We are a service firm and are registered under service tax. Up till now we were paying tax on collection basis. Kindly assist on the manner of payment of tax with the introduction of the Point of Taxation Rules.

With effect from 1 April 2011, the Point of Taxation Rules shall be applicable to all service providers. The ?point of taxation? as per the said Rules has been defined as the point in time when the service shall be deemed to have been provided (and accordingly, would determine the time of payment of Service Tax). The point of taxation for service providers is the earlier of (a) the time when the service is provided or to be provided; (b) when an invoice is raised; or (c) payment is received.

However, in case of continuous services, i.e. services for a period of more than three months or certain notified services, in case there is a specified date for payment in the contract, that date would be treated as the date for liability to service tax (irrespective of whether an invoice is raised or payment received). However, if you have issued an invoice or received payment prior to such date, then the date of invoice or receipt of payment, whichever is earlier, would determine the point of taxation.

Please note that there are specified rules for transaction with associated enterprises, etc which should also be reviewed to determine the point of taxation.

We are a wholly-owned subsidiary of a foreign company and are manufacturing air conditioners in India. We import parts and components from our parent entity for the manufacturing process. We have a favorable order from the customs authorities accepting our import price since we import from a related party. Given the increase in manufacturing costs, however, we intend to reduce the import price of parts and components. Can we import the goods at a lower price?

All imports made by an Indian company from a related party (as defined under customs) are subject to the scrutiny by the Special Valuation Branch of Customs to determine the arms length nature of the transaction. Arm?s length price is the price at which the foreign company would have sold to an unrelated buyer in India.

Passing of a favourable order by SVB indicates that they have accepted import price as the arm?s length price. However, it does not mean that the goods cannot be imported at a lower price post such order. You shall be required to justify to the SVB officials that the reduction in price was not to evade or reduce the Customs duty but on account of other factors such as decrease in manufacturing and other related costs, increase in the volume of imports, foreign exchange fluctuation, etc.

We manufacture vitrified tiles. Due to the increase in demand, we intend to set up another manufacturing facility. For this, we shall import equipment and use services of local service providers for the commencement of production. In the wake of amendments in the Budget, we would like to know of the inputs and input services for which credit will not be available in this regard.

The definition of inputs and input services has been amendment w.e.f. 1 April 2011. With regard to availability of Cenvat credit for setting up of a plant, the norms have been made more restrictive. Under the amended definition, credit of (a) inputs used to laying foundation for capital goods, and (b) goods which have no direct or indirect connection with the final product, shall not be available.

Similarly, the term ?input services? has been amended and all services used for setting up of an office or factory have been disallowed. Further, commercial or industrial construction services or works contract services used for laying foundation for capital goods or construction of a building, have also been disallowed.

We are a call centre and are providing services to various companies. We are also registered under Service Tax law. Given the nature of our sector, we provide various facilities and benefits to our employees, like pick and drop facilities and health insurance. With the change in the Service Tax law, how is our position on credit availability affected?

The changes in Budget 2011 have restricted the availability of Cenvat credit against output services and manufacture of goods. The definition of input services has been narrowed and now excludes services like outdoor catering, pick and drop facilities, club memberships and health insurance, when such services are used for the personal use or benefit of employees.

However, no clarification has been given regarding the term ?personal use or benefit?. The tax authorities may adopt a view that tax paid on any input service for any facility or perquisite provided to an employee for his or her individual use is now not available for claiming Cenvat credit.

With respect to the abovementioned services, the service provider shall be required to establish that such input services are not used for the personal benefit of the employee and are required for carrying out its commercial activity.

?The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies