Case: Delhi Chartered Accountants Society Vs UOI and Ors- Delhi High court.
Subject: Service tax rate when service is provided by CA prior to 01.04.2012 but payment is received after 01.04.2012.
Facts: The petition deals with the case where CA services were rendered before 1st April 2012, invoice raised before the same date but payment was received after that date ie. after 01.04.2012. Chartered accountants filed petition which contains a prayer for (a). quashing Circular no. 158/9/2012 ST dtd 08.05.2012 and Circular no. 154/5/2012 ST dtd 28.03.2012 as null and void and ultravires the constitution of India and/or the prov of finance act (b) an order/direction that taxable event is rendition of service and the rate applicable is the rate on providing service.
In Association of leasing and financial service companies Vs UOI & ors 2011, the supreme court had held that taxable event was rendition of service. Point of Taxation (POT) rules 2011 notified on 1.04.2011 defined point of taxation as the point of time when a service shall be deemed to have been provided. Rate of service tax was enhanced from 10 % to 12 % w.e.f 01.04.2012 (insertion of sec 66B in Finance Act). Rule 7C of POT rules which provides that point of taxation shall be the date on which payment was received/made, was amended vide notification dtd 17.03.2012 wef 01.04.2012 and accordingly the POT for CA services will be date of receipt of payment for which sec 68(2) of Finance act applies ie. Reverse charge. Later on this rule was extended vide notication dtd 17.03.2012 amending Rule 6 (1) to all services (earlier it applied to 8 services including CA services).
Decision & Reason:
High court held that though the service of CA was rendered before 01.04.2012 and invoice also issued before that date, payment being received after 01.04.2012, the rate applicable would be 10% and not 12%. Court relied upon Rule 4 which provides for rate of tax applicable in case of change in effective rate of tax. Rule 4 provides for charging rate applicable on date of issue of invoice, even though effective rate changes after issue of invoice.
The court also compared between old rule 7 (C) and the new rule to reach its decision. The circulars issued appears to be contrary/ are not in confirmation to the POT rules and relevant sections of Finance act and are not capable of solving the above controversy and such circulars cannot be enforced. Circulars passed by Central Govt and State Govt are legally binding, but they merely represents their understanding on various statutory provisions and are not binding on the courts. Circulars/clarifications issued contrary to statutory provisions has no existence in Law. Hence, the circulars are quashed.
NB: Above text is only a very short summary of the case. Refer to original judgment/decision for more clarification.