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Goods and Service Tax Act
GST: Don’t miss the last chance to rectify errors of FY 2017-18
GST Law has given us a chance to rectify any errors crept in GST returns filed for the financial year 2017-18 till date of filing of September 2018 return. This article focuses on most probable errors in the returns and way to correct them.
Month of September, being tax audit season, is always an important month for many of the businessmen and also professionals from Direct taxes point of view. Now, from indirect taxes point of view too, this month is now made critical, not for annual return or audit but return for month/quarter of September is last chance to add/correct/delete/ modify any details of either outward supplies or inward supplies pertaining to previous financial year i.e. any rectifications in the details already furnished in returns of July 2017 to March 2018 may be corrected/added in the return to be filed for the month of September 2018. Details of outward supplies can be modified on or before 31.10.2018 (being due date for filing GSTR 1) and details of inward supplies on or before 20.10.2018 (being due date for filing GSTR 3B). This article focuses on most probable errors in the returns and way to correct them.
Outward Supplies:-
1. Invoice pertaining to FY 2017-18 missed in GSTR 1 – The invoice may be added in GSTR 1 along with invoices of September 2018 in Table 4 with original date. If the tax pertaining to invoice is also not paid, the same may be added to taxable value and tax of the month of September, 2018 and pay the tax along with interest from due date of payment of tax till date of actual payment. However, the Annual return format i.e. GSTR 9 does not have a facility to add these type of missing invoices but the most suitable disclosure may be in Part V, Point 10 of Form GSTR 9.
2. B2B Invoice details wrongly entered in GSTR 1 –Here is a case where the invoice details are entered in GSTR 1 but some fields are wrongly mentioned. Some of the situations are:-
Error in GSTIN i.e. Invoice is in name of Mr. X but GSTR 1 is filed mentioning GSTIN of Mr. Y,Error in taxable value,Error in tax rate, etc.,
These details may be modified in Table 9A, 9B, 9C of GSTR 1. The same may be disclosed in Part V, Point 10 or 11 in GSTR 9.
3. B2C details wrongly entered in GSTR 1–There will be again 2 types of errors in B2C details.
3A. B2B invoice entered as B2C – If an B2B invoice pertaining to month of January 2018 entered as B2C in GSTR 1 of January 2018, this error can be rectified by adding the invoice details in GSTR 1 of September 2018 along with September B2B invoices and amending the B2C supplies of January 2018 using Table 10 of GSTR 1. To correct B2C details of a month,
Step 1 – Select the financial year and month (2017-18 & January, in this case)
Step 2 – Amount of B2C supplies already disclosed in January 2018 return appears
Step 3 – Reduce the B2C amount with the taxable value as per B2B invoice.
Then, B2C details of January 2018 stand corrected.
If the invoice is already declared in GSTR 3B correctly, the liability is not affected and the same needs not be disclosed anywhere in GSTR 9.
3B. B2C Intra-state supplies entered as Inter-state – If B2C supplies of an assessee from the state of Karnataka entered as B2C supplies of Andhra Pradesh i.e. Intra state entered as inter-state, the same may be rectified using Table 10 of GSTR 1. However, if the same error is also continued in GSTR 3B too, the liability may be affected since IGST is paid instead of CGST+SGST. This can be rectified by paying CGST+SGST and claiming refund of IGST. The same needs to be disclosed in Part V, Point 10 of GSTR 9.
3C. B2C Inter-State supplies wrongly entered as different state– If B2C supplies made to Andhra Pradesh was entered as B2C supplies to Telangana by a supplier registered in Odisha; the tax liability doesn’t change but the state mentioned is wrong. This also doesn’t affect the liability but the wrong details needs to be rectified for correct disclosure.
Inward Supplies:-
1. Failed to avail ITC– Did you miss claiming ITC on any invoice p
ertaining to FY 2017-18. No Worries, the same can be claimed upto the month of September 2018. Include the same in GSTR 3B of September 2018 and the ITC can be availed and utilised. These details are to be declared in Point 13 of Part V of GSTR 9.
