2019 (3) TMI 184 - AT - Service Tax

Valuation - maintenance services - inclusion of notional interest on maintenance refundable security deposit in assessable value - Department was of the view that interest accrued on such interest free security deposit should be added to value of services and service tax should be paid on such charges - Held that - The issue of addition of Notional interest on refundable security deposit in the value of service has already been settled by the Tribunal in the case of MURLI RELATORS PRIVATE LIMITED v. COMMISSIONER OF CENTRAL EXCISE 2014 (9) TMI 461 - CESTAT MUMBAI where it was held that Notional interest on interest free security deposit cannot be added to the rent agreed upon between the parties for the purpose of levy of service tax on renting of immovable property. The above decision is given in respect of notional interest on security deposit taken for rent but the principle enunciated therein will apply to notional interest on refundable security deposit taken for maintenance service also. There is no justification for inclusion of the notional interest in the consideration for payment of service tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether notional interest on 'maintenance refundable security deposit' should be added to the value of maintenance service for the purpose of levying service tax.

Analysis:
1. The appeal was filed against an order upholding the demand for service tax on a security deposit along with interest and penalty. The appellant provided maintenance services for society complexes and had agreements with flat buyers for maintenance. The issue was whether service tax should be paid on the interest accrued on the security deposit. The department issued a show cause notice, and the demand was confirmed by the adjudicating authority. The appellant argued that notional interest on security deposits should not be included in the value of services based on previous tribunal decisions.

2. The appellant cited various cases where it was held that notional interest on security deposits should not be added to the value of services for levying service tax. The department, however, contended that notional interest on security deposits should be included in the value of services. The main issue was whether notional interest on the security deposit should be considered as part of the value of maintenance services for service tax purposes.

3. The Tribunal referred to previous decisions where it was held that notional interest on security deposits should not be included in the value of services for levying service tax. The Tribunal emphasized that the security deposit serves a different purpose and is not a consideration for the services rendered. Therefore, notional interest on security deposits should not be deemed as part of the consideration for service tax. The Tribunal concluded that the notional interest on the refundable security deposit should not be included in the consideration for payment of service tax. As a result, the impugned order demanding service tax on notional interest was set aside, and the appeal was allowed.