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

Last updated: 29 November 2022

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The CESTAT in Ahmedabad has ruled that service tax is not payable on interest-free security deposits taken from customers for share trading. These deposits are refunded without being used. The tribunal previously held that such deposits do not represent the value of any taxable service and are held solely as security.

Court :
CESTAT bench of Ahmedabad

Brief :
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.

Citation :
Service Tax Appeal No. 12087 of 2017

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.

FAQ :

No, service tax is not payable on interest-free security deposits taken from customers for share trading, provided they are refunded without utilisation.

The case involved Marwadi Shares & Finance Ltd. who collected interest-free security deposits for share trading, which were later refunded without being used. The revenue authorities sought to levy service tax on these deposits.

The tribunal decided that these interest-free security deposits do not represent the value of any taxable service and therefore, service tax is not liable to be paid on them.

The deposits are held purely as security to cover potential client defaults in share trading payments and are refundable. They are not used by the company for any service provided.

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Judgement posted by

Bimal Jain

Service

FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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