Interest on Security Deposit Excluded from Service Tax Calculation

The Tribunal held that notional interest on a security deposit should not be added to the monthly rent for the purpose of service tax calculation on renting of immovable property. The lease agreement was executed before renting became a taxable service, and the fixed monthly rent was not influenced by the security deposit. Therefore, the Tribunal set aside the order imposing service tax, allowing the appeal and granting the appellant relief in accordance with the law.

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Issues:
- Whether notional interest on security deposit can be added to monthly rent for the purpose of levy of service tax for renting of immovable property.
- Whether the security deposit influenced the monthly rental amount.

Analysis:
1. The appeal challenged an Order-in-Original passed by the Commissioner, Customs, Central Excise & Service Tax, Noida, regarding the levy of service tax on renting of immovable property.
2. The appellants leased industrial property to a company, receiving a security deposit of Rs. 20 crores and a monthly rent of Rs. 5,000. The Revenue claimed that notional interest on the security deposit should be added to the rent for service tax calculation.
3. The appellants argued that the lease agreement was executed before renting became a taxable service, and the monthly rent was fixed regardless of the security deposit. They contended that notional interest should not be added as it is not specified in Section 67 of the Finance Act, 1994.
4. The appellants cited previous Tribunal decisions, including K. Raheja Corporation Pvt. Ltd. and The Lake Palace Hotel and Motels Pvt. Ltd., where it was held that notional interest cannot be added to the rent for service tax calculation.
5. The Revenue argued that the high security deposit influenced the low monthly rent, justifying the addition of notional interest.
6. The Tribunal noted that renting of immovable property became taxable in June 2007, while the agreement was made in November 2004. The monthly rent remained constant at Rs. 5,000 even after the security deposit was refunded in 2011. Relying on precedent cases, the Tribunal held that notional interest should not be added to the rent for service tax assessment.
7. Consequently, the impugned order was set aside, and the appeal was allowed, granting the appellant consequential relief as per law.

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