2017 (8) TMI 71 - AT - Service Tax

Annual maintenance contract - revision of rate of service tax after 10.9.2004 - N/N. 5/2004-ST dated 9.7.2004 - whether the appellant is required to pay differential amount of service tax for remaining part of annual maintenance contract or not? - Held that - Admittedly, in the case in hand, rate of service tax was 8% when the annual maintenance contracts were entered by the appellant with their clients and the service was reckoned prior to 10.09.2004. The service is rendered as and when the contract is entered - similar issue decided in the case of Bajaj Allianz General Insurance Co.Ltd. vs. CCE, Pune 2008 (10) TMI 72 - CESTAT MUMBAI , where it was held that enhancement of tax rate is not applicable to the polices issued prior to such enhancement - the enhancement of rate of tax on 10.9.2004 has no application to the facts of this case - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of differential service tax due to revision of rates after 10.9.2004.

Analysis:
The case involves an appeal against a demand for differential service tax due to a revision in rates after 10.9.2004. The appellant provided maintenance and repair services under annual maintenance contracts, paying service tax at the prevailing rate upon contract initiation. The dispute arose as the service tax rate increased from 8% to 10% plus 2% education cess on 10.9.2004. The appellant argued that as services commenced upon contract signing, the Notification No.5/2004-ST dated 9.7.2004, cited by the respondent, was not applicable. The appellant cited a similar case in insurance where the rate enhancement did not apply to policies issued before the change. The respondent relied on legal precedents to support their position.

Upon considering the arguments, it was found that the services commenced upon contract initiation, rendering the Notification No.5/2004-ST inapplicable. Legal precedents highlighted that the prevailing rate of service tax at the time of service provision applied. The Tribunal referenced a case involving hire-purchase contracts to support this interpretation. The Tribunal also noted circulars clarifying service tax liability in advance premium payments for insurance policies. The decision in Bajaj Allianz General Insurance Co.Ltd. case further supported the notion that rate enhancement did not apply to policies issued before the change. Consequently, the Tribunal held that the rate increase on 10.9.2004 did not affect the appellant's liability, and no differential service tax was owed.

In conclusion, the impugned order was set aside, and the appeal was allowed with any consequential relief. The Tribunal's detailed analysis emphasized the applicability of service tax rates at the time of service provision, supported by legal precedents and circulars. The judgment clarified the non-applicability of rate enhancements to contracts initiated before such changes, providing a favorable outcome for the appellant.