2. GSTR 2A Vs GSTR 3B – Monthly data of GSTR 2A can be downloaded in Excel format now. Many have been ignoring the reconciliation of ITC as per GSTR 3B with details available in GSTR 2A. This reconciliation exercise should be a continuous process since it is a time consuming one but major outcomes are as under:-
Unearthing any missed credits i.e. supplies on which ITC is available but not availed will come into light when the reconciliation is done. It is important to note that the ITC pertaining to FY 2017-18 cannot be availed after the return for the month of September 2018 is filed.There may be situations where ITC has been claimed as per Invoice issued by the supplier but the supplier failed to file GSTR 1. If supplier doesn’t file GSTR 1, the invoice details doesn’t appear in GSTR 2A. This exercise helps us to follow up with the supplier and intimating/educating them to file their GSTR 1.
It is appropriate to mention here that minimum requirements for eligibility of invoice to avail ITC have been relaxed recently. The following details are minimum requirements to avail ITC.
Tax charged,Description of goods or services,Total value of supply of goods or services or both,GSTIN of the supplier andGSTIN of recipient andPlace of supply in case of inter-State supply
3. Excess ITC claimed – There may be situations where excess ITC would have been claimed due to error. For example, instead of entering only tax amount in ITC IGST column in GSTR 3B, amount of purchases may be entered which inflates IGST ITC. The same may be rectified now by reversing the excess ITC availed by entering the amount to be reversed in Table 4(B)(2) of GSTR 3B for the month of September 2018 and the same may be disclosed in Part V Point 12 of GSTR 9.
The situations discussed in the article are the most common issues which are required to be addressed in this September return. Now, one may agree that September month is made crucial even from indirect taxes point of view and hence please be cautious and re visit all the returns filed, reconcile with books of accounts and GSTR 2A and claim the missed ITC and also rectify any errors that were made while filing the returns for FY 2017-18. Happy September return in the month of October.
Be aware about your unclaimed Input Tax Credits for the Financial year 2017-18. Claim it before filing September 2018 GST return
Do you have any input tax credit which you have not claimed till date from 1st July 2017 onwards, when GST was introduced?
Then
a) Claim it Before the due date of filing the return for September month of the next financial year i.e 20th October 2018 or;
b) Before filing of the relevant annual return i.e 31st December 2018,
Whichever is earlier.
As per the CGST Act Section 16(4),
- A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both
- after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice
or invoice relating to such debit note pertains (Which is the due date for September 2018 or the F.Y ending 31st March 2018
- or furnishing of the relevant annual return, (which is December 2018)
- whichever is earlier.”
From the above provision the early date would be the due date for filing of September 2018 return as applicable and would be the early date.
Hence any input tax credits available between 1st July 2017 to March 2018 have to be invariably claimed before filing the September 2018 returns,
but for which such credits would lapse.
All your input credits available to you have to be reconciled with books of accounts and returns and compared with GSTR2A which can be
downloaded from GST portal after logging in, any unclaimed credits could be taken into account and then only the September returns filed.
You are aware that the Krishi Kalyan Cess is leviable in addition with effect from 1st June 2016 on the Taxable amount
The accounting codes for the same is as follows;
|
KKC (Minor Head) |
Tax Collection |
Other Receipts (Interest) |
Deduct refunds |
Penalties |
|
0044-00-507 |
00441509 |
00441510 |
00441511 |
00441512 |
You are requested to Charge an additional 0.5% separately on the taxable amount as Krishi Kalyan Cess and collect and pay the same
in addition to the present Service tax (14%) and Swatch Bharath Cess (0.5%)
An illustration for your convenience
|
|
Particulars |
Tax/Cess (Rs.) |
|
a |
Value of Taxable Service |
10000 |
|
b |
Service tax @ 14% |
1400 |
|
c |
Swatch Bharath Cess @ 0.5% (on (a) ) |
50 |
|
d |
Krishi Kalyan Cess @ 0.5% ( on (a) ) |
50 |
|
|
Total |
11500 |
SWATCH BHARAT CESS (SBC)
FREQUENTLY ASKED QUESTIONS (FAQ)
Q.1 What is Swachh Bharat Cess (SBC)?
Ans. It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015,called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service.
Q.2 What is the date of implementation of SBC?
Ans. The Central Government has appointed 15th day of November, 2015 as the date from which provisions of Swachh Bharat Cess will come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers).
Q.3 Whether SBC would be leviable on exempted services and services in the negative list?
