3

Point of Taxation

For the sake of brevity, Point of Taxation Rules, 2011 have been referred to as POTR.
Question 1
Determine the point of taxation in the following cases with reference to POTR:(i)

Mugdha Private Limited is engaged in providing taxable services. It receives advances

of ` 1,00,000 from clients on 23rd February, 2014 for the service to be rendered in the
month of March, 2014.

(ii)

Rohan & Co. provided management consultancy services to M/s Bhatia & Sons on 5th
January, 2014 and billed it for ` 1,20,000 on 10th February, 2014. It received the
payment for the same on 14th February, 2014.

Answer
(i)

As per rule 3 of the POTR, advances received are taxable at the time when such
advances are received. Thus, point of taxation is 23rd February, 2014.

(ii) Rule 3 of the POTR provides that in case invoice has not been issued within 30 days of
completion of service, point of taxation is date of completion of service or date of receipt
of payment, whichever is earlier. Thus, point of taxation is 5th January, 2014.
Question 2
Determine the point of taxation in the following cases with reference to POTR:(i)

Rahu & Co. received advance of ` 1,12,360 from a client on 30.04.2013, for providing
advertising services in the month of May, 2013. However, due to some unavoidable
reasons, said services could not be provided and the advance money (including service
tax) was returned to the client on 12.05.2013.

(ii)

Suraksha Security Services Ltd. provided security services to M/s KP & Sons for the
month of January, 2014 and billed it for ` 1,20,000 on 10th February, 2014. It received
the payment for the same on 4th February, 2014.

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Point of Taxation

3.2

Answer
(i)

As per rule 3 of the POTR, advances received are taxable at the time of receipt when
such advances are received. Thus, the point of taxation of the advance received by
Rahu & Co. from the client is 30.04.2013. It is immaterial that services have not been
provided subsequently and the money was returned on 12.05.2013.
Further, the amount of service tax included in the amount refunded (` 12,360) in the next
month i.e. May, 2013 would be adjusted against service tax liability of subsequent
periods.

(ii) Rule 3 of the POTR provides that in case invoice has been issued within 30 days of
completion of service, point of taxation is date of invoice or date of receipt of payment
whichever is earlier. In this case, provision of services has been completed on 31st
January, 2014 and invoice has been issued on 10.02.2014 (within 30 days of completion
of service). Thus, point of taxation, in the given case, is date of invoice (10.02.2014) or
date of receipt of payment (04.02.2014) whichever is earlier, i.e., 4th February, 2014.
Question 3
Henna Builders Ltd. entered into an agreement on 28th March, 2013 for providing construction
services to Mirage Hotel for an agreed consideration of ` 8,00,000. The construction started
on 20th April, 2013. As per the terms of the contract, Mirage Hotel made the payment of
`3,00,000 in advance on 28th March, 2013 and paid the balance amount in two equal
installments each on 26th May, 2013 and 31st July, 2013 on completion of 50% and 100% of
the construction project on 15th May, 2013 and 28th July, 2013 respectively. The invoices
raised by Henna Builders Ltd. were as follows:Date of invoice

Amount (`)

28th March, 2013

3,00,000

20th May, 2013

2,50,000

31st August, 2013

2,50,000

Determine the point of taxation in each of the above cases.

Answer
Since, in the given case, the construction service has been provided on a continuous basis
under a contract, for a period exceeding three months with the obligation for payment from
time to time, it is a continuous supply of service. Further, in case of continuous supply of
service 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 receiver of service to

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3.3

Indirect Taxes

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.
The point of taxation for a continuous supply of service shall be determined as per rule 3 of
the POTR in the following manner:Date
completion
the event

of
of

Date of invoice

Date
payment

of

Point of taxation as per rule

3 of the POTR

28th March, 2013

28th March, 2013

28th
2013

March,

28th March, 2013 as advance

received is taxable at the time
when such advance is
received.

15th May, 2013

20th May, 2013

26th May, 2013

20th May, 2013. Since invoice

has been issued within 30
days of completion of service,
point of taxation will be date of
invoice or payment, whichever
is earlier.

