2024 (10) TMI 1131 - AT - Service Tax

Security deposits collected by gas suppliers not liable to service tax under negative list regime

Commissioner of CGST & CEx-Gandhinagar Versus ADANI ENERGY LIMITED

CESTAT Ahmedabad held that security deposits collected by gas supplier are not liable to service tax under the negative list regime from 01.07.2012. The ... Levy of service tax - security deposit collected by the respondent - validity of SCN issued in the form of a statement is valid under the negative list regime effective from 01.07.2012 - HELD THAT:- A security deposit for any length of time would not automatically became a taxable service in the hands of the respondent and that there is no provision in service tax law for taxing on a security deposit amount. Admittedly, the security deposit collected by the respondent is refundable at the time of termination of Gas supply agreement. Therefore, the said security deposit cannot form a part of service provided by the respondent. Therefore, on the said amount, Service Tax is not payable - As per the agreement, after all dues are cleared and the meter and allied equipment have been removed in proper and undamaged working condition, the security deposit shall be refunded to the buyer. Clearly, the said security deposit amount is not a part of service which is provided by the respondent, hence not taxable. Whether the show cause notice issued in the form of a statement is valid under the negative list regime effective from 01.07.2012? - HELD THAT:- Since the matter is decided on merit i.e. whether security deposit is liable to service tax or otherwise, this issue is not being addressed and same is kept open. The order of Ld. Commissioner is upheld - appeal of department dismissed. Issues Involved:1. Whether the security deposit collected by the respondent is liable to service tax.2. Whether the show cause notice issued in the form of a statement is valid under the negative list regime effective from 01.07.2012.Detailed Analysis:Issue 1: Liability of Security Deposit to Service TaxThe primary issue in this case was whether the security deposit collected by the respondent from its customers was liable to service tax. The Revenue argued that the security deposit should be included in the taxable value as it was not refundable, citing previous adjudications and Supreme Court decisions. They contended that the security deposit formed part of the taxable service under Section 67(3) of the Finance Act, 1994, which includes any amount received towards the taxable service before, during, or after the provision of such service.The respondent countered that the security deposit was distinct from the gas connection charges, which were already subject to service tax. They argued that the security deposit was intended for the safe custody of equipment and was refundable, thus not constituting consideration for the service provided. The Tribunal noted that the security deposit was indeed refundable upon the termination of the gas supply agreement, provided the equipment was returned undamaged. This established that the security deposit did not form part of the service provided and was not liable to service tax. The Tribunal supported this view by referencing several judicial precedents, including the Supreme Court's decision in Moriroku UT India P. Ltd. v. State of U.P., which clarified that security deposits intended for damage recovery do not constitute taxable service consideration.Issue 2: Validity of Show Cause NoticeThe second issue was the validity of the show cause notice issued in the form of a statement under Section 73(1A) of the Finance Act, 1994. The respondent argued that the demand was proposed without an independent charge, as the earlier show cause notice pertained to a different period and service category. They contended that the current demand, under the negative list regime effective from 01.07.2012, required a separate and valid notice. The Tribunal acknowledged this argument, noting the distinction between the earlier adjudicated period and the current demand period. However, since the matter was decided on the substantive issue of the security deposit's taxability, the Tribunal did not address the validity of the show cause notice, leaving the matter open.Conclusion:The Tribunal upheld the order of the Ld. Commissioner, affirming that the security deposit collected by the respondent was not liable to service tax, as it was refundable and did not constitute consideration for the service provided. The appeal by the department was dismissed. The Tribunal also left open the issue regarding the validity of the show cause notice under the negative list regime.