We are sharing with you an important judgement of the Hon’ble CESTAT, Mumbai in the case of Magarpatta Township Development & Construction Co. Ltd. Vs CCE [2013-TIOL-1068-CESTAT-MUM] on the following issue:
Whether service tax is required to be paid on notional interest on security deposit taken for premises rented out on lease?
Facts & Background:
M/s Magarpatta Township Development & Construction Co. Ltd. (“the Appellant”) is a service provider engaged in renting of immovable property of commercial construction undertaken by them. The Appellant discharged service tax liability on the rent received from the lessees. Further, the Appellant has taken security deposit from the lessees for the damages, if any, caused to the furniture and fittings supplied along with the premises or any damage done to the properties.
The department contended that notional interest on the security deposit is a consideration for the renting of the immovable property and thus liable to service tax. Thus service tax of Rs.3,26,12,102/ was demanded for the period June 1, 2007 to January 31, 2011 along with interest and penalty, which was confirmed by the by the Commissioner of Central Excise & Service Tax, Pune along with interest thereon and equivalent amount of penalty was also imposed on the Appellant.
Hence, the Appellant filled appeal before the CESTAT.
The Hon’ble CESTAT granted unconditional waiver from pre-deposit of dues adjudged against the Appellant and stay recovery thereof during pendency of the appeal. The Hon’ble CESTAT observed as under:
In this context the Appellant contended that security deposit has no nexus with the area of the property rented out. It is charged as six months’ rent and therefore, it cannot be said that the notional interest has influenced the consideration received for the services rendered.
Therefore, relying on the judgement of ISPL Industries Ltd, the Hon’ble Mumbai Tribunal rejected the contention of the authorities and granted stay of recovery during pendency of the appeal.
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