28th July, 2013

31st August, 2013

31st July, 2013

28th July, 2013. Since invoice

has not been issued within 30
days of completion of service,
point of taxation will be date of
completion of service or
payment, whichever is earlier.

Question 4
Determine the point of taxation in each of following independent cases in accordance with the
POTR:
S.
No.

Date of completion Date

of service
invoice

1.

16.07.2013

11.08.2013

26.08.2013

2.

16.07.2013

11.08.2013

01.08.2013

3.

16.07.2013

11.08.2013

01.08.2013
(remaining)

4.

16.07.2013

11.08.2013

12.07.2013(Part) and 15.07.2013 (remaining)

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of Date on which payment is received

(Part)

and

26.08.2013

Point of Taxation

3.4

Answer
As per rule 3 of the POTR, in case the invoice is issued within the prescribed period of 30
days from the date of completion of provision of service, point of taxation is:(i)

date of invoice
or

(ii)

date of payment

whichever is earlier.
However, in case the invoice is not issued within 30 days of the completion of the provision of
the service, point of taxation is:(i)

date of completion of service

or

(ii)

date of payment

whichever is earlier.
Further, advances received are taxable at the time when such advances are received.
Accordingly, the point of taxation in each of the given cases is as follows:
S. Date
of Date
of Date on which Point of taxation
No. completion
invoice
payment
is
of service
received
1.

16.07.2013

11.08.2013

26.08.2013

11.08.2013

2.

16.07.2013

11.08.2013

01.08.2013

01.08.2013

3.

16.07.2013

11.08.2013

Part payment on 01.08.2013 for the part payment

01.08.2013 and and 11.08.2013 for the remaining
remaining
on amount
26.08.2013

4.

16.07.2013

11.08.2013

Part payment on 12.07.2013 for the part payment

12.07.2013 and and 15.07.2013 for the remaining
remaining
on amount
15.07.2013

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3.5

Indirect Taxes

Question 5
The effective rate of service tax was 10.30% up to 31.03.2012. However, with effect from
01.04.2012, the effective rate of service tax has been increased to 12.36%. With reference to
POTR. Determine the point of taxation as well as the applicable rate of service tax in each of
the following independent cases:
Case

Date of
service

provision

of

Date of issue of
invoice

Date of
payment

receipt

28.03.2012

02.04.2012

08.04.2012

II

28.03.2012

29.03.2012

08.04.2012

III

28.03.2012

04.04.2012

30.03.2012

IV

03.04.2012

31.03.2012

06.04.2012

03.04.2012

29.03.2012

30.03.2012

VI

03.04.2012

07.04.2012

31.03.2012

of

Answer
Rule 4 of the POTR determines the point of taxation in case of change in effective rate of tax.
Point of taxation means the point in time when a service shall be deemed to have been
provided. Further, the rate of service tax is the rate of service tax as applicable at the time
when the taxable service has been provided.
The point of taxation as well as applicable rate of tax in the present case as per rule 4, will be
determined as under:
Case Date
of Date
provision
issue
of service invoice

of Date
of receipt
payment

of Point of taxation
of

Applicable rate
of tax

28.03.2012

02.04.2012

08.04.2012

02.04.2012, being 12.36%

earlier of date of
issuance of invoice
[i.e. 02.04.2012] or
receipt of payment
[08.04.2012.]

II

28.03.2012

29.03.2012

08.04.2012

29.03.2012, being 10.30%

date of issuance of

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Point of Taxation

Case Date
of Date
provision
issue
of service invoice

of Date
of receipt
payment

of Point of taxation
of

3.6

Applicable rate
of tax

invoice
III

28.03.2012

04.04.2012

30.03.2012

30.03.2012, being 10.30%

date of receipt of
payment

IV

03.04.2012

31.03.2012

06.04.2012

06.04.2012, being 12.36%

date of receipt of
payment

03.04.2012

29.03.2012

30.03.2012

29.03.2012, being 10.30%

earlier of date of
issuance of invoice
[29.03.2012]
or
receipt of payment
30.03.2012]

