The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax cannot be imposed on the amount of Tax Deduction at Source (TDS) paid towards royalty.
The appellants, Indian Additive Ltd are engaged in the manufacture of additives. They entered into technical assistance agreements with M/s. Chevron Oronite Company LLC, USA. As per the agreement, the appellant is paying royalty to the foreign company on the basis of net sales of the products manufactured by them. The service tax department during scrutiny noted that for the period April 2007 to March 2008, appellants did not pay service tax on the TDS portion of the royalty paid by them to the foreign company.
Before the authorities, the appellants pleaded that they have discharged service tax on the entire consideration paid to the foreign service provider. TDS was paid separately by the appellant in terms of the agreement entered by the appellant with a foreign company. As per the agreement, the running royalty shall be the net of Indian income tax which shall be borne by the appellant. The demand of service tax on the TDS amount is incorrect as the TDS is borne by the appellant, they argued.
The Tribunal bench comprising Judicial Member Sulekha Beevi C S and Technical Member P Anjani Kumar observed that the issue, whether the levy of service tax on the TDS portion borne by the appellant is legal and proper, stands decided by the order of the Tribunal in the appellant’s own case for a different period. In the said case, the Tribunal had relied upon the decision in the case of Magarpatta Township Development and Construction Co. Ltd and held that Service Tax liability needs to be discharged on amounts that have been billed by the service provider.
From the above, we hold that the levy of service tax on the TDS portion borne by the appellant cannot sustain and requires to be set aside. The impugned order is set aside. The appeal is allowed with consequential relief if any.
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