Insurance service tax accrues on premium receipt and risk assumption, so later rate increases cannot apply to existing policies.

In a general insurance contract, the taxable event occurs when the insurer receives the premium and assumes risk, so service tax is chargeable at the rate in force on that date. CESTAT Mumbai held that where a policy was issued and premium was received before the enhanced rate came into force, the later increase could not be applied to the remaining policy period. The Board circular and earlier Tribunal view supported the conclusion that the tax incidence was fixed when the contract was entered into. The demand for differential service tax, education cess, interest, and penalty was therefore unsustainable.

---

---

Issues: Whether service tax on a general insurance policy is payable at the enhanced rate introduced during the currency of an already issued policy, where premium was received in advance and service tax had been discharged at the rate prevailing on the date of issuance of the policy.

Analysis: The service in general insurance was held to accrue when the insurer received the premium and assumed the risk in terms of Section 64VB of the Insurance Act, 1938. The taxable service under Section 65(105)(d) of the Finance Act, 1994 was therefore linked to the date on which the policy was issued and premium received, not to the later continuation of the policy period. The reasoning was reinforced by the Board's circular on insurance premium and by the Tribunal's earlier view that where the taxable event has occurred before an enhanced rate comes into force, the higher rate cannot be applied to the already entered contract. The later enhancement in rate did not alter the tax incidence on policies already issued.

Conclusion: The enhanced rate of service tax was not applicable to policies issued before the rate increase, and the demand for differential service tax, education cess, interest, and penalty was unsustainable.

Ratio Decidendi: Where the taxable event in an insurance contract occurs on receipt of premium and assumption of risk, service tax is chargeable at the rate in force on that date and cannot be enhanced retrospectively for the remaining policy period.

---