VI

03.04.2012

07.04.2012

31.03.2012

07.04.2012, being 12.36%

date of insurance
of invoice

Question 6
Konark Services Ltd. started providing services with effect from 01.04.2013. It rendered
services to XYZ Ltd. on 15.09.2013 for which payment was received on 20.09.2013. With
effect from 01.10.2013, the said services became taxable. On 13.10.2013, Konark Services
Ltd. raised the invoice on XYZ Ltd. You are required to examine whether service tax is
payable on the said services.
Will your answer be different if Konark Services Ltd. raised the invoice on XYZ Ltd. on
16.10.2013?
Answer
As per rule 5 of the POTR, where a service is taxed for the first time, no tax shall be payable if
the payment has been received before the service becomes taxable and invoice has been
issued:-

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3.7

Indirect Taxes

(a) within 14 days of the date when the service is taxed for the first time
or
(b) before such service became taxable.
In the given case, since the payment has been received before service became taxable and
Konark Services Ltd. has issued the invoice on 13.10.2013 i.e. within 14 days of the service
becoming taxable, no service tax is payable on the said transaction.
However, if the invoice is raised on 16.10.2013, i.e. after 14 days of the service becoming
taxable, service tax will be payable on the said transaction.
Question 7
A particular service has been brought into service tax net with effect from 1.7.2013. Mr.
Vignesh has provided this service on 20.6.2013 and issued the invoice on 2.07.2013, the
payment for the same was received on 10.7.2013. Is service tax payable on the same?
Answer
As per rule 5 of the PORT, where a service is taxed for the first time, then,
(a) no tax shall be payable to the extent the invoice has been issued and the payment
received against such invoice before such service became taxable;
(b) no tax shall be payable if the payment has been received before the service becomes
taxable and invoice has been issued within 14 days of the date when the service is taxed
for the first time.
The facts given in the question do not fall under any of the above two clauses. Hence, service
tax is payable on the same.
Question 8
Mihir of Assam received some taxable services from Freddie Enterprises of U.K on 20.09.2013
for which an invoice was raised on 19.10.2013. Determine the point of taxation in accordance
with POTR if Mihir makes the payment for the said services on:Case I: 17.01.2014
Case II: 25.05.2014
Answer
In respect of any taxable services provided or agreed to be provided by any person who is
located in a non-taxable territory and received by any person located in the taxable territory,
person liable to pay service tax is the recipient of such service, i.e. service tax has to be paid

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Point of Taxation

3.8

under reverse charge mechanism. Hence, in the given case, service tax is to be paid by Mihir
of Assam.
Further, rule 7 of the POTR provides that the point of taxation in respect of the persons
required to pay tax under reverse charge mechanism, shall be the date on which payment is
made provided that the payment for the same is made within a period of 6 months of the date
of invoice, otherwise the point of taxation shall be determined as if this rule does not exist.
In the light of the aforesaid provisions, point of taxation will be as follows:Case-I: Since the payment has been made within 6 months from the date of invoice, point of
taxation shall be the date of payment i.e. 17.01.2014.
Case-II: Since the payment has been made after 6 months from the date of invoice, point of
taxation will be determined as if rule 7 does not exist, i.e. one has to proceed sequentially
starting from rule 3. Since, the invoice has been issued within 30 days of completion of
service, point of taxation will be date of invoice or date of payment, whichever is earlier i.e.
19.10.2013 [Rule 3].
Question 9
Sambhav Industries Ltd. (SIL) is an Indian Company. It has received taxable services from a
UK based company-George Ltd. on 01.01.2014. George Ltd. raised on SIL an invoice of
45,000 on 27.01.2014. SIL debited its books of accounts on 07.02.2014 and made the
payment on 25.03.2014.
George Ltd. and SIL are associated enterprises. Determine the point of taxation using
aforesaid details.
Answer
In case of associated enterprises, where the person providing the service is located outside
India, the point of taxation shall be:(a) the date of debit in the books of account of the person receiving the service
or
(b) date of making the payment
whichever is earlier.
Hence, in the given case, the point of taxation shall be earlier of the following two dates:(a) the date of debit in the books of account of SIL i.e. 07.02.2014
or
(b) date of making the payment i.e. 25.03.2014
Thus, the point of taxation is 07.02.2014.

