2023 (10) TMI 498 - AT - Service Tax

Levy of Service Tax - notional interest towards security deposit taken by the appellant against the renting of safe deposits and private lockers - period from April, 2006 to March, 2012 - HELD THAT - A perusal of the decision of the Tribunal in MURLI REALTORS PVT. LTD., MAGRPATTA TOWNSHIP DEVELOPERS CONSTRUCTION CO. LTD., JAIN CONSTRUCTION, SAI CONSTRUCTION PVT. LTD., INDIA LAND INFRASTRUCTURE DEVELOPMENT PVT. LTD., RVS HOSPITALITY DEVELOPMENT PVT. LTD., VANSUM INDUSTRIES AND THE MANJRI STUD FARM PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE-II 2014 (9) TMI 461 - CESTAT MUMBAI reveals that since the consideration for leasing of the property is rent, so what can be levied to service tax is only rent and notional interest on the security deposit cannot be subjected to levy of service tax. From decision of the Tribunal, it has to be held that service tax could not have been levied on the notional interest calculated by the department on the interest fee security deposit collected by the appellant. The five orders passed by the Commissioner (Appeals) that have been assailed in the five appeals cannot be sustained and are set aside - Appeal allowed.

Summary

Issues involved: Whether service tax can be charged on notional interest towards security deposit taken by the appellant against renting of safe deposits and private lockers.

The judgment dealt with the issue of whether the Department could charge service tax on the notional interest towards security deposit taken by the appellant against renting of safe deposits and private lockers. The appellant had paid service tax on the rent received, but the Department believed that the notional interest earned on the refundable deposit should also be included in the taxable value of services provided. The appellant contended that notional interest should not be considered as a consideration for the service provided. The Commissioner (Appeals) confirmed the demand, leading to appeals by both the appellants and the department.

The appellant argued that the advances received were interest-free security deposits and did not impact the rental charges collected. They relied on the provisions of section 67 of the Finance Act and a Division Bench decision of the Tribunal in a similar case. The department, however, supported the order of the Commissioner (Appeals) and argued against interference.

The Tribunal examined section 67 of the Finance Act, which defines consideration for taxable services provided. Referring to the Division Bench decision in a similar case, the Tribunal held that only the rent charged could be levied with service tax, not the notional interest on the security deposit. Therefore, the service tax on the notional interest calculated by the department could not be sustained. Consequently, the orders passed by the Commissioner (Appeals) were set aside, and the appeals were allowed.