Ans. Swachh Bharat Cess is not leviable on services which are fully exempt from service tax or those covered under the negative list of services.
Q.6 How will the SBC be calculated?
Ans. SBC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the same taxable value as service tax.
Q. 7 Whether SBC would be required to be mentioned separately in invoice?
Ans. SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly. SBC may be charged separately after service tax as a different line item in invoice. It can be accounted and treated similarly to Education cesses.
Q. 8 Whether separate accounting code will be there for Swachh Bharat Cess?
Ans. Yes, for payment of Swachh Bharat Cess, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-
|
Swachh Bharat Cess |
Tax Collection |
Other Receipts |
Penalties |
|
Deduct Refunds |
|
(Minor Head) |
|
|
|
|
|
|
0044-00-506 |
00441493 |
00441494 |
00441496 |
|
00441495 |
Q. 9 What would be effective rate of service tax and SBC post introduction of SBC?
Ans. Effective rate of service tax plus SBC, post introduction of SBC, would be [14% + 0.5%].
Q.10 Whether SBC is a ‘Cess’ on tax’ and we need to calculate SBC @ 0.50% on the amount of service tax like we were earlier doing for calculating Education Cess and SHE Cess?
Ans. No, SBC is not a cess on Service Tax. SBC shall be levied @ 0.5% on the value of taxable services.
Q. 11 Whether SBC is levied on all or selected services?
Ans. The Central Government was empowered to impose SBC either on all or some of the taxable services. Vide notification No 22/2015-ST dated 6-11-2015, Government has notified that SBC shall be applicable on all taxable services except services which are either fully exempt from service tax under any notification issued under section 93(1) of the Finance Act, 1994 or are otherwise not leviable to service tax under section 66B of the Finance Act, 1994.
Q.12 How will the SBC be calculated for services under reverse charge mechanism?
Ans. In case of reverse charge under section 68(2) of the Finance Act, 1994, the liability has been shifted from service provider to the service recipient. As per section 119 (5) of the Finance Act, 2015, the provisions of Chapter V of the Finance Act, 1994, and the rules made thereunder are applicable to SBC also. Thus, the reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC. In this context, to clarify, Government has issued notification No. 24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swachh Bharat Cess mutatis mutandis.
Q.13 How will SBC be calculated for services where abatement is allowed?
Ans. Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value as provided in the notification No. 26/2012-Service Tax, dated 20th June, 2012. So, this notification would apply for SBC also in the same manner as it applies for service tax.
For example, in the case of GTA, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X 30% = 4.35% (4.20%+0.15%)
Q.14 Whether Cenvat Credit of the SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax.
Q.15 What would be the point of taxation for Swachh Bharat Cess?
Ans. As regards Point of Taxation, since this levy has come for the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC for the first time. SBC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules would be applicable in this case. Therefore, in cases where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In cases where payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.
Q.16 How would the tax (Service Tax and SBC) be calculated on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006.?
Ans. The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and 10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for restaurant and outdoor catering services.
Q.17 How would the tax be calculated on restaurant services covered under Service Tax (Determination of Value) Rules, 2006.?
Ans. Swachh Bharat Cess would be calculated on the value arrived at in accordance with the Service Tax (Determination of Value) Rules, 2006. For example, the effective Swachh Bharat Cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% of the total amount, i.e, 0.2% of the total amount. The cumulative service tax and Swachh Bharat Cess liability would be [14% ST + 0.5% SBC] of 40% of the total amount, i.e., 5.8% of the total amount charged.
Q.18 Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents)
Ans. Sub-rule (7D) to rule 6 has been inserted vide notification 25/2015-Service Tax, dated 12th November, 2015 so as to provide that the person liable for paying the service tax under sub-rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay SBC as determined as per the following formula:-
Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%
The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.
Q. 19 How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?
Ans. In respect of reverse charge mechanism, SBC liability is determined in accordance with Rule 7 of Point of Taxation Rules, as per which, point of taxation is the date on which consideration is paid to the service provider. Thus, SBC liability in such case will be 0.5% X Value of taxable service.
Q.20 Does a person providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules, does he need to reverse the SBC also?
Ans. As SBC is not integrated in the Cenvat Credit chain and reversal under Rule 6 is payment of amount equal to 7% of the value of exempted services, hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.
