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Service Tax Tribunal: Refundable deposit not taxable; Annual rent is. Interest due, penalty waived. Appeal partly allowed. The Tribunal found the demand for Service Tax on the refundable security deposit to be erroneous as it did not qualify as consideration under Section 67. ...
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Service Tax Tribunal: Refundable deposit not taxable; Annual rent is. Interest due, penalty waived. Appeal partly allowed.
The Tribunal found the demand for Service Tax on the refundable security deposit to be erroneous as it did not qualify as consideration under Section 67. The Tribunal confirmed the demand for Service Tax on the annual rent as defined in the agreement. The Appellant was directed to pay interest on the delayed deposit, while the penalty under Section 78 was set aside. The impugned order was modified, and the appeal by the Appellants was partly allowed in specified terms.
Issues: 1. Whether Service Tax is rightly demanded on the security deposit made by the tenant to the landlord.
Analysis: The appeal in this case revolved around the issue of whether Service Tax was correctly demanded on the security deposit made by the tenant to the landlord. The Appellant had rented out premises for office use and received a monthly rent of Rs. 4000, with a security deposit of Rs. 5 Lacs. The rent agreement was later renewed, increasing the rent to Rs. 7000 per month with a total security deposit of Rs. 10,00,000. The agreement specified that if the tenant deposited an additional Rs. 5,00,000, making the total security deposit Rs. 10,00,000, then no rent would be paid. The security deposit was to be refunded upon vacating the premises peacefully. A show cause notice demanded Service Tax on the total deposited amount for a specific period, which was contested by the Appellant. The Commissioner (Appeals) upheld the demand, leading to the appeal before the Tribunal.
The Appellant argued that the agreement clearly outlined the rent amount and the option for the tenant to make a lump sum security deposit in place of monthly rent. They contended that the demand for Service Tax on the refundable security deposit was erroneous, as it did not constitute consideration under Section 67. The Appellant acknowledged the liability for Service Tax on the rent as defined in the agreement. On the other hand, the Revenue's representative supported the findings of the impugned order.
After considering the arguments, the Tribunal found the demand on the refundable security deposit to be erroneous, as it did not qualify as consideration under Section 67. The Tribunal confirmed the demand for Service Tax on the annual rent of Rs. 84,000 as defined in the agreement. The Appellant was directed to pay interest on the delayed deposit, while the penalty under Section 78 was set aside. Consequently, the impugned order was modified, and the appeal by the Appellants was partly allowed in the specified terms. The judgment was dictated and pronounced in an open court setting.
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