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3.9

Indirect Taxes

Question 10
Pranav Desai is a well known author of a book on management. Hindustan Publishing House
enters into an agreement with him and obtains the copyright of the said book on 20.04.2011 at
a consideration fixed @ `15/- per book sold by Hindustan Publishing House. The no. of books
sold by Hindustan Publishing House during different financial years as well as other relevant
details is given in the following table:
Relevant
Year

No. of books
sold

Date of issuance of
invoice by Pranav Desai

Date of receipt of payment

from Hindustan Publishing
House

2011-12

5,00,000

29.07.2012

16.08.2012

2012-13

8,00,000

03.06.2013

23.05.2013

2013-14

2,00,000

16.06.2014

16.06.2014

Determine the point of taxation in each of the above financial years.

Answer
Since in the given case, whole amount of the consideration for the provision of service is not
ascertainable at the time when service was performed and subsequently, the use of these
services by a person other than the provider gives right to any payment of consideration, both
the conditions specified in rule 8 get satisfied. The point of taxation for various financial years,
determined as per rule 8, is as under:
Financial
Year

Point
taxation

of

Reason

2011-12

29.07.2012

Date of issuance of invoice [29.07.2012] falls before date

of payment [16.08.2012]

2012-13

23.05.2013

Date of payment [23.05.2013] precedes date of issuance

of invoice [03.06.2013]

2013-14

16.06.2014

Date of issuance of invoice [16.06.2014] as well as date

of receipt of payment [16.06.2014] is same.

Exercise
1.

Where a service provider maintains books of accounts on cash basis relating to taxable services
provided by him, will service tax be payable on accrual basis?

2.

Determine the point of taxation in each of the following independent cases:-

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Point of Taxation
Date of completion of service
10.03.2014
12.02.2014
31.03.2014
15.04.2014
20.02.2014
27.02.2014

Date of invoice
15.04.2014
15.04.2014
04.04.2014
30.04.2014
21.03.2014
15.04.2014

3.10

Date of payment
12.04.2014
10.02.2014
15.04.2014
20.04.2014
25.03.2014
20.03.2014

3.

Briefly explain how will the point of taxation be determined in case a service is taxed for the first
time and payment for the same is received and invoice has also been issued, prior to such
service becoming taxable.

4.

Define the term continuous supply of service.

5.

What will be the point of taxation where services have been received from associated
enterprises located outside India?

6.

Determine the point of taxation in the following cases:(a)

The invoice for a service rendered before the change in effective rate of tax has been
issued after the change in effective rate of tax and the payment is also received after the
change in effective rate of tax.

(b)

The invoice for a service rendered before the change in effective rate of tax has been
issued prior to change in effective rate of tax, but the payment is received after the change
in effective rate of tax.

(c)

The invoice for a service rendered after the change in effective rate of tax has been issued
prior to the change in effective rate of tax, but the payment is received after the change in
effective rate of tax.

(d)

The invoice for a service rendered after the change in effective rate of tax has also been
raised after the change in effective rate of tax, but the payment has been received before
the change in effective rate of tax.

7.

How is the point of taxation determined in case where a person is liable to pay service tax under
reverse charge mechanism and payment for the service rendered has been made within 6 months
of the service rendered?

8.

Briefly explain how will the point of taxation be determined in case of continuous supply of service.

9.

Nikhil Ltd. provides management consultancy services to its client Aggarwal Properties Ltd. for
agreed consideration of ` 1,50,000. Aggarwal Properties Ltd. makes the payment on 25th April,
2014. However, the date of completion of service is 15th April, 2014. The relevant invoice for
`1,50,000 is raised by Nikhil Ltd. as per following table:
Case I: 30th April, 2014
Case II: 16th May,2014
Case III: 20th April, 2014
Determine point of taxation in each of the above three cases.

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