Application of Service Tax from April

Queries on taxation and service tax liabilities, addressed by Saloni Roy & Jayanta Kalita, of Ernst & Young

We are a services firm registered in Delhi. Since the rate of service tax has been increased from April 2012, we wanted to understand the rate of service tax that we should charge on services that we provide upto 31 March 2012. When the service tax rate reduced from 12.36% to 10.3% in February 2009, we were informed that the rate of tax would be the rate applicable on the date when the service was provided. Would the same principle be applicable even today, i.e. we continue to charge service tax at 10.3% for services rendered in March 2012. Please clarify.

The rate of service tax has been increased from 10.3% to 12.36% w.e.f 1 April 2012. The rate of service tax applicable on services rendered prior to 1 April 2012 would be determined as per the provisions in the Point of Taxation Rules, 2011, as follows:

* where the invoice is issued prior to 1 April 2012 but the payment is received after 1 April 2012, the applicable rate shall be 10.3%;

* where the invoice is issued post 1 April 2012 but the payment is received prior to 1 April 2012, the applicable rate shall be 10.3%;

* where the invoice is issued and the payment received after 1 April 2012, the applicable rate shall be 12.36%.

Further, there are specific rules which also determine when a payment is deemed to be received by a service provider in a case of change in the rate of tax. These rules would also need to be read in conjunction with the above principles to determine when a payment is actually deemed to be received by you.

Adjustment of Cenvat credit

We are a service provider engaged in providing engineering consulting services primarily to overseas clients and also clients in India. We were availing of Cenvat credit of the duty or service tax paid on inputs and input services and utilising the same against our domestic service tax liability. We claim refund of the unutilised credit against our export services. Our accountants have informed us that there has been an amendment in the Cenvat Credit Rule, 2004 under which service providers may not be able to adjust the Cenvat credit attributable towards exported services against their domestic tax liability but would be need to claim a refund of the entire credit. Please clarify.

Prior to the amendment in Rule 5 of Cenvat Credit Rules, 2004, a service provider exporting services was allowed to utilise the credit of inputs/input services used for provision of such exported service for payment of his service tax liability on domestic services. The balance unutilised Cenvat credit could be claimed as a refund.

Form 1 April 2012, the said rule has been amended in order to provide a simplified mechanism for refund of Cenvat credit attributable to exported goods or services. However, the revised rule is silent on the aspect of whether a service provider or manufacturer can first utilise Cenvat credit of inputs and input services attributable towards exported goods/services against domestic liability. It may be the case that such provision regarding adjustment of credit has been left out inadvertently since there appears no reason to deny such adjustment. It is, therefore, recommended that a clarification be sought from the Central board of excise and customs on this aspect. 

Financial Express, New Delhi, 30-03-2012