The deeming fiction that when a service shall be deemed to have provided introduced in the POT Rules, 2011 and thereby taxing an advance receipt, in my opinion, is invalid & untenable for the reasons stated below.
- POT Rules have been framed in exercise of the powers conferred under clause (a) and clause (hhh) of sub-section (2) of Section 94 of the Finance Act, 1994.
- Clause (a) of Section 94(2) of the Act empowers the Central Government to make rules regarding collection and recovery of service tax under sections 66 & 68 of Act and
- Clause (hhh) empowers to make rules regarding the date for determination of rate of service tax and the place of provision of taxable service under section 66C.
- The Hon’ble Finance Minister in his budget speech dated 28-02-2011 said the intention to bring POT Rules, 2011 was to change the base of collection from cash to accrual basis as with the central excise duty.
- From the Preamble to the POT Rules, 2011 and the Hon’ble Finance Minister’s Budget Speech stating the intention of introducing the said rules, it is very evident that POT Rules, 2011 can cover only matters relating to collection and recovery of service tax, date for determination of rate of service tax and the place of provision of taxable service.
- Determining the taxable event through POT Rules, 2011 has no legal backing.
Therefore taxing Advance amount in connection with the services which are to be provided in future at the time of receipt of advance cannot be brought under POT Rules and to this extent such rules are invalid and untenable in my opinion.