The CESTAT ( Customs, Excise and Service Tax Appellate Tribunal ) has ruled that service tax is not payable on TDS paid by the Indian Company on behalf of the Foreign Service Provider. Thus, the impugned order which raised the demand was set aside by the tribunal.
The appellant, M/s. Indian Additives Ltd, provides services under categories such as Intellectual Property Right Service and Scientific and Technical Consultancy Service, for which they were paying service tax. They entered into an agreement with M/s. Chevron Oronite Company LLC, USA, and were paying royalty to the foreign company based on the net sales of their products.
During scrutiny, it was found that the appellant had not paid service tax on the TDS portion of royalty payments to Chevron Oronite Company LLC, USA, for the periods April 2010 to September 2010 and October 2011 to March 2012.
The department deemed the TDS ( Tax Deduction at Source) portion taxable and issued Show Cause Notices on 21.12.2010 and 2.7.2012 for recovery. The original authority confirmed the demand with interest and penalties. The appellant’s appeals were rejected by the Commissioner (Appeals), leading them to bring the matter before this Tribunal.
The appellant’s counsel argued that the service tax was paid on the entire consideration to the foreign service provider, with TDS separately paid to the Government of India. Under the agreement with Chevron, the running royalty is net of Indian Income Tax, which is borne by the appellant.
The counsel added that, according to Section 67, service tax is payable on the amount charged by the service provider, and Rule 7 of the Service Tax (Determination of Value) Rules, 2006 states that the value of taxable service is the actual consideration charged. The issue was previously decided in favour of the appellant in Adani Bunkering Pvt. Ltd. vs. CCE, Ahmedabad – II and in the appellant’s own cases. Thus, the counsel prayed for the demand to be set aside.
The two-member bench of M. Ajit Kumar (Technical Member) and P. Dinesha (Judicial Member) of CESTAT observed that TDS paid to the government by the appellant arises from a statutory liability and cannot be considered ‘consideration’ for services unless mandated by law.
The bench agreed that the TDS amount is not part of the consideration for taxable services as per Section 67(1)(a) of the Finance Act, 1994. The issue, already decided in the appellant’s own case and in Adani Bunkering Pvt. Ltd. vs. CCE, Ahmedabad – II, held that TDS paid over and above the invoice value is not liable to service tax.
The CESTAT tribunal decided as follows, “As per the discussions and the decisions cited above, we hold that the appellant is not liable to pay service tax on the TDS paid by them on behalf of the foreign service provider. Accordingly, we hold that the demand confirmed in the impugned order is not sustainable.” The impugned order was set aside accordingly.
Ms. G. Varshitha appeared for the Appellant and N. Satyanarayanan, AC (AR) represented the Respondent.
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