Circulars No.158/9/2012-ST and No.154/5/2012-ST challenged on the ground that they are contrary to the Act and hence the differential service tax of 2% in case of chartered accountant’s services provided and invoices raised before 1st July 2012 and consideration received later than the said date cannot be collected.

The question of law arose as to when a “taxable event” occurs for the levy of service tax. In Association of Leasing & Financial Service Companies vs. UOI 2010-TIOL-87-SC-ST-LB, the Supreme Court held that the taxable event was the rendition of the service. However, from 1-4-2011, the Point of Taxation, 2011 were notified and accordingly, the point of taxation would be the point in time when a service is deemed to be provided. Rule 7(c) of the Point of Taxation Rules, 2011 provided the point of taxation for the 8 specified categories of service providers (one of them being chartered accountant) to be the time of receipt of consideration. The said Rule 7 was amended w.e.f. 1st April, 2012 and as a result, the said Rule 7(c) was deleted. Accordingly, the 8 categories of services (including CAs) are required to pay service tax on the date of issuance of invoice, instead of on the date of the receipt of consideration with effect from 1st April, 2012. The dispute arose on account of Government’s Circular No.154 (supra) read with Circular No.158 (supra) which provided to the effect that for the eight categories of persons (including CAs) even cases when invoice was raised prior to 31st March, 2012 (when the prevailing service tax rate was 10.3%) for a service provided before 31-3-2012, if the fee/consideration was received on or after 1st April, 2012, the new rate i.e. 12.36% amended with effect from 1-4-2012 would be applicable.

The Appellant pleaded that the Rule 4(a)(ii) of the Point of Taxation Rules, 2011 specifically covers a situation determining the point of taxation in case of change in rate of tax and the Appellant’s case falls under the said sub-clause and therefore the point of taxation would be the date of issuance of invoice.

Held

Circulars were quashed holding them contrary to the Finance Act, 1994 and the Point of Taxation Rules, 2011 and it was observed that in case a circular is contrary to the Act or the Rules, it has no existence in law.