Payment of Service Tax

43.1 Persons liable to pay service tax

The following persons are liable to pay service tax under the service tax law:
(a) Provider of service:
Normally the person providing a taxable services liable to pay service tax. It is also
known a forward charge mechanism.
Further, the service tax provider is entitled to recover such service tax from the recipient
of such services as service tax is an indirect tax.
Unincorporated associations or body of persons providing taxable services to its members
for cash, deferred payment any other valuable consideration are also liable to pay service
tax.
If the service provider fails to realize or charge the service tax from the service receiver,
he shall still be liable to ay service tax. However, in such cases, the amount recovered
from the client may be treated as inclusive of service tax and accordingly service tax will
be calculated by making reverse calculations.
b) Service recipient or a specified person liable to pay service tax (reverse charge
mechanism):
Although the general principle is that the person providing a taxable service is liable to
pay service tax, but in certain specific situations, section 68(2) permits the Government to
notify persons other than the person providing the taxable service to be liable for payment
of service tax. This is also known as reverse change mechanism.
(c) Both service provider as well as service recipient liable to pay service tax in
certain cases (Partial Reverse change Mechanism): In this case, liability to pay
service tax is apportioned between the service provider and the service recipient
and both are liable to pay service tax to the extent of their share prescribed. This
is also referred to as partial reverse charge mechanism cases.
Note: The details of persons mentioned in clause (b) and (c) above are given in para
41.11.
43.2 No service tax on free services
No service tax is leviable if free services are provided by the service provider. However,
if the authorised dealer of motor vehicle provides to customers free servicing of motor
vehicles without charging any amount of service charge from the customers and vehicle
manufacturer reimburses the amount to authorized service station on account of such free
services, the authorized service station shall have to pay service tax on the amount
received from the vehicle manufacturer for the purpose of servicing the vehicle.
43.3 Service provider to issue bill/invoice/challan [Rule 4A of Service Tax Rules, 1994]
Every person providing any taxable service shall issue an invoice, bill/challan signed by
such person or person authorised by him in respect of such taxable service provided or
agreed to be provided. The invoice, bill, challan shall be issued not later than 30 days
from.
(a) the date of completion of such taxable services, or
(b) the receipt of payment towards the value of such taxable service, whichever is earlier.
The aforementioned invoice etc. should be signed by the service provider or person
authorized by him and is required to be serially numbered. Further such invoice, etc. must
contain the following particulars:
(i) The name, address and the registration number of the service provider;
(ii) The name and address of the person receiving taxable service;
(iii) Description, and value of taxable service provided or agreed to be provided; and
(iv) The service tax payable thereon.
However, in case of a Goods Transport Agency in addition to above information, the
abovementioned invoice should contain details of the consignment note number and date,
gross weight of the consignment and other information as required.
1. In case the provider of taxable service is a banking company or a financial
institution including a non-banking financial company providing service to any person,
an invoice, a bill or challan shall include any document by whatever name called,
whether or not serially numbered or whether or not containing address of the person
receiving the taxable service but contains the necessary information. Further, the period
within which the invoice, bill or challan or documents, as the case may be, is to be issued,
shall be 45 days instead of 30 days.
2. In case of continous supply of service, such invoice, etc. shall be issued within 30
days of the date when each event specified in the contract, which require the service
receiver to make payment to service provider, is completed.
3. In case of service of transport of passenger, the ticket itself will be deemed to be
invoice/Bill, etc .
4. Payment of Service Tax compulsorily in accordance with Point of Taxation Rules,
2011
The Central Government has made point of taxation rules for the purpose of:
(a) collection of service tax and
(b) determination of rate of service tax.
The term Point of Taxation means the point in time when a service shall be deemed to
have been provided. Service Tax is required to be paid in accordance with Point of
Taxation Rules, 2011 [hereinafter abbreviated as POTR, 2011] Following two steps are
required to be taken for payment of Service Tax:
(i) Determination of Point of Taxation in accordance with these Rules.
(ii) Making payment of Service Tax in accordance with Rule 6(1) of Service Tax
Rules, 1994
POTR, 2011 contain many rules. Whereas rule 3 is general rule,-rules 4, 5, 7 and 8 are
situation specific rules.
43.5 (1) Determination of Point of Taxation [Rule 3 of POT Rules, 2011]
According to rule 3 of POTR, 2011, the liability to pay service tax shall arise as under:
(a) Where the invoice is raised within 30/45 days, as the case may be, of completion
of service:
The liability to pay service tax will arise on the date of:
i) issue of invoice for the service provided or agreed to be provided, or
ii) the receipt of payment,
whichever is earlier
(b) Where the invoice is not raised within 30/45 days, as the case may be, of completion
of service:
The liability to pay service tax will arise on the date of:
(i) completion of provision of the service, or
(ii) the receipt of payment,
Whichever is earlier.
1. 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 to rule 3]
2. Where payment is received before the issue of invoice or date of completion of
service, as the case may be, the liability of service tax shall arise to the extent of such
payment received.
(2) Date of completion of service in case of continuous supply of service [Proviso (i) to
rule 3 of POT Rules, 2011]
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 (can also be called a
milestone) in terms of a contract, which requires the receiver of service to make any
payment to service provider, the date of completion of each such event (i.e. milestone) as
specified in the contract shall be deemed to be the date of completion of provision of
service.
In case of continuous supply of service, every person providing such taxable service shall
issue an invoice, bill or challan, as the case may be, within 30 days of the date-when each
event (i.e. milestone) specified in the contract, which requires the service receiver to
make any payment to service provider, is completed.
Example: In the case of construction services if the payment are linked to stage by stage
completion of construction, the provision of service shall be deemed to be completed in
part when each such stage of construction-is completed and the invoice shall be raised
within 30 days of such completion.
Meaning of 'continuous supply of service. Continuous supply of service means any
service which is provided, or to be provided continuously or on recurrent basis:
(a) under a contract, for a period exceeding three months with the obligation for
payment periodically or from time to time, or
(b) 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. [Rule 2(c) of the POT Rules, 2011].
The following services have been since notified by the Central Government.
(a) Telecommunication service.
(b) Service portion in execution of works contract.

