Service Tax Not Leviable on Notional Interest from Security Deposits for Locker Rentals: CESTAT [Read Order]

The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal (CESTAT) ruled that service tax could not be levied on notional interest from security deposits collected for locker rentals.

Jyotsna Vaults, appellant-assessee,challenged the levy of service tax on notional interest accrued from the security deposit collected for renting out safe deposits and private lockers.

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Both sides acknowledged that the issue was no longer res integra, having already been settled by various tribunal decisions, including in favour of the appellant for an earlier assessment period.

The CESTAT had earlier held that service tax could not be levied on notional interest on security deposits for the period April 2012 to March 2015 and had set aside the demand.

The present appeal related to the period April 2015 to March 2017. The department claimed that notional interest on security deposits received during property rental was taxable under “Banking and other Financial Services.” The Adjudicating Authority confirmed the demand of ₹6,10,238, stating it formed part of additional consideration. The Commissioner (Appeals) also rejected the assessee's appeal.

The two member bench comprising Binu Tamta (Judicial Member) and Hemambika R.Priya (Technical Member) referred to its earlier decision in Murli Realtors Pvt. Ltd., where it had held that only actual rent is taxable, not any notional interest on security deposits, which serve a different purpose like covering rent defaults or damages.

Since the assessee had already paid service tax on rent and the dispute was only on notional interest, the tribunal followed its earlier ruling and held that such interest could not be taxed.

The impugned order was set aside and the appeal was allowed.

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