Service tax applicability on interest free security deposit

[sunil mehta]

A co-op.bank provides safe deposit locker facilities toits members on token rent of Re.1/-per year.But it also takes interest free security deposits (say rs.5000/- or rs.10000/- for a 5/10year period) from members to whom safe deposit lockers are provided.Stax is paid on total rent collected (by way of re.1/-per year) during the year. Query:-1)whether stax suptd. can demand stax on 'interest free security deposit on notional amount of interest which the said deposits would have earned during the year.?(say at the average rate of F.D. rate borrowed by the bank during the period).This is hypothetical working of stax. 2)Since lockers are not provided entirely free can the suptd. take support of valuation rules(w.e.f.18/04/2006)? 2b)How can above locker services be valued? Note:-a)Security deposit is refundable whenever locker is vacated or agreement terminated by the customer. b)Token rent is charged and it is not entirely free. 3) Any case law in respect of above nature or similar nature ?Pl. quote judgements

AI Summary

Debate on Service Tax for Notional Interest on Security Deposits for Cooperative Bank Lockers: Unresolved Issue. A cooperative bank offers safe deposit locker facilities to its members for a nominal rent of Re. 1 per year, while also requiring interest-free security deposits. The discussion centers on whether service tax should be applied to the notional interest that could be earned on these deposits. One opinion suggests that notional interest should not be taxed as it is not actual consideration for services. Another view argues that since the lockers are rented at a nominal rate due to the deposits, the value of the service includes the interest component, potentially leading to a tax liability. The issue remains unresolved, with potential for judicial clarification.