The government of India wide Notification has made collection and levy of Swachh Bharat Cess mandatory from the 15th of November 2015.
Question: Who is supposed to collect this cess?
Answer: The cess is to be collected by any person:
• who is presently collecting Service Tax, and
• who may be required to collect Service Tax in the future (i.e. when the value of taxable services provided exceeds Rs. 10 Lakhs)
Question: What is the rate of SBC?
Answer: The government has issued two notifications on 6th November 2015 – one after the other.
• Notification Number 21/2015: SBC shall be levied at the rate of 2% (as per Chapter VI of the Finance Act 2015)
• Notification Number 22/2015: SBC in excess of 0.5% is exempted.
Net effect is that SBC shall be levied and collected at 0.5% itself.
Question: On what value should this rate be applied?
Answer: SBC is levied on the “Value of Taxable Services”.
Example: Consultancy service provided for Rs. 50,000
Service Tax = 50,000 x 14% Rs. 7,000
Swachh Bharath Cess = 50,000 x 0.5% Rs. 250
Total = Rs. 57,250
Hence, even though a “cess” SBC shall not apply on the Service tax amount. Instead it shall be applied on the Value of Taxable Service.
Question: How will ongoing services be effected?
Answer: Assuming that the levy of SBC is considered as a change in effective rate of tax, in the following situations there shall be no levy of SBC:
• If the service has already been provided as on 15th November 2015: Either the bill should have been raised before 15th November 2015 or the payment should have been received before 15th November 2015
• If the service has not been provided as on 15th November 2015: Both the bill should have been raised and the payment should have been received before 15th November 2015
Question: Will SBC apply on all services?
Answer: Swachh Bharat Cess shall not be leviable on services which are
- exempt from service tax by a notification, or
- otherwise not leviable to service tax.
Meaning that SBC shall apply only on those services on which Service Tax applies.
Question: What shall be date of payment of SBC?
Answer: The collection and levy of SBC shall be exactly like that of Service Tax. Even the provisions relating to interest, penalty, refunds and exemptions shall remain the same for SBC as is applicable to Service Tax.
Question: Provisions for a Return on SBC?
Answer: The existing ST-3 return for Service tax might get altered to include provisions for SBC as well.
NOTIFICATIONS WITH REFERENCE TO THE ABOVE:
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
New Delhi, the 6th November, 2015
Notification No. 22/2015-Service Tax
G.S.R. ---(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) read with sub-section (5) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all taxable services from payment of such amount of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the said Act, which is in excess of Swachh Bharat Cess calculated at the rate of 0.5 percent. of the value of taxable services:
Provided that Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994 or otherwise not leviable to service tax under section 66B of the Finance Act, 1994.
This notification shall come into force from the 15th day of November, 2015.
[F.No. 354/129/2015 - TRU]
(K. Kalimuthu)
Under Secretary to the Government of India
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
New Delhi, the 6th November, 2015
Notification No. 22/2015-Service Tax
G.S.R. ---(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) read with sub-section (5) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all taxable services from payment of such amount of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the said Act, which is in excess of Swachh Bharat Cess calculated at the rate of 0.5 percent. of the value of taxable services:
Provided that Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994 or otherwise not leviable to service tax under section 66B of the Finance Act, 1994.
This notification shall come into force from the 15th day of November, 2015.
[F.No. 354/129/2015 - TRU]
(K. Kalimuthu)
Under Secretary to the Government of India
PROVISION FOR
MANUAL SCRUTINY OF SERVICE TAX
CBEC has instructed its officials to commence a preliminary online scrutiny of all the returns and a detailed manual scrutiny of select service tax returns with effect from August 1, 2015. (Ref Circular No.185/4/2015-Service Tax dated June 30, 2015)
The returns which have been filed online will be scrutinized by the Jurisdictional Superintendent for ensuring the completeness of the information furnished in the return, arithmetic correctness of the amount computed as tax, its timely payment and date of filing of the return and will not involve the assessee or his authorized representative
This occasion will also be utilized to identify non-filers and stop filers.
