Delhi High Court
Delhi Chartered Accountants ... vs Union Of India And Ors. on 1 February, 2013
Author: R.V. Easwar
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 01.02.2013
+ W.P.(C) 4456/2012 & C.M.No.9237/2012( for stay)
DELHI CHARTERED ACCOUNTANTS
SOCIETY (REGD.) .......Petitioner
versus
UNION OF INDIA AND ORS. .......Respondent
Advocates who appeared in this case:
For the Appellant : Mr Ruchir Bhatia, Adv.
For the Respondent : Mr Sumeet Pushkarna, CGSC with Mr Varun Dubey, Adv.
for R-1/ UOI.
Mr Anshuman Chowdhury, Sr. Standing Counsel for
Comm/S.Tax
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
R.V.EASWAR, J
The petitioner is an association of Chartered Accountants,
registered as a society in Delhi. The matter arises under the service tax
provisions which were brought into force by the Finance Act, 1994. The
prayer in this petition is for (a) quashing of the circular No.158/9/2012-
ST dated 08.05.2012 and circular No.154/5/2012-ST dated 28.03.2012 as
null and void and ultra vires the Constitution of India and/ or the
provisions of the Finance Act, 1994; (b) issuance of a writ or order or
direction in the nature of a writ declaring that under the provisions of the
Finance Act, 1994, the taxable event is the rendition of the service and
accordingly the rate of tax payable is the rate in force on the date of
providing the service.
2. The petition came to be filed in this manner. The Finance Act,
1994 introduced the levy of service tax for the first time in India. Section
66 provided for the charge of service tax. Section 66A provided for the
charge of service tax on services received from outside India. Section 67
provided for the valuation of taxable services for the purpose of charging
service tax. This section underwent certain changes under the Finance
Act, 2006 w. e. f. 18.04.2006 but we are not concerned with them.
Section 68 provided for the payment of service tax. There are other
procedural provisions to give effect to the levy and collection of service
tax with which we are not concerned. Section 93 conferred power upon
the Central Government to grant exemption from the levy of service tax.
Section 94 conferred power upon the Central Government to make rules
for carrying out the provisions of Chapter V of the Finance Act, 1994.
3. A question arose as to what is the taxable event for the purpose of
levy of service tax. In Association of Leasing and Financial Service
Companies Vs. UOI & Ors. : (2011) 2 SCC 352 the Supreme Court held
that the taxable event was the rendition of the service. However, w. e. f.
01.04.2011 the Point of Taxation Rules, 2011 were notified. Rule 2(e) of
the said Rules defines ―point of taxation‖ as the point in time when a
service shall be deemed to have been provided.
4. Rule 4 provided as follows: -
"4. Determination of point of taxation in case of change
in effective rate of tax - Notwithstanding anything
contained in rule 3, the point of taxation in cases where
there is a change in effective rate of tax in respect of a
service, shall be determined in the following manner,
namely:-
(a) in case a taxable service has been provided before
the change in effective rate of tax,-
(i) where the invoice for the same has been issued
and the payment received after the change in
effective rate of tax, the point of taxation shall be
date of payment or issuing of invoice, whichever is
earlier; or
(ii) where the invoice has also been issued prior to
change in effective rate of tax but the payment is
received after the change in effective rate of tax,
the point of taxation shall be the date of issuing of
invoice; or
(iii) where the payment is also received before the
change in effective rate of tax, but the invoice for
the same has been issued after the change in
effective rate of tax, the point of taxation shall be
the date of payment;
(b) in case a taxable service has been provided after
the change in effective rate of tax,-
(i) where the payment for the invoice is also made
after the change in effective rate of tax but the
invoice has been issued prior to the change in
effective rate of tax, the point of taxation shall be
the date of payment; or
(ii) where the invoice has been issued and the
payment for the invoice received before the change
in effective rate of tax, the point of taxation shall
be the date of receipt of payment or date of
issuance of invoice, whichever is earlier; or
(iii) where the invoice 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 , the point of taxation shall be date of
issuing of invoice.‖
5. Rule 7 provided for determination of the point of taxation in case
of specified services or persons. This rule was substituted by a new rule
w.e.f. 01.04.2012. The old rule which existed prior to that date was as
below:
―7. Determination of point of taxation in case of specified
services or persons. - Notwithstanding anything contained in
these rules, the point of taxation in respect of,-
(a) the services covered by sub-rule (1) of rule 3 of Export
of Services Rules, 2005;
(b) the persons required to pay tax as recipients under the
rules made in this regard in respect of services notified under
sub-section (2) of section 68 of the Finance Act, 1994;
(c) individuals or proprietary firms or partnership firms
providing taxable services referred to in sub-clauses (g), (p),
(q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of
the Finance Act, 1994,
shall be the date on which payment is received or made, as
the case may be:
Provided that in case of services referred to in clause
(a), where payment is not received within the period
specified by the Reserve Bank of India, the point of taxation
shall be determined, as if this rule does not exist.