(3) Point of taxation of amount up to `1000 received in excess of invoice amount

[Proviso (ii) to rule 3]
Wherever the provider of taxable service receives a payment up to rupees one thousand in
excess of the amount indicated in the invoice, the point of taxation to the extent of
suchexcess amount, at the option of the provider of taxable service, shall be determined
on the basis of Invoice issued or completion of service instead of date of receipt of
payment.
Where such option is exercised, no invoice is required to be issued to such extent
(4) Threshold limit for applicability of rule 3 of Point of Taxation Rules, 2011
A. In case of an individual or a partnership firm or one person company.
(1) Aggregate value of taxable service provided in the previous financial year does not
exceed `50,00,000 [Third provisio to rule 6 of service tax rules 1994]: In case of
individuals or partnership firms or one person companies whose aggregate value of table
services provided from one or more premises does not exceed `50,00,000 in the previous
financial year, the service provider shall have the option to pay tax on taxable services
provided or agreed to be provided by him upto a total of `50,00,000 in the current
financial year, by the dates specified in this sub-rule with respect to the month or quarter,
as the case may be, in which payment is received.
In other words, if the aggregate value of taxable services provided by an individual or a
partnership firms or one person company in the previous financial year does not exceed
`50,00,000, such individual or firm can pay service tax on taxable services provided or
agreed to be provided by him upto a total of `50,00,000 in the current financial year
within time specified about with respect to the quarter in which payment is received.
Hence, rule 3 of the Point of Taxation Rule, 2011 shall not apply in the above case.
(2) Aggregate- value of taxable service provided in the previous financial year exceeds
`50,00,000: In case of an individual or a partnership firm or one person company, if the
aggregate value of service provided in the previous financial year exceeds `50,00,000
then rule 3 of the Point of Taxation Rules, 2011 discussed above shall apply on the value
of sevices.
B. In case of an assessee other than an individual or a partnership firm or one per on
company
Rule 3 of the Point of the Taxation Rules, 2011 discussed above shall apply whether or
not the aggregate value of taxable service provided in the previous financial year exceed
`50,00,000.

