2022 (11) TMI 694 - AT - Service Tax

Levy of Service Tax - deposit taken by the appellant from their customers as security deposit against towards trading of shares which is subsequently refunded without utilizing the same - HELD THAT - This issue in the appellant s own case only for a different period has been decided MARWADI SHARES FINANCE LTD VERSUS C.C.E. S.T. -RAJKOT 2022 (4) TMI 705 - CESTAT AHMEDABAD where it was held that In view of the facts that department could not bring on record any clinching evidence that the deposit has influenced the service charges, the demand is not sustainable. The issue is no longer res integra and following the same, the impugned order is not sustainable - Appeal allowed.

Summary

Issues:
Whether the appellant is liable to pay Service Tax on the deposit taken from customers as a security deposit against trading of shares, subsequently refunded without utilization.

Analysis:
The Appellate Tribunal considered whether the deposit taken by the appellant as a security deposit is liable to Service Tax. The appellant argued that a previous tribunal order had held the deposit not liable to tax, which was for a different period but with common facts and legal issues. The revenue reiterated the findings of the impugned order demanding Service Tax on the security deposit. The Tribunal reviewed the case records and noted that the deposit was taken for security against default in payment by the client and was refundable. The Tribunal considered a certificate from a Chartered Accountant confirming that the amount collected was not used for financial operations and was shown as a liability in the balance sheet, concluding that it was not taxable.

The Tribunal further analyzed Section 67, stating that the taxable value is the consideration agreed upon by the parties. It emphasized that if any benefit accrues not related to the agreed consideration, it should not be added to the value of service. The Tribunal highlighted that the deposit served a different purpose and was not a consideration for providing service, thus not subject to Service Tax. It referenced a Supreme Court case emphasizing the nexus between the amount charged and the service provided for taxation purposes.

Additionally, the Tribunal referred to previous judgments where notional interest on refundable security deposits was not considered part of the taxable value of service. It cited cases where security deposits were held not to influence service charges, leading to the conclusion that the demand for Service Tax was not sustainable. Consequently, the impugned orders were set aside, and the appeals were allowed. The Tribunal held that the issue was no longer res integra based on previous decisions, rendering the impugned order unsustainable and setting it aside.

In conclusion, the Tribunal found in favor of the appellant, ruling that the deposit taken as a security deposit against trading of shares, subsequently refunded without utilization, was not liable to Service Tax based on legal provisions, previous tribunal orders, and relevant case law.