Provided further that in case of services referred to in
clause (b) where the payment is not made within a period of
six months of the date of invoice, the point of taxation shall
be determined as if this rule does not exist.
Provided also that in case of ―associated enterprises‖,
where the person providing the service is located outside
India, the point of taxation shall be the date of credit in the
books of account of the person receiving the service or date
of making the payment whichever is earlier.‖
6. The petitioner is an association of chartered accountants; services
rendered by chartered accountants are taxable services u/s 65(105)(s) of
the Act. Accordingly, sub-rule (c) of Rule 7 would apply, with the result
that the date on which the payment for the services of the chartered
accountants is made or received will be deemed to be the date on which
the services were provided or rendered.
7. It is not in dispute that consequent to the insertion of Sec 66B into
the Act, the rate of service tax was enhanced from 10% to 12%. The
question before us is what would be the rate of tax where (a) the service
is provided by the chartered accountants prior to 01.04.2012; (b) the
invoice is issued by the chartered accountants prior to 01.04.2012 but (c)
the payment is received after 01.04.2012.
8. In the present case there is no dispute that all the services were
rendered before 01.04.2012 and even the invoices were raised before that
date and it was only that the payment was received after the said date. In
such a case, according to the petitioner, Rule 4(a)(ii) of the Point of
Taxation Rules, 2011, applies and the point of taxation shall be the date
of issuance of the invoice. The service tax authorities however rely on
two circulars issued by the Tax Research Unit of the CBEC -
Circular No.154 dated 28.03.2012 and Circular No.158 dated 08.05.2012
which are annexed to the writ petition. They are as follows: -
"Circular No.154/5/ 2012 - ST
FNo 334/1/2012- TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
Room No 146, North Block, New Delhi
Dated: 28th March 2012
To
Chief Commissioner of Customs and Central Excise
(All)
Chief Commissioner of Central Excise & Service Tax
(All)
Director General of Service Tax
Director General of Central Excise Intelligence
Director General of Audit
Commissioner of Customs and Central Excise (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)
Madam/Sir,
Subject: - Clarification on Point of Taxation Rules -
regarding.
1. Notification No.4/2012 - Service Tax dated the 17th
March 2012 has amended the Point of Taxation Rules
2011 w.e.f. 1st April 2012, inter- alia, amending Rule 7
which applied to individuals or proprietary firms or
partnership firms providing taxable services referred to
in sub-clauses (g), (p), (q), (s), (t), (u), (za) and (zzzzm)
of clause (105) of section 65 of the Finance Act, 1994.
Rule 7 determined the point of taxation in such cases as
the date of receipt of payment. The provisions have been
amended both in the Point of Taxation Rules 2011 and
the Service Tax Rules 1994 such that from 1st April 2012
the payment of tax shall be allowed to be deferred till the
receipt of payment upto a value of Rs 50 lakhs of taxable
services. The facility has been granted to all individuals
and partnership firms, irrespective of the description of
service, whose turnover of taxable services is fifty lakh
rupees or less in the previous financial year.
2. Representations have been received, in respect of
the specified eight services, requesting clarification on
determination of point of taxation in respect of invoices
issued on or before 31st March 2012 where the payment
has not been received before 1st April 2012.
3. The issue has been examined. For invoices issued
on or before 31st March 2012, the point of taxation shall
continue to be governed by the Rule 7 as it stands till the
said date. Thus in respect of invoices issued on or before
31st March 2012 the point of taxation shall be the date of
payment.
4. Trade Notice/Public Notice may be issued to the
field formations accordingly.
5. Please acknowledge the receipt of this
circular. Hindi version to follow.
(Shobhit Jain)
OSD, TRU
Fax: 011-23092037‖
"Circular No. 158/9/ 2012 - ST
F.No 354/69/2012- TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
Room No 146, North Block, New Delhi
Dated : 8th May 2012
To
Chief Commissioner of Customs and Central Excise
(All)
Chief Commissioner of Central Excise & Service Tax
(All)
Director General of Service Tax
Director General of Central Excise Intelligence
Director General of Audit
Commissioner of Customs and Central Excise (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)
Madam/Sir,
Subject: - Clarification on Rate of Tax - regarding.
1. The rate of service tax has been restored to 12%
w.e.f. 1st April 2012. Representations have been
received requesting clarification on the rate of tax
applicable wherein invoices were raised before 1st April
2012 and the payments shall be after 1st April 2012.
Clarification has been requested in case of the 8 specified
services provided by individuals or proprietary firms or
partnership firms, to which Rule 7 of Point of Taxation
Rules 2011 was applicable and services on which tax is
paid under reverse charge.
