R S Sharma : Raising of bill is point of taxation under service tax

Shell out service tax before receipt of payment towards service provided is the new law to be followed by service providers. A service provider may not provide a taxable service but as soon as the Bill is raised; the liability to pay service tax arises and service tax is to be paid by 5th of the next month consequent to Notification of Point of Taxation Rules 2011 vide Notification No. 18/2011 dated 1.3.2011 which have been further amended by Point of Taxation (Amendment) Rules 2011 vide Notification No.25/2011 dated 31.3.2011
Rule 3 of Point of Taxation Rules 2001 provides that 'point of taxation' shall be the time when the invoice for the service provided or to be provided is issued and where the invoice is not issued within 14 days of the completion of the provision of the service, the date of such completion. Further, in a case, where the person providing the service, receives a payment before issue of invoice or before completion of service, the point of taxation is the time, when he receives such payment, to the extent of such payment. Therefore, wherever any advance is received by the service provider, the point of taxation shall be the date of receipt of each such advance.
Point of taxation in case of continuous supply of service is now the time when the invoice is issued and where the invoice is not issued within 14 days of the completion of the provision of the service, the date of such completion. Where the person providing the service, receives payment before raising of bill or completion of service; the Point of taxation will be the time when he receives such payment, to the extent of such payment. 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 service receiver to 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. Further, wherever any advance is received by the service provider, the point of taxation shall be the date of receipt of each such advance even in case of continuous supply of service. For example, in the case of construction services provided by a builder to flat booker; if the payments 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. 
However, in case where service receiver is required to pay service tax on reverse charge basis under rule 2 (1)(d) of Service Tax Rules, the point of taxation shall be the date of making the payment. Individuals, proprietorships and partnership firms providing services of Chartered Accountant, Cost Accountant, Company Secretary, Architect, Interior Decorator, Legal, Scientific and Technical consultancy services are allowed to pay service tax on receipt basis. 
It is going to be fatal for service providers to raise the Bills at the end of the month as now they will have to shell out service tax from their own pocket by 5th of the next month even if payment is not made by the service receiver. The best way out for service providers is to raise the Bill on first day of the month so that they have 35 days breathing time to remind their customers for the payment. But what will happen if the customers do not pay within 35 days? It is better to revise the contract with the client and also  to mention in the bill that if payment is not made by 5th of the next month of raising of bill; the interest at the rate of 18 per cent on service tax will also be reimbursed to service provider by the service receiver. Raising  Bills to customers  who default in timely payment will be a huge liability for service providers as non- payment of service tax in time will not only attract interest at the rate of 18 per cent but also penalty under service tax law. If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax is  payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. 
The only solace to service providers is that services for which provision is completed on or before 30th June 2011 or where the invoices are issued up to 30th June 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made. To avail the benefit of this option it is in the interest of service providers to issue as many bills as possible by 30th June 2011 after which the Bill should be raised only after getting assurance from the customer about timely payment of Bill. Point of Taxation is a silly point for service providers. If Point of Taxation is not followed; they are going to be caught sooner or later at the time of audit of their records by service tax department.