Notional Interest on Security Deposits for Locker Rentals Not Taxable as Service Value: CESTAT

In a relief for banks, the Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that notional interest on security deposits collected for locker rentals is not taxable. The service tax department had sought to include the notional interest earned on these interest-free security deposits as part of the total value of the locker rental service, thereby increasing the service tax liability. However, the tribunal held that the value of a taxable service must be the gross amount charged for the service provided. Since the notional interest is not an amount actually charged to or paid by the customer, it cannot be considered as consideration for the service. The CESTAT concluded that the valuation of the service should be based solely on the actual rent paid by the customer, thereby setting aside the demand for service tax on the notional interest component.