All are aware that the Companies Act, 2013, came in to effect from 12.09.2013, and most of the working provisions came in to force with effect from 01.04.2014.

In comparison with the Companies Act, 1956, though the number of sections have reduced in the Companies Act, 2013, it is mostly due to clubbing of various sections in to single section and most of the operating provisions being moved to Rules.

After the commencement of the Act, it is evident that many representations were received by the Ministry, from the Trade as to difficulties in implementation of certain provisions with specific reference to Private Companies. This was clearly evident from the draft notification by the Ministry wherein certain exemptions were proposed to be given to Private Companies. The said Draft notification was placed in the MCA Website on 24.06.2014, seeking comments from General Public, till 01.07.2014.

There was no trace of the said proposed exemptions as per the Draft notification Dt:24.06.2014, after receiving of the public comments.

On 05.06.2015, the Central Government has issued Four Notifications all Dt: 05.06.2015, vide which the Central Government has provided certain exemptions/modifications and adaptations as to certain provisions of the Companies Act, 2013 which are applicable to:

è Government Companies

è Nidhi Companies (Nidhis)

è Private Company

è Section 8 Companies (Companies not for profit)

In this article, an effort is being made to look in to the exemptions, modifications and adaptations to the provisions of the Companies Act, 2013, to Private Limited Companies

From the above, it can be seen that contents of the Draft notification Dt:24.06.2014, majorly form part of the exemption notification. The exemption notification brings a sigh of relief for many of the Private Companies.

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction:

Finance Bill, 2015 has proposed to increase the service tax rate to 14% by amending Section 66B. The said bill has received President’s assent on 14/05/2015. The increased rate is going to be effective from 01.06.2015. As there is a change in rate of tax, the applicability of new service tax rate assumes significant importance. Further, there are conflicting provisions in the law creating much ambiguity on this issue.

Point of Taxation Rules, 2011:

Point of Taxation Rules, 2011 are brought into effect from April 2011 onwards to determine the point of taxation (POT) i.e. point of time when a service is deemed to have completed. This point of taxation when introduced has twofold objectives. One is that the applicable rate of service tax is one prevailing on date of POT. The other one is that service tax is payable immediately by 5th/6th of a month subsequent to the calendar month in which POT occurs.

Rule 5B of the Service Tax Rules, 1994 provides that rate of tax shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard.Consequently, Rule 4 of the Point of Taxation Rules, 2011 provides for determination of POT when there is a change in service tax rate.

The other rule of Service Tax Rules, 1994 that refers to Point of Taxation Rules, 2011 is Rule 6. This rule provides that service tax shall be paid by 5th or 6th of the month immediately following the month in which services are provided or deemed to be provided as per the rules framed in this regard. As Rule 6 still exists, it can be concluded without any doubt that Point of Taxation Rules, 2011 are still relevant for determining the due date for payment of service tax.

Coming to Rule 4 of the Point of Taxation Rules, 2011, it provides that applicability of service tax rate depending on timing of invoice and payment for the taxable service and they completely ignore the date on which service is provided. It provides as follows;

1. Where services provided prior to change in service tax rate, new rate is applicable if invoice is issued or payment is received after the change in service tax rate. Otherwise old rate is applicable.
2. Where services are provided after the change in service tax rate, old rate is applicable if invoice is issued or payment is received before the change in service tax rate. Otherwise new rate is applicable.

This rule has received much attention from the service sector and every one is aware that these rules are required to be referred to for changes in service tax rate. However, with effect from 18.05.2012, a new Section 67A is introduced in Finance Act, 1994 which also provides for determination of service tax rate. Further, with effect from same date, Rule 5B of the Service Tax Rules, 1994 which provides for determination of service tax rate with reference to the point of taxation rules is deleted. All these amendments cast doubt on relevance of the Rule 4 of the Point of Taxation Rules, 2011 after 18.05.2012. Let us have a look at the scope of Section 67A.

