2022 (4) TMI 705 - AT - Service Tax

Interest-free deposits not taxable if not consideration for services. Appeals allowed, only actual consideration taxable, not notional interest.

Marwadi Shares & Finance Ltd Versus C.C.E. & S.T. -Rajkot

The Tribunal held that interest-free deposits collected were not taxable as they did not represent consideration for services. The orders were set aside, ... Levy of service tax - interest free deposit amount collected by the Appellant from the demat account holders under the Scheme - appellant has not collected AMC charges - HELD THAT:- Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT], while deciding the appeal filed by the Department against the decision of the Tribunal, also explained the scope of Section 67 of the Act. The Supreme Court observed that any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67 - Supreme Court in UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. [2018 (3) TMI 357 - SUPREME COURT] and it was observed that since service tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. In the case of MURLI REALTORS PVT. LTD., MAGRPATTA TOWNSHIP DEVELOPERS & CONSTRUCTION CO. LTD., JAIN CONSTRUCTION, SAI CONSTRUCTION PVT. LTD., INDIA LAND INFRASTRUCTURE DEVELOPMENT PVT. LTD., RVS HOSPITALITY & DEVELOPMENT PVT. LTD., VANSUM INDUSTRIES AND THE MANJRI STUD FARM PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE-II [2014 (9) TMI 461 - CESTAT MUMBAI], a Division Bench of the Mumbai Tribunal made the observations with regard to the security deposit towards the renting of immovable property, holding that In the absence of a provision in law providing for a notional addition to the value/price charged, the question of adding notional interest on the security deposit as a consideration received for the services rendered cannot be sustained. In view of the facts that department could not bring on record any clinching evidence that the deposit has influenced the service charges, the demand is not sustainable. The impugned orders are set aside - appeal allowed - decided in favor of appellant. Issues Involved:1. Service tax liability on interest-free deposits collected under various schemes.2. Classification of deposits as consideration for taxable services.3. Applicability of Section 67 of the Finance Act, 1994.4. Time-barred demand and extended period of limitation.5. Calculation errors in service tax demand.6. Scope of show cause notice versus adjudicating authority's decision.Detailed Analysis:1. Service Tax Liability on Interest-Free Deposits:The main issue revolves around whether the interest-free deposits collected by the appellant from clients under various schemes should be considered as a taxable value for service tax purposes. The appellant argued that these deposits were merely security and not consideration for any service. The Tribunal agreed, noting that the deposits were refundable and used solely as security in case of default by clients. The deposits were not utilized for any financial operations or earning interest, as certified by a Chartered Accountant.2. Classification of Deposits as Consideration for Taxable Services:The appellant contended that refundable deposits do not constitute a 'charge' for providing services, and hence, cannot be taxed under Section 67 of the Finance Act. The Tribunal found that the deposits did not represent the value of any taxable service and were not used as payment for providing any service. Therefore, the deposits could not be considered as consideration for rendering any service.3. Applicability of Section 67 of the Finance Act, 1994:Section 67 specifies that taxable value is the consideration for the service provided. The Tribunal held that the deposits were not consideration for any service and thus not taxable. The Supreme Court's decision in Commissioner of Service Tax v. M/s. Bhayana Builders was cited, emphasizing that amounts not related to the taxable service cannot be included in the taxable value under Section 67.4. Time-Barred Demand and Extended Period of Limitation:The appellant argued that the demand was time-barred and that the extended period of limitation should not be invoked. However, the Tribunal did not specifically address this issue in the judgment.5. Calculation Errors in Service Tax Demand:The appellant pointed out errors in the calculation of service tax demand, arguing that they had already paid service tax on the AMC charges. The Tribunal noted that the service tax liability had been discharged on the AMC charges actually recovered, and thus, no further demand could be justified.6. Scope of Show Cause Notice Versus Adjudicating Authority's Decision:The appellant argued that the adjudicating authorities had gone beyond the scope of the show cause notice by confirming the demand based on AMC charges waived by the appellant. The Tribunal agreed, stating that the orders of the lower authorities were inconsistent with the issues raised in the show cause notice.Conclusion:The Tribunal concluded that the interest-free deposits collected by the appellant were not taxable as they did not constitute consideration for any service. The impugned orders were set aside, and the appeals were allowed. The Tribunal emphasized that only the actual consideration for services rendered is taxable, and notional interest on deposits cannot be included in the taxable value without specific provisions in the law.Pronouncement:The judgment was pronounced in the open court on 12.04.2022.