HIGH COURT OF DELHI: CAS / ADVOCATES & OTHERS ARE NOT REQUIRED TO PAY 2% EXTRA SERVICE TAX ON THE PAYMENT RECEIVED AFTER 1.4.2012

In its judgment dated 1^st February, 2013 HIGH COURT OF DELHI in the case of DELHI CHARTERED ACCOUNTANTS SOCIETY (REGD.) vs. UNION OF INDIA AND ORS. held 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% and quashed the circulars No. 158/9/2012-ST dated 08.05.2012 and Circular No. 154/5/2012-ST dated 28.03.2012 as being contrary to the Finance Act, 1994 and the Point of Taxation Rules, 2011.

Issue for Consideration

The question before the Court is the what would be the rate of tax where

• the service is provided by the chartered accountants prior to 01.04.2012;
• the invoice is issued by the chartered accountants prior to 01.04.2012  but 
• the payment is received after 01.04.2012.

Facts of the Case

• The petitioner is an association of Chartered Accountants, registered as a society in Delhi.

• 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.

• As per Rule 4(a) (ii) of the Point of Taxation Rules, 2011, which has continued even after 1.4.2012, 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 sub clause (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.

• The service tax authorities however rely on two circulars issued by the CBEC –Circular No.154 dated 28.03.2012 and Circular No.158 dated 08.05.2012 and which say that in case of 8 specified services (which included CA/Advocate service) 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%.

• 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.

• Judgment of High Court
  
  

  ·     It is well-settled that a Circular which is contrary to the Act and the Rules cannot be enforced.
  
  
  ·  Court also consider the judgment in the case of Commissioner of Central Excise, Bolpur vs Ratan Melting & Wire Industries 2008(13)SCC(1) a Constitution Bench of Supreme Court where is was held that circular which is contrary to the statutory provisions has really no existence in law.”
  
  
  ·     The circulars in question have not taken note of this aspect, and 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 and accordingly HC quashes the circulars.
  
  
  ·  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. 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 8 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. 
  
  
  ·    The case of the petitioner is governed by Rule4 (a) (ii) of Point Of Taxation Rules, 2011. 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.
  
  
  ·  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%.
  
  
  Regards
  CA. Mona Singhal
  Partner
  
  
  Arpit Gupta & Associates
  Chartered Accountants
  
  
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