Example on application of Rule 3

S.No Date of Time [Date] of Date on Point of Remarks
completion of Invoice, Bill or which Taxation
service Challan, as the payment
case may be received
1. 22.07.2015 12.08.2015 22.08.2015 12.08.2015 Invoice issued within 30
days of completion of
service but before receipt of
payment hence point of
taxation is date of invoice.
2. 22.07.2015 12.08.2015 08.08.2015 08.08.2015 Though, invoice has been
issued within 30 days of
completion of service but
payment is received before
the date of invoice. Hence,
point of taxation is date of
payment.
3. 22.07.2015 12.08.2015 08.08.2015 08.08.2015 to Invoice issued within 30
(part) and the extent of days, but part payment is
30.08.2015 part payment received before invoice and
(remaining) received and remaining payment is
12.08.2015 for received after the date of
 the balance invoice. Hence, point of
amount of taxation will be date of
invoice payment in the first case and
date of invoice in the second
case.
4. 22.07.2015 12.08.2015 16.07.2015 16.07.2015 Invoice issued within 30
(Part) and and days. However, the advance
19.07.20158 19.07.2015 for has been received in two
(Remaining) the respective installments before the date
amount of completion of service.
Thus, date of receipt of each
such advance shall be
treated as point of taxation.
5. 22.07.2015 12.08.2015 16.07.2015 16.07.2015 Invoice issued within 30
(Part)and and 11.08. days. Part payment [in the
11.08.2015 2015 for the form of advance] received
(remaining) respective before issue of invoice and
amount remaining payment received
after completion of service
but before issue of invoice.
Hence, point of
taxation will be date of
receipt of respective
payment.
6. 22.07.2015 25.08.2015 30.08.2015 22.07.201 Invoice is not issued within
30 days of completion of
service. Hence, point of
taxation shall be from the
date of payment whichever
is earlier i.e. 22.07.2015
Illustration 43.1: R Ltd. gives a building construction contract to G, a contractor on 5-08-
2015 for a total consideration of `60, 00,000.

The payment schedule is as under:

Instalment Amount of payment Date of Date of issue of Date of

completion invoice payment
of mile stone
1 15% payable on the 5-8-2015 5-8-2015 5-8-2015
signing of the
agreement
2 30% payable on casting 1-11-2015 7-11-2015 15-11-2015
of first floor slab
3 25% payable on casting 15-1-2016 10-2-2016 15-2-2016
of second floor slab
4 25% payable on 15-2-2016 30-3-2016 31-3-2016
completion of flooring
and wooden work
5 5% on completion of 16-5-2016 17-5-2016 11-5-2016
building
Solution
Point of taxation shall be as under
1st instalment - 5-8-2015

2nd instalment -7-11-2015 as bill is raised within 30 days.

3rd instalment - 10-2-2016 as 'bill is raised within 30 days.

4th instalment - 15-2-2016 date of completion of event as bill is not raised within 30 days.

5th instalment - 11-5-2016 as payment is received before the issue of the invoice.

43.6 Due Dates for Payments [Rule 6(1)]

Rule 6(1) of Service Tax Rules, 1994 [hereinafter abbreviated as STR, 1994] governs
both the manner and period of payment of Service Tax. The following table exhibits the
various Provisions of rule 6(1) of STR 1994:-

S. No Mode of Payment Status of Service Last date for making payment of

Provider Service Tax
1. Electronically through Any person other than an 6th day of the month immediately
internet banking i.e. individual or proprietary following the calendar month in
online-Payment firm or partnership firm which the service is deemed to have
or one person company been provided as per POTR, 2011.
However, for the month of March,
Service Tax has to be deposited by
31st March.
2. Electronically through An individual or 6th day of the month immediately
internet banking i.e. proprietary firm or following the quarter in which the
online-payment partnership firm or one service is deemed to have been
person company provided as per POTR, 2011.
However, for the quarter ending
March, Service Tax has to be
deposited by 31st March. See note
below
Note: If the aggregate value of taxable services provided by an individual or a
partnership firm or one person company in the previous financial year does not exceed
`50,00,000, such individual or firm or one person company can pay service tax on taxable
services provided or agreed to be provided by him upto a total of `50,00,000,in the
current financial year within time specified above with respect to the quarter in which
payment is received.
Illustration 43.2: R Ltd. gives the following particulars relating to tile services provided
by it to its various clients for the month ending 30.12.2015:
(i) Total bills raised for `17,50,000 out of which bill for `1 ,50,000 was raised on an
Diplomatic Mission and payments for bills for `2,00,000 were not received until
30.12.2015. Service tax is separately charged on the bills raised.

