R S Sharma : Provision of service to be point of taxation of services

Government has already opened its card that in GST regime the Point of Taxation of Services or the taxable event shall be the provision of service, including future provision, meaning thereby that the service, even though promised to be provided at a future date, shall be taxable. The rules stipulate that, if the service provider issues an invoice or receives any payment before providing service, the service, to the extent of the amount mentioned in the invoice, or the amount of payment, shall be deemed to have been provided. Thus the service provider shall be liable to pay the tax to the extent of amount mentioned in invoice, or the payment received, even if the service has not been provided at that point of time.Whether in this situation; if the service is not at all provided; what will happen to service tax paid? The rules are silent on this issue and there is no mention of refund of service tax in the rules.
Government is all set to issue Point of Taxation (for Services Provided or Received in India) Rules, 2010 under Section 94 (2) (hhh) of the Finance Act, 1994 as amended; which empowers the Government to notify the rules providing the date for determination of rate of service tax and the place of provision of taxable service and the Draft Rules have already been circulated. 
The rules link the payment of tax to provision of service, raising of the invoice or payment for service provided or to be provided, whichever is the earliest; whereas in current regime; the  service tax is required to be paid only after receipt of payment for the service. The service tax regime is thus being aligned with Central Excise regime where excise duty is paid on clearance of goods from the factory . According to FinMin GST regime is likely to follow this practice to align the service tax regime with it for smooth transition to GST. 
Rate of tax applicable in the case of advances received shall be the rate applicable when the advance is received . However,interest free deposits shall not be subject to service tax under this provision.
‘continuous supply of service’ refers to services that are supplied continuously for a period exceeding six months or services that are specified as continuous supply of services, subject to prescribed conditions, if any. “ Point of taxation” means the point of time when the tax becomes payable to the Government. ‘taxable event” means an event which causes the tax liability to arise, namely, the provision of service, issuance of invoice or the receipt of payment. 
The proposed rules prescribe that the rate of tax will be the rate applicable on the date the payment becomes due as per the contract, or, if the payment is linked to completion of certain events (milestones), when those milestones are completed. If none of the above two conditions is specified in a long term contract, then the service provider is required to pay the service tax at the time of raising of invoice, or receipt of payment, whichever is earlier.
The point of taxation in respect of associated enterprises shall be the date on which the payment has been made, or the date of debit or credit in books of accounts, or issuance of debit or credit notes, whichever is earlier. 
In respect of royalties and similar payments, the service shall be treated as having been provided each time that a payment in respect of such use or the benefit is received by the provider, or an invoice is issued by the provider, whichever is earlier. 
Though it has been claimed by FinMin that purpose of the rules is to remove ambiguity in levy and collection of Service Tax in situations of change of rate of service tax or imposition of service tax on new services and to overcome uncertainty in regard to cases of continuous supply of services; whether the rules will remove ambiguity or will create much more ambiguity only time will tell. But one thing is sure; those service providers who do not have any Consultant till date will need to engage a Consultant as the payment of service tax is no more linked to simple receipt of payment.How to postpone the so-called “Point of Taxation” can be advised only by a Consultant.