No Service Tax on Book Reversal Entries, Security and Electricity Deposits u/s Section 67 of Finance Act: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Chennai, has ruled in favour of appellant., quashing a service tax demand of ₹8.83 lakh raised by the Revenue. The demand pertained to amounts accounted as miscellaneous income due to reversal of prior year expenses, which the appellant contended were not related to renting of immovable property services.

The appellant, PVP Corporate Parks Pvt. Ltd, engaged in the business of leasing immovable property, had acquired assets from SSI P Ltd. and AGS Holding P Ltd. in 2008. During a review of accounts, it was noted that certain electricity deposits and refundable security deposits had not been separately recorded. In 2009-10, reversal entries were made, resulting in the amounts being reflected under miscellaneous income.

A Show Cause Notice issued in August 2011 sought service tax on these entries and invoked the extended period of limitation. The appellant argued that the amounts were refundable deposits, not consideration for renting services, and that the demand was time-barred. The Additional Commissioner and Commissioner (Appeals) had upheld the demand, prompting the present appeal before the Tribunal.

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The two-member bench comprising P. Dinesha, Member (Judicial) and Vasa Seshagiri Rao, Member (Technical), observed that the amounts in question were refundable electricity deposits and security deposits taken from tenants for potential damages. These were not received as consideration for renting immovable property.

The Tribunal relied on earlier rulings, including Team HR Services Pvt. Ltd. v. Commissioner of Central GST and VITP Pvt. Ltd. v. Commissioner of Central Tax, which held that refundable security deposits do not attract service tax. It also noted that the issue of taxability of renting immovable property was interpretative in nature and had attained finality only after the Delhi High Court’s ruling in Home Solutions Retail India Ltd. Consequently, the extended period of limitation could not be invoked.

In view of the above, CESTAT Chennai set aside the service tax demand, holding that the miscellaneous income entries were not consideration for renting of immovable property services. The appeal was allowed with consequential relief, emphasizing the need to distinguish refundable deposits from actual service consideration for service tax purposes.

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