The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), confirmed the non-includability of Tax Deduction at Source ( TDS ) in the value of taxable services for the amount credited to Associated Enterprises.
The appellant, M/s. VSL India Private Limited is primarily engaged in the field of civil construction, performing supply of post-tensioning slabs/beams, installation, stressing, grouting, etc. The assessee had entered into an ‘Offshore Services Agreement’ with their holding company namely, M/s. VSL International Ltd., Switzerland (‘M/s. VSLI’) whereby the holding company was to provide the appellant with requisite technical assistance in the fields of consultancy, advisory, operation and other services, as per the terms contained in the above agreement.
The appellant had credited the value mentioned in the invoices to the accounts of the AE in their books of account whereas the appellant had paid the Service Tax for the invoices received from the AE only for the amounts credited in the accounts of their AE, which, according to the Revenue, was contrary to the Explanation under Section 67 read with Explanation under Rule 6(1) of the Service Tax Rules, 1994
Thus, an amount of Rs.29 lakhs (Service Tax + Education Cess + Secondary and Higher Education Cess), for the period from October 2008 to July 2009 was proposed to be demanded.
Section 195 of the Income tax Act, 1961 deals with Tax to be deducted at source when payment is made to non-residents or foreign companies.
The Bench consisting of P Dinesha, Judicial Member and M Ajit Kumar, Technical Member observed that “It is not uncommon that any business contract/agreement inter-se parties primarily focuses on the value/consideration and then spells out as to who would bear the TDS obligation. This cannot be construed as to mean that TDS is also a part of such value/consideration.”
The Tribunal concluded that the appellant was correct in not including the TDS amount in the value of taxable services.
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