2014 (11) TMI 499 - AT - Service Tax

Tribunal: No service tax on security deposit, but tax on rent; Appellant not liable for penalty.

SAMIR RAJENDRA SHAH Versus COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR

SAMIR RAJENDRA SHAH Versus COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR - 2015 (37) S.T.R. 154 (Tri. - Mumbai) Issues:1. Demand of service tax on security deposit paid on Renting of Immovable Property.2. Quantification of interest on service tax paid and penalties imposed.3. Applicability of Section 80(2) of the Finance Act, 1994.Issue 1: Demand of service tax on security deposit:The appellant appealed against the order demanding service tax on security deposit paid on Renting of Immovable Property. The appellant, as the owner of the property, received security deposits and rent from lessees. The agreement specified that the lessee would bear the service tax. The authorities demanded service tax on the total amount of security deposit and rent received by the appellant. The appellant argued that service tax should not apply to the security deposit as it is refundable, and they had not collected service tax from the lessees. The tribunal held that service tax is not payable on the security deposit, but the rent received should be treated as the value of taxable service, and service tax is payable separately on the rent amount.Issue 2: Quantification of interest and penalties:The lower authorities did not quantify the interest on service tax paid by the appellant or the penalties imposed. The appellant pleaded for the benefit of Section 80(2) of the Finance Act, 1994, as they had paid the entire service tax amount before a specified date. The tribunal found that the appellant was entitled to the benefit of dropping the penalty under Section 80(2) since they had paid the service tax before the specified date. Therefore, no penalty was leviable on the appellant.Issue 3: Applicability of Section 80(2) of the Finance Act, 1994:The appellant argued that they should be given the benefit of Section 80(2) as they had paid the service tax before the specified date. The tribunal agreed that the appellant's understanding that the rent received could be treated as cum-service tax was not acceptable. However, they held that the appellant was entitled to the benefit of dropping the penalty under Section 80(2) of the Finance Act, 1994. Therefore, no penalty was leviable on the appellant.In conclusion, the tribunal ruled that no service tax is payable on the security deposit, but the rent received should be treated as the value of taxable service, and service tax is payable separately on the rent amount. Additionally, the tribunal held that the appellant was entitled to the benefit of dropping the penalty under Section 80(2) of the Finance Act, 1994, and no penalty was leviable on the appellant.