No Service Tax Payable On TDS Paid On Behalf Of Foreign Service Provider: CESTAT
Mariya Paliwala
4 July 2024 7:45 AM GMT
The Chennai Bench of Custom, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on TDS is paid on behalf of a foreign service provider.
The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that TDS deposited to the Income Tax Department in relation to the payment made to the foreign service provider over and above the invoice value of the services is not liable to service tax.
The appellant and assessee are service providers under the categories of intellectual property rights, scientific and technical consulting services, etc., and were discharging service tax. They entered into an agreement with M/s. Chevron Oronite Company LLC, USA, and were paying royalty to the foreign company on the net sales of their products. During the scrutiny of details furnished by the appellant regarding the TDS portion of the royalty payment made for the period April 2010 to September 2010 and October 2011 to March 2012, it revealed that while paying service tax on the royalty payments made to the foreign company, the appellant had not paid service tax on the TDS portion of the royalty amount retained by them.
As it appeared to the department that the TDS portion retained by them was also taxable, show cause notices dated 21.12.2010 and 2.7.2012 were issued for recovery of the dues. After due process of law, the original authority confirmed the demand proposed in the show cause notices, along with interest, and also imposed penalties.
The appellant preferred appeals before the Commissioner (Appeals), who, vide the order impugned herein, has rejected the appeals.
The assessee contended that the appellant has discharged service tax on the entire consideration paid to the foreign service provider. That TDS amount has been discharged separately by the appellant. As per the agreement entered into with Chevron, the running royalty shall be net of Indian income tax. The tax shall be borne by the appellant. In other words, if the royalty payable is Rs. 100, the appellant paid the entire Rs. 100 to the foreign company, and the TDS of Rs. 10 is separately discharged to the Government of India. As per Section 67, service tax is payable on the amount charged by the service provider. As per Rule 7 of the Service Tax (Determination of Value) Rules, the 2006 value of taxable service received under Section 66A shall be the actual consideration charged for the services provided or to be provided.
The tribunal, while allowing the appeal, held that the TDS paid or deposited to the government exchequer by the appellant arises out of a statutory liability. In the normal course, TDS cannot be held to be a 'consideration' for the service unless specifically mandated or deemed by law, as stated above. The amount would not be part of the consideration for the taxable services received by them as per Section 67(1)(a) of the Finance Act, 1994, in the absence of the legislature itself sanctioning such a provision, mandating double taxation, in the Act.
The tribunal held that service tax is not payable on the TDS paid by the appellant on behalf of the foreign service provider.
Counsel For Appellant: G. Varshitha
Counsel For Respondent: N. Satyanarayanan
Case Title: M/s. Indian Additives Ltd. Versus Commissioner of GST & Central Excise
Case No.: Service Tax Appeal Nos.41500 & 41501 of 2015
