Service Tax Cannot Be Levied on TDS Paid to Govt on Behalf of Foreign Service Provider: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax is not payable on the TDS amount deposited with the Government on behalf of a foreign service provider.

Indian Additives Ltd., the appellant, had entered into an agreement with Chevron Oronite Company LLC, USA, under which it paid royalty on net sales of its products. The department observed that the appellant discharged service tax on the royalty amounts remitted to Chevron but it had not paid service tax on the TDS portion deposited with the Government of India.

Three show cause notices were issued and the adjudicating authority confirmed the demand with interest and penalty. The Commissioner (Appeals) upheld the order. The appellant then approached the CESTAT.

The appellant’s counsel argued that service tax had been paid on the entire royalty payable to Chevron and that the TDS was a statutory requirement, not part of the consideration for services.

They explained that under the agreement, Chevron was to receive royalty net of Indian income tax, and the appellant bore the obligation to deposit TDS with the Government. Reliance was placed on earlier decisions of the Tribunal in the appellant’s own cases, where it had been consistently held that TDS is not includible in the taxable value.

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The revenue counsel supported the order of the Commissioner (Appeals) and argued that since the appellant bore the TDS, it should be treated as part of the consideration for services received.

The two-member bench comprising M. Ajit Kumar (Technical Member) and S.S. Garg (Judicial Member) observed that TDS is a statutory levy and cannot be treated as consideration for services rendered.

The tribunal pointed out that service tax is chargeable only on the amount billed by the service provider, and the TDS deposited with the Government does not form part of this value. The tribunal explained that this position had already been settled in earlier rulings in the appellant’s own cases as well as in similar matters involving other assessees.

The tribunal set aside the orders of the lower authorities and allowed the appeal with consequential relief.

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