The detailed manual scrutiny is to ensure:
- - Correctness of the assessment of tax made by the assessee
- - Checking the taxability of service
- - Checking the correctness of value of the taxable service
- - Admissibility of exemption notification
- - Admissibility of abatement
- - Admissibility of export of taxable service
- - Ensuring correct availment/utilization of Cenvat Credit
The assessee will be asked to submit documents like agreements, contracts, invoices and such other records which would ensure the verification of the above details. It is expressly stated in the circular that “detailed financial records should not be called for in a routine manner”.
An intimation letter which is in a specified format will be sent to the assessee at least 15 days prior to the commencement of the manual scrutiny communicating the selection of scrutiny. To start with, the returns filed for the financial year 2013-14 will be taken up for scrutiny.
One of the important objectives of scrutiny is to ensure validation of the information furnished by the assessee in the ST 3 return reconciling the same with ITR Form 4, 5, 6 and 26AS including any third party information available with the department.
The data available with the income tax department has been shared with the service tax authorities and it is expected that the service tax authorities will use this data while conducting the DMS.
Detailed check lists have been prepared and the scrutiny officer is required to fill up those during the course of verifications so as to summarize the findings.
The outcome of the scrutiny has to be documented and if there are issues the officer may refer the same to the audit or the anti evasion wing. If the scrutiny results in detection of defaults in payment of service tax verification can be extended to a further period of 6 months prior to the date of the financial year relevant to which scrutiny is being conducted. However, maximum limitation is years while conducting the Scrutiny. The entire process of scrutiny should be completed in a period not exceeding three months.
Impact of Change in Service Tax Rate to 14% New service tax rate of 14% is effective from June 1, 2015.
This article is intended to provide you with insights of how to deal with change in rate and which scenarios old rate shall prevail and when a new rate has to be applied.
Few of the practical questions posed could be as under: What if invoice is issued before the change of rate but payment is received after the change in rate.
- Which rate needs to be applied?
- What should be the rate applied in case service is provided before the change in rate and invoice is issued after the change in rate?
- What if both invoice is issued and service is provided before the rate change but payment is received after the rate change. Which rate needs to be applied?
As per Section 67A of the Finance Act, 1994 The rate of service tax, value of a taxable service and rate of exchange, if any, shall be taken as the rate/value in force or as applicable at the time when the taxable service has been provided or agreed to be provided.
In order to understand the point at which the service is said to have been provided, it would be relevant to read the definition of Point of Taxation as per Rule 2(e) “point of taxation” means the point in time when a service shall be deemed to have been provided.
This implies that one has to go to Point of Taxation Rules, to ascertain as to when the service is been provided to determine the rate of tax as per Section 67A However the point of agreeing to provide the service cannot be determined as per the point of taxation rules and when as service can be said to have been agreed to be provided, whether on receipt of the advance or on the entering to mere agreement to provide the service can be called as the point of agreed to be provided would be an area, which could lead to varied interpretation and lead to litigation.
Further Rule 4 of Point of Taxation Rules, 2011 lays down guiding principles to identify the point of taxation, i.e. the point when the service is deemed to be provided specifically in case of change in rate of service tax.
The initial portion again requires and assumption that the service is provided before the change in rate. This leads to an anomaly, since we are reading rule 4 to understand when the service is deemed to be provided, where as the rule state that if the service is provided before/after the change in rate, which has not been clarified.
The reference of service being provided before/after the change in rate needs to be understood in common parlance, which may be considered as completion of the service (delivered all the deliverable of a service contract) and if he same is continuous supply service, then the same can be considered as to that extent of the service which has been provided upto the agreed mile stone.
If the above points are put in a tabular form for ease of understanding:
| Scenerio | Service Provided | Invoice Issued | Payment Received | Rate Applicable |
| 1 |
Before 01.06.2015 |
After 01.06.2015 |
After 01.06.2015 |
14.00% |
| 2 |
Before 01.06.2015 |
Before 01.06.2015 |
After 01.06.2015 |
12.36% |
| 3 |
Before 01.06.2015 |
After 01.06.2015 |
Before 01.06.2015 |
12.36% |
| 4 |
After 01.06.2015 |
Before 01.06.2015 |
After 01.06.2015 |
14.00% |
| 5 |
After 01.06.2015 |
Before 01.06.2015 |
Before 01.06.2015 |
12.36% |
| 6 |
After 01.06.2015 |
After 01.06.2015 |
Before 01.06.2015 |
14.00% |
From the above we can understand that there are 3 events as under:
- Date of provision of service;
- Date of issue of invoice; and
- Date of payment.
