.2012  in case of tax is required to be paid on reverse charge by the service receiver,  the date of payment on or after 1st April 2012, service tax need to be paid @12.36%.

[Vijay kumar]

In terms of Section 66A of the Finance Act, 1994 read with Rule 7 of  Point of Taxation Rules, 2011, you have to pay the service tax @ 12.36% which is applicable from 1.4.2012 since the date of payment is in May, 2012. The provision made by you in your books of account is not relevant.

AI Summary

Reverse charge liability: tax rate follows the date of payment, so post-change payments attract the current rate. Under the reverse charge mechanism for royalty services, tax liability is determined by the date the service receiver is required to pay the tax; the payment date governs the applicable tax rate. Accounting provisions made before a rate change do not fix the rate: if tax is paid after a rate change, the service receiver must pay tax at the rate in force on the date of payment, per the Point of Taxation framework.