Incorrect Service Tax Demand Based on TDS Amount: CESTAT Quashes Demand for Inflated Taxable Value [Read Order]

The Chennai Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT)quashed the service tax demand made on the assessee, ruling that the taxable value had been inflated by incorrectly adding the Tax Deducted at Source (TDS) amount.

Samy Construction,appellant-assessee,provided services to government bodies, municipalities, the Tamil Nadu Electricity Board, and corporates. The department claimed that the appellant did not pay the correct service tax on certain contracts and demanded the tax along with interest and penalties.

The assessee's counsel argued that the Commissioner, in the impugned order, indirectly acknowledged there was no service tax liability on the assessee However, the demand was upheld because the assessee had submitted only photocopies of documents, which were considered unreliable.

The demand was based on the gross amount shown in the TDS certificate, including the TDS amount again while calculating the taxable value. The assessee argued that the gross amount in the TDS certificate already included service tax under Section 67(2) of the Finance Act, 1994. The actual taxable value differed from what was mentioned in the show cause notice, and the photocopies of invoices were not considered.

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The two member bench comprising Vasa Seshagiri Rao(Technical Member) and P.Dinesha(Judicial Member) observed that the show cause notice added the TDS amount to the gross contract value to calculate the taxable value. However, the Form 16A in the appeal showed that the TDS was deducted from the amount paid to the assessee, making the paid amount the actual gross amount.

Adding the TDS again inflated the taxable value. Since TDS is deducted from the payable amount and not added, the demand based on this was not justified. The impugned order was set aside on this point.

To Read the full text of the Order CLICK HERE

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