The Bangalore bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax cannot be levied on Tax Deducted at Source (TDS) amount which was paid by the assessee from its funds and was not deducted from the client’s accounts and does not form part of the consideration of service paid.
FCI OEN Connectors Ltd, the appellant assessee was engaged in the manufacture and sale of electronic connectors and the services viz. ‘Intellectual Property Right (IPR) services’ and ‘Management Consultancy’ services imported from related parties located outside India, are chargeable to service tax under reverse charge mechanism basis under Section 66A of the Finance Act, 1994.
The assessee appealed against the order passed by the Commissioner of Central Tax for confirming the service tax demand of Rs.1,75,23,250 on IPR services and demand of Rs.51,71,248/- on the value of Management Consultancy Services.
Neethu James, the counsel for the assessee contended that the service tax had been correctly paid on the invoice value and the TDS was not legally and contractually required to form part of the assessable value.
Also submitted that the TDS amount had been wrongly paid to the Income Tax Department and refund application has been filed with the department accordingly.
K. Vishwanath, the counsel for the department contended that the assessee had failed to discharge service tax on the TDS amount by including it in the gross taxable value, also wrongly availed the benefit of Notification No. 17/2004-service tax with intent to evade payment of service tax invoking an extended period by the Commissioner was justified and the demand raised was as per the law and liable to be sustained.
The Bench observed that in the case of VSL India Pvt Ltd vs. CST, the court held that when TDS was not received from the non-resident since it was not towards value/consideration, there was no merit in requiring such assessee to include even the TDS it paid in the value of services. The two-member bench comprising D M Misra (Judicial) and Pullela Nageshawara Rao (Technical) held that the TDS amount paid to the Income Tax department by the assessee from his account cannot form part of the consideration of the service charges paid to the overseas service provider, accordingly, service tax was not payable on the TDS amount paid by the assessee and quashed the service tax demand while allowing the appeal filed by the assessee.
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