The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that interest on refundable security deposit is not chargeable to Service Tax.
The appellant is registered under the category of “Stock Broker’s Service, Banking & Financial Services and Business Auxiliary Services. During the course of audit, it was observed that the Appellant was charging annual maintenance charges from their clients holding Demat account with the appellant and were paying service tax on the said charges. The dispute relates to service tax on interest-free deposit amount collected by the Appellant from the Demat account holders under the Scheme and in lieu of the same Appellant has not collected Annual maintenance contract (AMC) charges. Aggrieved, the appeals were preferred before the Commissioner (Appeals) and it upheld the demand of Service tax and penalties under Sections 77 and 78 of the Finance Act. Resultantly the appellant is before CESTAT.
The counsel for the appellant, Sri Sudhanshu Bissa submitted that as per the certificate issued by the Chartered Accountant the amount collected as a deposit was not utilized by the Appellant for any financial operations. Moreover, the certificate also certified that the amount received by the Appellant as an interest-free security deposit as shown in the balance sheet as other liabilities. Thus, the amounts in question were only deposit that was maintained for security purposes and was refundable the closer to the account by the client.
The Tribunal has observed that Section 67 provides taxable value as a consideration whether in monetary or monetary form. Therefore, if any benefit accrues to either party which is not in the nature of consideration agreed upon by the parties, the same is not liable to be added to the value of service in terms of Section 67. The said deposit serves a different purpose altogether and it is not a consideration for providing service. The “consideration for service‟ is absent in the present case, therefore, what can be levied to Service Tax is only the consideration received for the service charged and no notional interest on the deposit taken can be levied to tax.
The Coram of Mr. Ramesh Nair, Member (Judicial), and Mr. Raju, Member (Technical), holds that it is not possible to sustain the impugned orders passed by the Commissioner (Appeals), accordingly set aside the order and allowed the appeal.
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