Services Provided Earlier to 1.6.2015:
Illustrations when old rate would apply
a. Invoice raised and payment received after 1.6.2015: The invoice raised on 15thJune 2015, and service provided in May 2015. Payment received in June 2015. The service tax to be paid at 14%[new rate].
b. Where payment received before and invoice issued after 1.6.2015: The invoice raised on 15th June 2015, and service provided on 20th May 2015. Payment received on 30th May 2015. The service tax to be paid at 12.36% [old rate].
c. When the invoice issued before and payment received after 1.6.2015: The invoice raised on 15th May 2015, service provided on 4th May 2015 and payment received on 30th June 2015. The service tax to be paid at 12.36%[old rate].
Services Provided Post 1.6.2015:
Illustrations when old rate would apply
a. Invoice raised and payment received before 1.6.2015: If invoice raised on 5th May 2015, service provided in June 2015 and payment received on 15th May. Then service tax to be paid at 12.36% [old rate].
Illustrations when new rate would apply:
b. When invoice raised after 1.6.2015 and payment received before rate change: If invoice is raised on 5th June 2015, service provided in June 2015 and payment received on 15th May. Then service tax to be paid at 14% [New rate].
c. When invoice raised earlier to 1.6.2015 and payment made post change in rate: If invoice raised on 15th May 2015, service provided in June 2015,payment made on 1.6.2015. Then service tax to be paid at 14%[new rate].
2 out of 3 planning: From the above it can be understood that out of the 3 elements viz. (Date of issue of invoice, Date of payment and date of provision of service) if any of the 2 events occur before the effective date of change in rate, then the old service tax rate shall be applicable. Since the new rate most likely is to be effective from June 1, 2015 therefore if any 2 events takes place before that then the benefit of old rate can be taken even after June 1, 2015.
Anomaly in existence: On interpretation of Section 67A, which is supreme to the rule the rate needs to be adopted when the service was provided and the receipt of the consideration and the raising of invoice is irrelevant for this purpose, however Rule 4 of the POTR, 2011 states 2 our the three events which is tabled above shall be relent to determine the rate of tax. If one has to go with section 67A then it to be made sure that there is a proper documentation in place to prove the service was provided prior to rate change and also intimate this fact to department.
To avoid dispute and one can also examine to issue the Invoice prior to 01.06.2015 for all the completed service. This situation has arisen perhaps because the POT Rules were notified in 2011 and the Section 67A was inserted in 2012. We may expect some clarification to be issued by the Board in this regard with proper illustrations so that the transition to the new rate is smooth. Impact of Change in Rate The immediate impact of the change in rate would be increase in the service tax amount which is to be paid by the service provider post 1.6.2015. As per Section 68(1), service tax is a levy which is payable by the service provider. ST is a destination based levy, could be collected from the customer and paid to the Government. Service provider has statutory right to pass on the burden of the service tax component to service receiver in absence of prescription by legislature that service tax burden should not be passed on.
The Finance Act, 1994 does not contain any such restriction that service provider should not pass on the burden to the service receiver. However it all depends on terms of contract between the parties. When the contracted price includes all taxes, then the increased service tax burden of 14% would go out of the pocket of the service provider. When the terms are taxes including service tax extra as applicable, then the service provider could collect and pay the service tax. For all existing contracts as well as future contracts to be inked, care to be taken by service providers engaged in providing taxable services, to renegotiate and put in clause that ‘all taxes including service tax as applicable, to be collected extra from the customer’.
The ideal alternatives for on going contracts are as under:
a) Service Completed before 1.6.2015: All the services provided upto end of May 2015 need to be billed. These would include those bills not raised which have been postponed, missed, other reasons. These are to be identified and bill raised by end of May 2015. Otherwise the 14% rate may have to be applied in future.
b) Part services provided before 1.6.2015: The part bill to extent of completed service, could be raised before 1.6.2015 and service tax paid thereon by 5th/6th of June 2015 at 12.36%.
c) Advances received before 1.6.2015 for future services: Even on advances received towards services to be provided in future, invoices to be raised by 30th May 2015 and ST could be paid at 12.36%. d) Where the invoices are issued before 1.6.2015: When the invoices are raised before 1.6.15 for services to be provided in future[post June 2015], service tax rate is 14%.
