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
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Service tax is charged on charges for services received by service provider. Therefore, any notional consideration should not be added to the value of service.
Security deposit is a normal practice, and therefore, notional interest cannot be added to value of taxable service.
On what terms other persons are provided can be a relevant fact, if the revenue claim some sort of tax avoidance.
Since the service tax valuation rules are not very old, the judicial pronouncements are yet to be seen on these complicated issues. But, in my view, your issue is complicated one but clearly visible from the facts that you are providing lockers at Rs.1 since you have obtained interest free securities. Had you not obtained interest free securities, you would not have let out the locker for such a nominal rate. Therefore, it is apparent that the value of consideration of renting out of a locker is involved in the interest portion of security. Though interest as such is exempt form service tax, but this issue is not levy of service tax on interest but the main issue is getting the consideration in some other form. Therefore, department may issue a show cause notice interpreting the same. You may choose to fight the issue and chose to become the first in the process of settling of an issue through judicial pronouncements.