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

Notional consideration: interest on refundable security deposits may be treated as hidden consideration for service tax exposure.
Dispute whether service tax can be imposed on notional interest attributable to refundable interest-free security deposits taken for locker services when only a token rent is charged. One expert rejects adding notional interest, emphasising taxable value is charges actually received and deposits are refundable. Another view warns revenue may treat foregone interest as hidden consideration, invoke valuation rules and issue a show cause notice; no settled judicial authority exists and the issue is fact-sensitive.