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In case of a Hire-Purchase contract the taxable event is the date of entering into the contract, installment payments are only obligations of the hirer.
Facts
The Appellant is engaged in lease financial business and has discharged service tax at the applicable rate prevailing on the date of entering into the hire purchase agreement. The department contends that service tax is payable at the rate prevalent when the lease rental is being paid and accordingly there is a demand for the differential service tax liability. It was argued that service tax liability is factored in the EMI that is fixed for their client and therefore the applicable rate is the rate prevailing on the date of the agreement only.
Held
The Tribunal relied upon the decision in the case of Art Leasing Ltd vs. CCE [2007 (8) STR 162 wherein it is held that the installment payments are only obligations of the hirer whereas the taxable event occurs when the contract is entered into. Therefore the contention that service is continued to be provided during the payment of installments is not correct. Accordingly it was held that rate of service tax will be the rate prevalent on the date of contract and the demand for differential liability is set aside.
(Note: The ratio of the aforesaid decision may be applied to the applicability of Rule 5 of the Point of Taxation Rules, 2011 wherein, in case of new services and new levies where the payment is received after the applicability of the new levy, the new rate is made applicable. As per the aforesaid decision, if the taxable event occurs prior to the applicability of the new levy, new rate cannot be made applicable merely because the payment is received later.)
