With the service tax rate being reversed from 12 to 10 per cent, a question which the service providers face is to determine the day on which the new service tax rate is effective. Even after 15 years of introduction of service tax in India, this very crucial legal issue is still unresolved. Controversies are going on, some tribunal judgments have come out but there is no trade notice, no circular and no clear law.
In contrast, he customs law has Section 15 and Excise law has Rule 5 which give clearly the date which will be relevant for charging the rate of duty. Under the Section 15 of Customs Act it is the date of filing the bill of entry or the date of clearance from the warehouse or the date of payment of duty depending on different situations. In Rule 5 of Excise Law it is the date of clearance of goods from the factory. In service tax law there is no specific provision . So the prevailing practices in different places are different.
The alternatives in the case of service tax are two. First it can be the date of rendering the service. This looks like a natural choice as the taxable event in the case of service tax is the date of rendering service. But legally there is no relation between taxable event and the date of determination of duty. In the Customs Act and the Excise Act the dates for determining the rate of duty have nothing to do with the taxable event. So in Service tax also it can be any date convenient. There is on the other hand a natural difficulty in choosing this date of rendering service as the dates can be multiple and ever changing and sometime continuous. For example in the case of telephone and internet, it is continuous and in the case of services rendered through software, it is indeterminate and difficult to find out. Moreover at the time of rendering the service there is no knowing what the value will be. Payment is usually much after the date of rendering the service.
Second alternative is the date of payment of service tax by the service provider to the government. This date is determinate and has the advantage of being easily verifiable from the invoice and other documents. It also has the advantage of being based on the invoice which indicates the value. It is no wonder that one judgment[1] in the Tribunal has accepted the date of payment as the date for determination, though the logic is wrong in the case of this judgment. Another judgment[2] has referred to it also but has not given a final view.
To remove doubt and avoidable litigation it is essential that the Board issues a circular or trade notice immediately indicating what should be the date for determination of duty for the purpose of service tax. But really speaking on a fundamentally legal issue like this, a circular cannot be the valid solution. The Act or the Rule must incorporate the provision. Law cannot be laid down by a circular. It can only clarify a legal position. Temporarily the circular will serve the purpose of removing the doubt and bringing in parity in practice. But in the next Budget the legal provision must be brought about in the same line as the Customs Act and Central Excise Act and Rules. And it should be the date of payment of duty to the government.
[1] Prachar Communications Vs CCE 2006 (2) STR 492 (T)
[2] Maersk India vs Commissioner 2007 (008) STR 0352 (T)