(ii) Amount of `1,14,500 (including service-tax and SBC) was received as an advance
from XYZ Ltd. on 25.12.2015 to whom the services were provided in March 2016.
Compute:
(a) Value of Taxable Services.
(b) Amount of Service Tax Payable.
(c) Last date of Service Tax Payable.
Assume service tax is separately charged in the bills as well as for advance payment.
Solution
a) Value of Taxable Services for the month ending 30.12.2015

S. No. Particulars Amount (`)

(i) Total bills raised during the month ending 30.12.2015 17,50,000
(ii) Less: Bill raised on Diplomatic Mission 1,50,000
(iii) Bills in respect of which payment was not received until
30.12.2015 - No adjustment is required because
according to Rule 3 of Point of Taxation Rules, 2011
where invoice is issued within 30 days from the date of
completion of the service, the Point of Taxation will be
earlier of the following two dates:
(a) Issue or-Invoice for the service provided or to be
provided; or
(b) Date of payment to the extent it is received

16,00,000
(iv) Add: Amount of advance received on 25.12.2015 is to be
included in the taxable value of services because
according to Explanation appended to Rule 3 of Point of
Taxation Rules, 2011 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. `1,14,500 x
100/114.5
Value of Taxable Services 17,00,000
(b) Amount of service tax payable
Value of Taxable Services

S.No. Particulars Amount

i) Value of Taxable Services 17,00,000
ii) Service Tax @ 14% 2,38,000
Add: SBC @0.5% 8,500
Total service tax payable 2,46,500

(c) Last date of service tax payable

Since the service provider is a company, the last date for making payment of
Service Tax payable will be 6th January in accordance with the rule 6(1) of
Service Tax Rules, 1994.

Illustration 43.3: R a chartered accountant is practicing in Delhi. In the financial

year 2014-15 aggregate value of taxable services provided by him was `48,00,000.
In the financial year 2015-16 aggregate value of taxable services provided by him
upto the 3rd quarter ending 31-12-2015 is `50,00,000. From the information given
below find out service tax payable by him for the quarter ending 31-03-2016.

`
Amount inclusive of service tax and SBC received on 5-1-2016 for services 68,700
rendered on 8-12-2015
Amount inclusive of service tax and SBC received on 8-1-2016 for services 51,525
rendered
Services. provided during quarter ending 31-3-2016 (invoice issued within 42,00,000
30 days of providing service) (out of these services, advance of `3,00,000 (exclusive
of ST and
(inclusive of service tax and SBC) was received on 16-11-2015
SBC)
Advance inclusive of service tax and SBC received on 20-3-2016 (service 4,00,000
not rendered up to 31-3-2016)

Solution
Value of taxable services provided by R in the immediately preceding year does not
exceed `50,00,000. In the current financial year (upto 31-12-2015) value of taxable

services provided by R is not more than ` 50,00,000. Consequently, upto 31-12-2015,

service tax is payable on "payment" basis. However, w.e.f. 1-1-2016, he will have to pay
tax as per rule of POTR 2011.

Value Service tax [14% Value

exclusive of + SBC 0.5%) inclusive of
service tax service tax
` ` `
Amount received during the quarter ending 31-3- 1,05,000 15,525 1,20,225
2016 for service rendered before 1-1-2016 (i.e.
`68,700 + `51,525) `1,20,225 x 14.5/114.5.
Add: Value of invoice issued during the 42,00,000 6,09,000 48,09,000
quarter ending 31-3-2016
Add: Advance received during the 3,49,345 50,655 4,00,000
quarter ending March 2016
46,54,345 6,74,880 53,29,225
Less: Advance received on 16-11-2015 2,62,009 37,991 3,00,000
already subject to service tax on receipt
basis
Value of taxable services for the quarter 43,92,336 6,36,889 50,29,225
ending March 2016

43.7 What will happen if the effective rate of service tax changes before or after
rendering of a service [Rule 4]
When there is a change in effective rate of service tax in respect of a service, the point of
taxation shall be determined in following manner.
Case 1: Where a taxable service has been provided before the change in effective rate of
tax