Rule notified for Determination of Foreign Exchange Conversion Rate
Section 67A of the Finance Act was inserted in May 2012 in order to determine the rate of exchange that shall be consider for making the payment of service tax in case of import of services. An explanation was inserted in the said section which read as under:
”Explanation— For the purposes of this section, “rate of exchange” means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962 (52 of 1962).”
This had led to various practical difficulties in the industry, since they had to separately maintain a track record as per CBEC rates for the purpose of valuing import or export of service, while in financial statements the rates were taken the basis of Generally Accepted Accounting Principles.
In order to overcome these difficulties, in the Finance Bill 2014, Finance Minister has proposed changes in the Section 67A of the Finance Act 1994. For this purpose, explanation to Section 67A of the Finance Act has been substituted and the new explanation was inserted in the Finance Act 2014 which read as under:-
In this regard, CBEC vide its Notification No. 19/2014-ST dated August 25, 2014 has inserted Rule 11 under the Service Tax Rules (applicable w.e.f. 1st October, 2014), so as to provide that the rate of exchange for determination of value of taxable service shall be the applicable rate of exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011.