Taxable value excludes notional interest on security deposits where locker rent is already taxed and no deeming provision applies.

Service tax under section 67 of the Finance Act, 1994 was held not to extend to notional interest computed by the Department on an interest-free security deposit taken for renting safe deposit vaults and private lockers. The taxable value was confined to the consideration for the service, and the locker rent had already been taxed. The security deposit served a separate purpose, namely securing performance and possible liabilities, and was not consideration for the service. In the absence of a specific deeming provision treating notional interest on such deposit as part of the service value, the addition was unsustainable.

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Issues: Whether service tax could be levied on the notional interest computed by the Department on the interest-free security deposit taken in relation to renting of safe deposit vaults and private lockers.

Analysis: The taxable value under section 67 of the Finance Act, 1994 depends on the consideration for the taxable service. The rent charged for the lockers was already subjected to service tax. The security deposit was taken for a distinct purpose, namely, to secure performance and possible liabilities, and was not consideration for the service of renting the lockers. In the absence of a specific statutory provision deeming notional interest on such deposit as part of the value of the service, there was no basis to add such notional interest to the taxable value.

Conclusion: Service tax could not be levied on the notional interest calculated on the interest-free security deposit, and the demands based on such addition were unsustainable in favour of the assessee.

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