2018 (10) TMI 647 - AT - Service Tax

Valuation - inclusion of Notional Interest earned on the interest free deposits in the assessable value - Renting of Immovable Property Services - Held that - Tribunal in the case of Murli Realtors Pvt. Ltd. 2014 (9) TMI 461 - CESTAT MUMBAI has held that in the absence of evidence showing that security deposits did not influence the rent and in the absence of any provision of law allowing addition of such notional interest in the assessable value it was held that the notional interest cannot be treated as assessable value. There is a clear finding by this Tribunal that there is no proviso of law to decide the rate of interest that should be taken into consideration and also there is no provision of law to add notional interest on the interest free security deposit to the rent received by the service provider for the purpose of levy of service tax. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether notional interest earned on interest-free deposits should be added to the assessable value of services provided by the appellant for the purpose of service tax calculation.

Analysis:
The case involved a dispute regarding the treatment of interest-free deposits received by the appellant in the context of service tax calculation. The Revenue contended that notional interest earned on these deposits should be included in the assessable value of the services provided by the appellant. The show cause notice alleged that the appellant had received interest-free deposits and earned notional interest on them, which should be added to the rent received for service tax calculation. The appellant argued that the interest-free deposit did not influence the rent rate and cited a previous Tribunal order in a similar case to support their stance. The Tribunal examined previous judgments and found that notional interest on interest-free security deposits cannot be added to the rent for the purpose of service tax calculation unless there is evidence showing that the deposit influenced the price or rent in any way. The Tribunal emphasized the lack of evidence provided by the Revenue to support their claim and concluded that there is no provision in the law to add notional interest on interest-free deposits to the rent received by the service provider for service tax calculation. As a result, the impugned order was set aside, and the appeal was allowed in favor of the appellant, who would be eligible for any consequential relief as per the law.

This judgment clarifies the treatment of interest-free deposits and notional interest in the context of service tax calculation, emphasizing the requirement of evidence to show any influence on the price or rent. The decision provides a clear guideline for assessing the assessable value in such cases and highlights the importance of legal provisions in determining the tax liability accurately.