2. The rate of service tax prevalent on the date when
the point of taxation occurs is rate of service tax
applicable on any taxable service. In case of the 8
specified services and services wherein tax is required to
be paid on reverse charge by the service receiver the
point of taxation is the date of payment. Circular No
154/5/2012 - ST dated 28th March 2012 has also clarified
the same. Thus in case of such 8 specified services
provided by individuals or proprietary firms or
partnership firms and in case of services wherein tax is
required to be paid on reverse charge by the service
receiver, if the payment is received or made, as the case
maybe, on or after 1st April 2012, the service tax needs to
be paid @12%.
3. The invoices issued before 1st April 2012 may
reflect the previous rate of tax (10% and cess). In case of
need, supplementary invoices may be issued to reflect the
new rate of tax (12% and cess) and recover the
differential amount. In case of reverse charge the service
receiver pays the tax and takes the credit on the basis of
the tax payment challan. Cenvat credit can be availed on
such supplementary invoices and tax payment challans,
subject to other restrictions and conditions as provided in
the Cenvat Credit Rules 2004.
4. Trade Notice/Public Notice may be issued to the
field formations accordingly.
5. Please acknowledge the receipt of this
circular. Hindi version to follow.
(Dr. Shobhit Jain)
OSD, TRU
Fax: 011-23093037‖
9. The grievance of the petitioner is that the circulars cannot override
the provisions of the Finance Act, 1994 or the rules made thereunder and
in so far as they seek to levy the enhanced rate of service tax of 12% in
respect of the 8 specified services, though the services were rendered and
the invoices were issued but payments were received after 01.04.2012,
are ultra vires the Act/ Rules.
10. Before dealing with the grievance of the petitioner, it would be
necessary to note that Rule 7 of the Point of Taxation Rules, 2011 was
substituted by a new Rule w.e.f. 01.04.2012. The new Rule notified on
17.3.2012 by notification No.4/12-ST is as under :-
―7. Determination of point of taxation in case of specified
services or persons.-- Notwithstanding anything contained
in these rules, the point of taxation in respect of the persons
required to pay tax as recipients of service under the rules
made in this regard in respect of services notified under sub-
section (2) of section 68 of the Act, shall be the date on
which payment is made:
Provided that, where the payment is not made within a
period of six months of the date of invoice, the point of
taxation shall be determined as if this rule does not exist:
Provided further that in case of ―associated enterprises‖,
where the person providing the service is located outside
India, the point of taxation shall be the date of debit in the
books of account of the person receiving the service or date
of making the payment whichever is earlier.‖
11. A comparison of Rule 7 as it existed both before and from
01.4.2012 shows two significant changes. The first change is that while
the old Rule referred to recipients of service only in respect of services
notified under Section 68(2) and did not make any reference to the
recipients of the service in either Clause (a) or Clause (c), the new Rule
covers only the recipients of service in respect of services notified under
Section 68(2). The second significant change is that the reference to
services covered by sub-rule (1) of Rule 3 of Export of Services Rules,
2005 in Clause (a) of the old Rule and the reference to individuals or
proprietary firms or partnership firms providing taxable services referred
to in sub-clauses (g), (p), (q), (s), (t), (u), (za) and (zzzzm) of clause 105
of Section 65 of the Finance Act, 1994 in Clause (c) of the old Rule does
not find any mention in the new Rule. The result is that the new Rule 7
inserted w.e.f. 01.04.2012 was not applicable to services rendered by
chartered accountants under Section 65(105)(s) of the Act. Thus the
position is that the new Rule 7 with effect from 01.04.2012 does not
provide for the determination of point of taxation in respect of services
rendered by chartered accountants. Both the circulars which are
impugned in the present writ petition proceed on the erroneous basis that
Rule 7 inserted w.e.f. 01.04.2012 covers the services rendered by
chartered accountants. Circular No.154 when it states that invoices
issued on or before 31.3.2012 shall continue to be governed by Rule 7 as
it stood before 01.04.2012 is erroneous because on and from 01.04.2012,
the old Rule 7 was no longer in existence, having been replaced by new
Rule 7. Circular No.158, insofar as it states that in the case of the eight
specified services (which includes the services of chartered accountants),
if the payment is received or made, as the case may be, on or after
01.04.2012, the service tax needs to be paid at 12% is again without any
statutory basis. The new Rule 7 does not cover the services which were
earlier referred to in Clause (c) of Rule 7 (including services of chartered
accountants) as it existed up to 31.3.2012. The circular seems to have
overlooked this crucial aspect.
