Service tax cannot be charged on notional interest for renting safe deposits & private lockers

The Tribunal held that service tax cannot be charged on notional interest towards security deposit for renting safe deposits and private lockers. The Tribunal ruled that only the rent received can be subject to service tax, not the notional interest on security deposits. Therefore, the service tax on notional interest calculated by the Department was deemed unsustainable, leading to the reversal of the Commissioner (Appeals) orders and allowing the appeals.

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Issues involved: Whether service tax can be charged on notional interest towards security deposit taken by the appellant against renting of safe deposits and private lockers.

The judgment dealt with the issue of whether the Department could charge service tax on the notional interest towards security deposit taken by the appellant against renting of safe deposits and private lockers. The appellant had paid service tax on the rent received, but the Department believed that the notional interest earned on the refundable deposit should also be included in the taxable value of services provided. The appellant contended that notional interest should not be considered as a consideration for the service provided. The Commissioner (Appeals) confirmed the demand, leading to appeals by both the appellants and the department.

The appellant argued that the advances received were interest-free security deposits and did not impact the rental charges collected. They relied on the provisions of section 67 of the Finance Act and a Division Bench decision of the Tribunal in a similar case. The department, however, supported the order of the Commissioner (Appeals) and argued against interference.

The Tribunal examined section 67 of the Finance Act, which defines consideration for taxable services provided. Referring to the Division Bench decision in a similar case, the Tribunal held that only the rent charged could be levied with service tax, not the notional interest on the security deposit. Therefore, the service tax on the notional interest calculated by the department could not be sustained. Consequently, the orders passed by the Commissioner (Appeals) were set aside, and the appeals were allowed.

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