Scope of Section 67A:

Section 67A provides that—‘The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.’

Thus in terms of this Section, the applicable rate of service tax shall be the one prevailing at the time when a taxable service is provided or agreed to be provided. This section is standalone and is not leaving anything to delegated legislation. No reference is given to any rules framed by Central Government.

The phrase ‘provided or agreed to be provided’ is also existing current levy section i.e. Section 66B as well as in the erstwhile Section 65 (105) of the Finance Act, 1994. The phrase ‘to be provided’ is added in levy section after the words ‘provided’ during the Finance Budget, 2005. It has been then clarified that the objective of the amendment is to link payment of service tax on the advances received for the services to be provided in future.

On a harmonious construction of Section 67A in line with charging Section 66B, similar interpretation can be adopted for the phrase ‘provided or agreed to be provided’ appearing in Section 67A.Thus it can be rationally concluded that in terms of Section 67A, the rate of service tax shall be the rate in force at the time when service is provided. Similarly, in a case where advance is received for a taxable service to be provided in future, it is the rate in force on the date on which the advance amount is received.

However, there is another school of thought on this issue as theRule 4 of the Point of Taxation Rules, 2011 continued to exist even after insertion of Section 67A, the phrase ‘provided or agreed to be provided’ shall be interpreted in align with the Rule 4 of the Point of Taxation Rules, 2011.

Conflict between Section 67A and Point of Taxation Rules, 2011:

Going plain understanding of the language employed by Section 67A and Rule 4 of the Point of Taxation Rules, 2011, there is a clear conflict between the provisions as discussed above. This can be further appreciated by the following examples.

1. X Ltd has provided consultancy services which got completed by May 15th 2015. Invoice issued on 5th June 2015 and payment received on 30th June 2015. The new rate of service tax is applicable from 01.06.2015 onwards. What is the applicable rate of service tax?

As per POT: Services are completed before the change in service tax rate. Invoice is issued and payment is received after the change in service tax rate i.e. in June month. In terms of Rule 4, new rate of service tax i.e. 14% is applicable. As point of taxation in this case falls under June Month, the due date for payment of service tax is on or before 6th July, 2015.

As per Section 67A: In terms of Section 67A, rate prevailing at the time of provision of service is relevant. Service got completed by May 15th 2015. The rate prevailing on this date i.e. 12% is applicable. However, the due date for payment of service tax is still driven by Point of Taxation Rules, 2011 only.

2. X Ltd has provided consultancy services in June 2015 for an advance received in the month of May 2015 itself. X Ltd paid service tax on this amount by 6th of June, 2015 at 12.36%. 14% rate of service tax is applicable from 01st June. X Ltd is considering invoice issue on 30th June, 2015. What is the applicable rate of service tax on this service?

As per POT: Rate of service tax has increased to 14% before provision of taxable service. As payment alone is received before the change in rate of service tax, invoice is issued on 30thJune, the rate of tax applicable in this case is 14%. POT is June. Therefore service tax is payable by 6th of July, 2015.

As per Section 67A: As advance money is received in the month of May itself, the services are agreed to be provided in the month of May itself. The rate prevailing at the time of receipt of advance is relevant i.e. 12.36%. However, the due date for payment of service tax is still driven by Point of Taxation Rules, 2011 only.

Conclusion:

Before parting, based on the above discussion it is clear that in view of the above referred conflicting provisions, ambiguity exists about the applicability of the new service tax rate. Therefore it is high time for the CBEC to clarify on this issue with proper illustrations. Otherwise this will lead to litigation.

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

The CBDT Vide Instruction No. 4 of 2014 prescribed Standard Operating Procedure (SOP) for Verification 2 and Correction of Demand available or uploaded by AO in CPC Demand Portal. Online facility has been provided to taxpayers to provided online responses to such demands.

