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TMI Blog2014 (9) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... of such an arbitrary rate militates against the concept of valuation. Notional interest on interest free security deposit cannot be added to the rent agreed upon between the parties for the purpose of levy of service tax on renting of immovable property. - Decided in favor of assessee. - Appeals Nos.: ST/86521/2014 ST/85382/2013 & ST/86957/2014 ST/89511/2013 ST/89898/2013 ST/85580/2014 ST/86118/2014 ST/86243/2014 ST/85471/2014 - Final Order Nos. A/1366-1374/2014-WZB/C-I(CSTB) - Dated:- 16-7-2014 - P R Chandrasekharan and Ramesh Nair, JJ. For the Appellant : Ms. Mansi Patil, Adv., Shri L Badrinarayanan, Adv., Shri Sagar Shah, CA, Shri Amit Shoede, Cost Accountant, Shri Sunil Gabhawalla, C.A., Shri Vikas Y Khore, Consultant, Shri S S Gupta, CA For the Respondent Dr B S Meena, Addl. Commissioner (AR) JUDGEMENT Per: P R Chandrasekharan: There are 9 appeals and 1 stay petition. The details of these appeals, the order-in-original from which they have arisen, the period of demand and the service tax demand confirmed are given in the table below: S.No Appeal No. Appellant Order-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services rendered they are receiving lease rentals on a monthly basis. In addition to these rentals, they are also taking interest free security deposits from the lessees. These security deposits vary from six months' rent to one year's rent. The security deposits are taken to secure default in payment of rentals, default in payment of utility charges, if any, and damage caused to the property other than the usual wear and tear. These deposits are returned to the lessee at the end of the lease period. The lease agreements also provide for increase in the lease rental once in three years by 15% of the rent agreed upon. The department was of the view that the taking of interest free security deposit has suppressed the lease rentals and, therefore, notional interest @ 18% of the deposit should be added to the rent received and service tax should be demanded on the notional interest on the security deposit. Accordingly, show cause notices were issued and the demands were confirmed. Aggrieved of the same the appellants are before us. 3. While in respect of 8 cases, the appeals are listed for final hearing, in respect of one case, both stay petition and appeal are listed. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered a question whether the amortised cost of moulds supplied free of cost by the buyer to the dealer-cum-manufacturer was addable to the consideration charged for the purpose of levy of sales tax. The hon'ble apex Court held that, unlike Central Excise duty which is concerned with intrinsic value of excisable goods, sales tax law was not concerned with intrinsic value but with the consideration paid for the goods and accordingly it was held that the amortised cost of the moulds will not form part of the value for the purpose of levy of sales tax. The ratio of the above decision would apply to the facts of the present case. The price which is the amount of consideration for the service of renting of immovable property is the rent. There is no deeming fiction or notional concept and in the absence of such a deeming fiction, only the amounts agreed to as lease rent are taxable and notional interest cannot be added to the value of the service for the purpose of levy of service tax. 4.3 The CBEC vide Circular No. 65/14/2003-ST dated 05/11/2003 had clarified as follows: 2. .Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o arrive at the value of the taxable service provided by the appellant. 4.7 He further contends that it is for the department to show that the rent has been influenced by the security deposit. In the absence of any iota of evidence led by the department in this regard, value of notional interest cannot be added to the value of taxable service. Rule 6 of the Central Excise Valuation Rules also deals with a similar situation, in case, advance was taken for supply of goods. Explanation 2 thereof states that Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit. 4.8 A similar question arose for consideration by the apex Court in VST Industries Ltd. vs. Commissioner of Central Excise, Hyderabad 1998 (97) ELT 395 (SC) wherein the Court ruled that interest received when goods are sold on credit doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and on this amount the appellant is discharging service tax liability. The security deposit is taken for a different purpose altogether. It is to provide for a security in case of default in rent by the lessee or default in payment of utility charges or for damages, if any, cause to the leased property. Thus, the security deposit serves a different purpose altogether and it is not a consideration for leasing of the property. The consideration of the leasing of the property is the rent and, therefore, what can be levied to service tax is only the rent charged and no notional interest on the security deposit taken can be levied to tax. There is no provision in service tax law for deeming notional interest on security deposit taken as a consideration for leasing of the immovable property. Therefore, in the absence of a specific provision in law, as held by the hon'ble apex Court in the case of Moriroku UT India (P) Ltd. (supra), there is no scope for adding any notional interest to the value of taxable service rendered. Even in the excise law, under Rule 6 of the Valuation Rules, unless the department shows that the deposit taken has influenced the sale price, notional int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturer which would lead to a presumption that it is to the advantage of the manufacturer having influenced the fixation of price as well. We, however, fail to appreciate the submission made on behalf of the revenue for drawing a presumption that fixation of price is influenced by such an advance. In this connection, we may refer to the Board's circular of 1998 quoted earlier, clause (iii) of which clearly provides that if there is no deference in the selling price for both categories of the wholesale buyers and there is also no proof that on account of advance deposits taken from some buyers, the price charged from all buyers has been reduced, then element of notional interest on advance deposits, cannot be added. Obviously, where there are two prices, one for those who have made the advance and the other who have not, it would require no further proof of the lower price having been influenced by the interest free advance made by the buyer. But otherwise, it would require proof and the proof for the purposes of holding that interest free advance has influenced the price would obviously be provided by the revenue. There is no scope for any such presumption as canvassed on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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