SERVICES OF THE HIRE PURCHASE

The service tax tribunal has held that with respect to services of the hire purchase the rate of service tax applicable is the rate prevailing on the day on which the hire purchase agreement is entered into. In this case the assessee was engaged in the providing services of hire purchase and was registered under the category of “Banking and other financial services “.They have been paying service tax at the rate of 5%. Subsequently the rate of service tax was increased to 8% with effect from 14 may 2003. The department contended that service tax at 8% would be applicable on monthly installments which were paid after 14 may 2003. The assessee contended that in respect of hire purchase contract, the rate of tax applicable is the rate prevailing on the day the contact is entered into. The higher rate is not applicable for the contract entered prior to the hike. The tribunal accepted the arguments of the assessee and held that when the hire purchase contract is entered, the taxable event occurs and therefore the rate of service tax will be rate prevailing on the day on which the contact is entered into.