Impact of subsuming cess FA 2015 has done away with the Cess, both under central excise and service tax. The provisions of Rule 3 of the CENVAT Rules permit utilisation of CENVAT credit of Excise duty/Service tax for payment of Cess but not vice versa. With no Cess on Excise duty/service tax, the manufacturer/service provider will merely accumulate such credit. There has been a notification no.12/2015-CE(NT) where it has clarified that the ED/SHE cess on inputs/input services/capital goods received on or after 1.3.2015 could be set off to pay excise duty by a manufacturer of final product. Similarly that balance 50% of ED and SHE cess on capital goods received in the factory of manufacture of final product in 2014-15 can be utilized to pay excise duty. There is no clarity on the past period accumulated credit.
A similar issue, could arise under service tax, when cesses are subsumed wef 1.6.2015. Where the customer has substantial accumulated credit could examine legal validity and take a call on set off of such accumulated credit of cess against the service tax payable post 1.6.2015 under intimation to department. It is hoped there would be some clarification issued in this regard.
Frequently Asked Questions:
Q. What is the effective rate of service tax that I need to charge on Invoice being raise today for the completed service? Comments: 12.36%
Q What is the effective rate of service tax that I need to charge on the advance received today for the service to be provided after 01.06.2015?
Comments: In case you also raise the invoice prior to 30.06.2015 (law provides time upto 30days from the date of receipt of the advance) then you can charge 12.36% in case the invoice is raised after 01.06.2015 then the same needs to be charged at 14%.
Q. Work is assigned in the month of May 2015 and 90% of the work is completed as on 31st May 2015, no advance is received, Invoice can be raised only on full completion of service in the month of June 2015. What is the service tax needs to be charged?
Comments: Since the Invoice would be raised in the month of June 2015 and payment would be received in the month of June 2015 14% would be applicable.
Q. I am a builder paying service tax on earlier of receipt of money or completion of milestone as per the contract, how should I apply the rate charge provision?
Comments: For the advance received prior to milestone and if the invoice is raised prior to 31st May 2015 the applicable rate of tax to that extent shall be 12.36% and all further milestone and payments shall be liable at 14%. For the milestone falling prior to 31st May 2015 and if the invoice has raised prior to such date 12.36% would apply to the extent of such amount as mentioned in such milestone, for the balance milestones amounts 14% would apply.
Q. I am a private limited company need to pay service tax on goods transport agency service under reverse charge mechanism? How to apply this rate change provision?
Comment: Point of taxation in case of service tax payment under reverse charge by the recipient of the service is governed by Rule 7 of the POTR, 2011 which has a overriding effect of Rule 4 and hence service tax prevalent as on the date of payment to vendor needs to be adopted however if the payment has not been made in 3 months then the rate prevent as on the date after the expiry of 3 months from the date of Invoice needs to be adopted. For all the payment made before 31.05.2015 service tax would be applicable at 12.36% and for the payments made there after, 14% rate would be applicable for all the invoice received date prior to 28th February 2015 on which the payment is still pending would be liable at the rate of 12.36% and for the Invoice raise from 1st March 2015 onwards for which the payment is pending as on 31st May 2015 will be liable at the rate of 14%.
Q. Do we need to charge Education cess and Secondary and Higher Education Cess on Service Tax w.e.f 01.06.2015?
Comments: No, the levy of the same gets abolished from June 1, 2015 and the same need not be charged from June 1, 2015.
Q. Do we need to charge Swach Bharat Cess on Service Tax?
Comments: No, Swach Bharat cess shall be applicable from the date to be notified. It has not been notified yet. Therefore, it shall not be applicable from June 1, 2015
Conclusion
The service providers may need to ensure that bills in respect of the completed services and advance receipts is raised and service tax is paid in next month/ month next to quarter. This would ensure that there are no demands for differential service tax, citing increase in service tax rate to take effect from 1.6.2015. The customer may also not have any objection especially those who are unable to avail the credit.
Disclaimer
Information published in the newsletter are taken from publicly available sources and believed to be accurate.