Action to be performed by the taxpayer:

• Logon to e-filing website. Go to E-file menu and click on “Response to Outstanding Tax Demand”;
• Click on “Submit” link under Response Column for the respective Assessment Year to submit the response;
• Tax Payer has to select one of the three options from radio button i.e Demand is Correct Or Demand is Partly Correct Or Disagree with the demand;
• If taxpayer selects demand is correct, any refund due will be adjusted against outstanding demand along with the interest. If no refund is due, taxpayer has to pay the outstanding demand;
• If taxpayer selects demand is partially correct, then the amount which is correct and which is not correct has to be entered;
• If taxpayer selects demand is incorrect he should mandatorily give one or more reasons; (See Annexure I).

Wherever the taxpayer finds it difficult to access to Income Tax Department Website, he or she may make necessary application to the Assessing Officer along with the prescribed details.( See Annexure I)

Action by the Assessing Officer: Demand due to mismatch of TDS:

If taxpayer’s reply or departmental records show that the demand is on account of TDS mismatch the AO has to follow the below stated steps:

Ø TDS credits are available in the system: AO should reduce the demand by passing rectification order

U/S 154 on the system after taking into account the TDS credits available on the system.If the

demand is prior to 01/04/2010, the demand has to be reduced directly on CPC-FAS system after

rectification U/S 154.

¹Circular No.8/2015 dt. 14/05/2015 ²www.i ncometaxefili ng.gov.i n

TDS credits are not available in 26AS:The reduction can be done only in the cases of Individuals and HU F. The amount of reduction should not exceed Rs. 1, 00,000/- for that Assessing Year.Besides

• AO should pass order U/S 154 manually after obtaining the TDS certificate from the assessee;
• In case the outstanding demand is more than Rs. 25,000/- for that AY the AO should obtain an indemnity bond (irrespective of the quantum of demand being reduced);
• In case of reduction of demand exceeds Rs. 50,000/- for that AY by rectification order passed manually above besides the indemnity bond approval of Range Head should be taken before reducing demand.

If taxpayer has already paid the tax demand:

• Challan Identification Number (CIN) is available on the system: The AO should reduce the demand by posting the challan or passing rectification order U/S 154 on the system. If the demand is prior to 01/04/2010 the demand has to be reduced directly on the CPC-FAS system.
• IF CIN is not available or payment is made prior to the period of introduction of CIN: The reduction can be made only in case of Individuals and HUF provided outstanding demand does not exceed Rs. 1,00,000/- for that AY. Besides
• AO should obtain evidence of payment in the form of counter foil or bank certificate. In case where the taxpayer is senior citizen and tax payer is not able to obtain bank certificate (as the place of payment of tax is different from the current place of taxpayer), the AO should obtain the certificate from the bank directly.
• In case the outstanding demand is more than Rs. 25,000/- for that AY the AO should obtain an indemnity bond (irrespective of the quantum of demand being reduced);
• In case of reduction of demand exceeds Rs. 50,000/- for that AY by rectification order passed manually above besides the indemnity bond approval of Range Head should be taken before reducing demand.

If the payment relates to mismatch of advance tax or self-assessment tax order U/S 154 needs to be passed.

Annexure I:

After the taxpayer submits the response the success screen would be displayed along with the transaction ID.

The taxpayer can click on “View” link under response column to view the response submitted.

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

All are aware that the Companies Act, 2013, came in to fore, as an updated mixed bag of regulations, to cater the business needs of the changing economic environment thereby providing sustainable growth and better corporate governance. The Act has roped in many new concepts, thereby making the enactment to be at par with International Standards, and also to be in co-relation with the Accounting Standards.

In this context, the provisions relating to depreciation have been listed in Schedule II to the Companies Act, 2013, thereby replacing the provisions of the Schedule XIV to the Companies Act, 1956. The provisions of Schedule II have been applicable from the FY 2014 – 2015.

Through this Article an effort is being made to list out the changes/provisions, so as to enable the co-professionals and Corporates, to understand better for easy implementation.

Read more: Schedule-II to Companies Act, 2013