12. We still have to reckon with Section 66B of the Finance Act, 1994
inserted by the Finance Act, 2012 w.e.f. 1.7.2012 vide notification
No.19/2012-ST, dated 5.6.2012. This Section is as follows :-
"66B.Charge of service tax on and after Finance Act,
2012 - There shall be levied a tax (hereinafter referred to as
the service tax) at the rate of twelve per cent, on the value of
all services, other than those services specified in the
negative list, provided or agreed to be provided in the
taxable territory by one person to another and collected in
such manner as may be prescribed.‖
13. Rule 4 of the Point of Taxation Rules, 2011 which has continued
even after 01.04.2012 is clearly the answer. We have already extracted
the Rule hereinabove. It provides for a specific situation namely
determination of the point of taxation in case of change in effective rate
of tax. The words earlier used in the Rule were ―change of rate‖. In the
place of these words, the words ―change in effective rate of tax‖ were
inserted w.e.f. 01.04.2011. This was done by the Point of Taxation
(Amendment) Rules, 2011 vide notification No.25/11-ST dated
31.3.2011. The petitioner has pointed out to sub-clause (ii) of Clause (a)
of Rule 4. This Rule applies notwithstanding anything contained in Rule
3 which provides for the determination of point of taxation. As per Rule
4, whenever there is a change in the effective rate of tax in respect of a
service, the point of taxation shall be determined in the manner set out in
the Rule. Clause (a) provides for a case of taxable service which was
provided before the change in effective rate of tax has taken place.
Clause (b), in contrast provides for a case of a taxable service which has
been rendered after the change in the effective rate of tax has taken place.
W.e.f. 01.07.2012, there has been a change in the effective rate of tax
from the earlier 10% to 12%. In the petitioner's case, the dispute is only
with reference to the services provided by the chartered accountants
before 01.04.2012. Clause (a) of Rule 4 would therefore govern its case.
This clause provides for three further situations. Clause (i) covers a case
where an invoice for the service was issued and the payment was also
received after the change in the effective rate of tax. In such a case, the
date of payment or the issuance of the invoice, whichever is earlier, will
be deemed to be the date on which the service was rendered and that will
be the point of taxation. The present case is not governed by this sub-
clause. Sub-clause (iii) takes care of a case where the payment is also
received before the change in the effective rate of tax, but the invoice for
the same was issued after the change. In such case the point of taxation
shall be the date of payment which will be deemed to be the date on
which the service was provided. The petitioner's case is not governed by
this sub-clause either.
14. The case of the petitioner is governed by sub-clause (ii). Under
this clause where the taxable service has been provided before 01.04.2012
and the invoice was also issued before 01.04.2012, but the payment is
received after 01.04.2012, then the date of issuance of invoice shall be
deemed to be the date on which the service was rendered and,
consequently, the point of taxation.
15. The result of the discussion will be that where the services of the
chartered accountants were actually rendered before 01.04.2012 and the
invoices were also issued before that date, but the payment was received
after the said date, the rate of tax will be 10% and not 12%. The circulars
in question have not taken note of this aspect, and as noted earlier have
proceeded on the erroneous assumption that the old Rule 7 continued to
govern the case notwithstanding the introduction of the new Rule 7 which
does not provide for the contingency that has arisen in the present case.
16. In view of the foregoing discussion the circulars are quashed as
being contrary to the Finance Act, 1994 and the Point of Taxation Rules,
2011. The Point of Taxation Rules, 2011 have been notified in exercise
of the powers conferred upon the Central Government under Clause (a)
and Clause (hhh) of sub-section (2) of Section 94 of the Finance Act,
1994 and they are also required to be placed before both the Houses of
Parliament under sub-section (4) of Section 94. They thus have the force
of law. The circulars have to be in conformity with the Act and the Rules
and if they are not, they cannot be allowed to govern the controversy.
17. It is well-settled that a Circular which is contrary to the Act and the
Rules cannot be enforced. In Commissioner of Central Excise, Bolpur vs
Ratan Melting & Wire Industries 2008(13)SCC(1) a Constitution Bench
of Supreme Court held as under:-
―7. Circulars and instructions issued by the Board are
no doubt binding in law on the authorities under the
respective statutes, but when the Supreme Court or the
High Court declares the law on the question arising for
consideration, it would not be appropriate for the court to
direct that the circular should be given effect to and not the
view expressed in a decision of this Court or the High
Court. So far as the clarifications/circulars issued by the
Central Government and of the State Government are
concerned they represent merely their understanding of the
statutory provisions. They are not binding upon the court.
It is for the court to declare what the particular provision of
statute says and it is not for the executive. Looked at from
another angle, a circular which is contrary to the statutory
provisions has really no existence in law.‖
18. The writ petitions are accordingly allowed but in the
circumstances, with no order as to costs. Since we have quashed the
Circulars, prayer (b) in the writ petition becomes infructuous.
R.V.EASWAR, J
BADAR DURREZ AHMED, J
FEBRUARY 01, 2013
hs/vld
