The Commissioner (Appeals), Delhi has held that the amount of interest- free maintenance security deposit collected by the maintenance service provider cannot be subject to service tax under the head ‘Maintenance of Immovable Property Service’ when such security deposits recovered from the prospective flat owners and the same are to be used by builder/developer in maintaining the complex until the Resident Welfare Association is formed and then to transfer it to RWA.
The appellants entered into an agreement with M/s Ajnara for maintenance of various Housing Projects of the latter. For this purpose, different agreements were signed for different projects and separate agreements were there with the individuals also. Under these Service Agreements, the appellants collected Interest-free Maintenance Security deposit (IFMS) from the residents to guarantee the due payment for service. The amount so collected was non-refundable and only transferable to a person, ie. Residents Welfare Association. The agreement entitles the appellants to adjust arrears of any resident for maintenance, water, electricity, power-backup and other charges from the said amount.
The department took a stand that the appellants are liable to pay service tax on the deposit so collected.
The counsels for the appellants Mr. Ashu Dalmia, CA and Rakesh Chitkara, Advocate argued that for the services provided by the, the appellants are charging Annual Maintenance Charges for the first 18 months and after that monthly maintenance charges are being charged by them and service tax is being duly for this. They argued that the amount in dispute was collected only to guarantee the due payment and there is no nexus of the provision of maintenance service with this amount and therefore, no service tax liability can be attributed.
The adjudicating authority dismissed the appeal and upheld the service tax demand.
Overruling the first appellate order, the first appellate authority held that “the attempt of the A.A. to include the deposit i.e., IFMS in the gross receipts based on the nomenclature of the said deposit is not sustainable legally as, the AA has not corroborated her conclusions with any cogent evidence to link this deposit (IFMS) directly to provision of the said service. The appellants were already paying tax on receipts directly linked to maintenance as discussed. The reference to section 67 for making IFMS as part of the gross amount chargeable to tax for provision of the said service in the impugned order is not tenable as only advances for the services and actual receipts for provision of the said service can be legible to tax which in this case being the advance deposit of first 18 months and the monthly charges are already covered by service tax and the same was duly paid. The deposit (IFMS) could not be correlated to payment or advance for service.”
After hearing rival contentions, the Tribunal held that the amount collected as deposit was merely a security and not an advance towards any service charge and hence not includible in value for service tax.
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