Contract-date service tax rate governed annual maintenance contracts, so later enhancement could not create differential liability.

Service tax on annual maintenance contracts entered into before 10.09.2004 was held to remain chargeable at the rate prevailing on the contract date, so the subsequent increase from 8% to 10% plus education cess did not apply. The Tribunal noted that the contracts were already in force and tax had been discharged on that basis; Notification No. 5/2004-ST was confined to cases where consideration was received before service was provided, which was not the factual position. As the taxable event was treated as arising when the contract was entered into and service commenced, no differential service tax was payable for the remaining contract period.

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Issues: Whether the enhancement of service tax rate from 8% to 10% plus education cess applied to annual maintenance contracts entered into before 10.09.2004, and whether the assessee was liable to pay differential service tax on the remaining contract period.

Analysis: The contracts for annual maintenance were admittedly entered into before the rate increase, and service tax had been discharged at the rate prevalent when the contracts were signed. The clarification in Notification No. 5/2004-ST governed cases where consideration was received before service was provided, which was not the position here. The taxable event was treated as arising when the contract was entered into and service commenced, so the later enhancement in rate could not be applied to contracts already in force. The Tribunal also relied on prior decisions holding that, where services are provided under a contract entered before an increase in rate, the applicable rate is the rate prevailing on the date of the contract.

Conclusion: The enhanced rate of service tax was not applicable to the pre-10.09.2004 contracts, and no differential service tax was payable.

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