2016 (4) TMI 843 - AT - Service Tax

Tribunal rules Service Tax liability based on contract initiation rate, sets aside differential demand

The Tribunal ruled in favor of the appellant, holding that Service Tax liability for hire purchase agreements should be based on the rate prevailing at ... Demand - Differential Service tax liability - Whether the Service tax liability needs to be discharged by the appellant as per the prevailing Service tax rate during the entire period of hire purchase of contract or else - Appellant has discharged the Service tax liability at the applicable rate when they entered into contract with their client on hire purchase agreement - Held that:- by following the decision of this bench in appellant's own case on identical issue reported in [2014 (7) TMI 155 - CESTAT MUMBAI], the impugned order is unsustainable and set aside. - Decided in favour of appellant with consequential relief Issues involved:Demand of differential Service Tax liability based on the prevailing rate during the entire hire purchase agreement period.Analysis:The judgment revolves around the issue of the demand for differential Service Tax liability on the appellant for the period between October 2005 and July 2008. The appellant argued that the Service Tax liability should be based on the rate prevailing at the time of entering into the agreement with the client, with the Service Tax amount factored into the Equated Monthly Installments (EMI) fixed for the client. The appellant cited a previous case where it was held that the Service Tax liability should be based on the rate prevailing throughout the hire purchase agreement. The Tribunal considered the submissions and records, focusing on whether the Service Tax liability should be discharged by the appellant based on the prevailing rate during the entire hire purchase contract period.The Tribunal noted that the appellant, engaged in lease finance business, had already discharged the Service Tax liability at the applicable rate when entering into the contract with the client. Referring to the appellant's previous case, the Tribunal highlighted that the rate of Service Tax should be determined based on the prevailing rate at the time of entering into the contract. The Tribunal emphasized that the installment payments under the contract are obligations of the hirer, and the rate of Service Tax should align with the rate prevailing at the contract's inception.Based on the settled issue in the appellant's earlier case and the Tribunal's previous ruling, the Tribunal concluded that the impugned order demanding differential Service Tax liability was unsustainable. The Tribunal upheld its previous decision and set aside the impugned order, allowing the appeal with consequential relief if applicable. The judgment reaffirmed the principle that the Service Tax liability for hire purchase contracts should be based on the rate prevailing at the contract's initiation, aligning with the appellant's argument and previous legal precedent.In summary, the judgment clarifies the determination of Service Tax liability for hire purchase agreements, emphasizing that the rate applicable is the one prevailing at the time of entering into the contract. The Tribunal's decision aligns with previous rulings and the appellant's argument, setting aside the demand for differential Service Tax liability based on the prevailing rate throughout the contract period.