In a recent case, the Chennai Bench of Custom, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that no service tax payable on Tax Deducted at Source ( TDS ) is paid on behalf of a foreign service provider.
Indian Additives Ltd, the appellant assessee are service providers under the categories of intellectual property rights, scientific and technical consulting services, etc., and were discharging service tax. They agreed with M/s. Chevron Oronite Company LLC, USA, and were paying royalties to the foreign company on the net sales of their products.
During the scrutiny of details furnished by the appellant regarding the TDS portion of the royalty payment, it was found that while paying service tax on the royalty payments made to the foreign company, the appellant had not paid service tax on the TDS portion of the royalty amount retained by them.
The department issued show cause notices for recovery of the dues. After due process of law, the original authority confirmed the demand proposed in the show cause notices, along with interest, and also imposed penalties. The appellant preferred appeals before the Commissioner (Appeals), who had rejected the appeals.
The assessee submitted that they have discharged service tax on the entire consideration paid to the foreign service provider. The TDS amount has been discharged separately by the appellant. As per the agreement entered into with Chevron, the running royalty shall be net of Indian income tax. The tax shall be borne by the appellant.
Ait was observed that as per Section 67, service tax is payable on the amount charged by the service provider. As per Rule 7 of the Service Tax (Determination of Value) Rules, the 2006 value of taxable service received under Section 66A shall be the actual consideration charged for the services provided or to be provided.
The two-member bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that TDS deposited to the Income Tax Department in relation to the payment made to the foreign service provider over and above the invoice value of the services is not liable to service tax.
While allowing the appeal, the Tribunal held that the TDS paid or deposited to the government exchequer by the appellant arises out of a statutory liability. The TDS cannot be held to be a ‘consideration’ for the service unless specifically mandated or deemed by law, as stated above. The amount would not be part of the consideration for the taxable services received by them as per Section 67(1)(a) of the Finance Act, 1994, in the absence of the legislature itself sanctioning such a provision, mandating double taxation, in the Act.
The CESTAT bench held that service tax is not payable on the TDS paid by the appellant on behalf of the foreign service provider. The Appellant was represented by G.Varshitha and the Respondent was represented by N. Satyanarayanan.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
