| Dec-06-2022

No service tax payable on interest free security deposits taken from customer towards trading of shares

The CESTAT bench of Ahmedabad (“the Tribunal”) in the case of Marwadi Shares & Finance Ltd. v. C.C.E &S.T.-Rajkot (Service Tax Appeal No. 12087 of 2017) held that the Service Tax is not liable to be paid on the amount collected from the customer as interest free security deposit against trading of shares which is subsequently refunded without utilization. 

Facts: 

Marwadi Shares & Finance Ltd. (“the Appellant”) collected sum of money as interest free security deposits towards trading of shares which would be subsequently refunded without utilization. 

The revenue demanded the service tax on the security deposit taken by the Appellant on the above transaction. 

Issue: 

Whether the Appellant is liable to pay service tax on the deposit taken by the Appellant from their customer as security deposit against towards trading of shares, which would be subsequently refunded without utilization? 

Held: 

The Tribunal held that: 

• The Tribunal in the same case of the Appellant in past has passed an order No. A/10338-10339/2022 dated April 12, 2022, wherein the Tribunal held that “Interest free deposits” did not represent value of any taxable service. The said deposit amount was kept with the Appellant as security deposit to adjust the amount in case of any default in making payment by the client. The said deposit amount also refundable to client.  
• Therefore, allowing the Appeal filed by the Appellant held that the amount collected by the Appellant as security deposit from its customers towards trading of shares which will be subsequently refunded without utilization would not be liable to Service Tax. 

(Author can be reached at info@a2ztaxcorp.com) 

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.