K. Anpazhakan DECISION
K. Anpazhakan, Member (T)
1. The present appeal has been filed against Order in Appeal No. 130/2014 dated 24.9.2014. The issue involved in the present appeal is regarding the liability of service tax on TDS portion of the foreign currency remittance made by the Appellant for the services received.
2. Briefly stated facts of the case are that the appellant has imported services like testing, auditing, consultancy etc. from outside India against a consideration. Show Cause Notice was issued demanding differential service tax on the TDS paid by them to the Income Tax Department over and above the bill amount. The notice was adjudicated and the demand raised was confirmed by the adjudicating authority. On appeal, Commissioner (Appeals) upheld the same. Against the order impugned, the appellant has filed the present appeal.
3. The learned counsel for the appellant submits that as per Rule 7(1) of the Service Tax (Determination of Value) Rules, 2006, the value of taxable service received under the provisions of Section 66A shall be such amount as is equal to the consideration charged for the service provided or to be provided. The appellant submits that TDS paid would not be part of the consideration payable for the services rendered under Section 66A. The foreign service provider has categorically indicated the consideration payable to them. No tax was deducted from their invoice value. To comply with the provisions of Income Tax Act, 1961, they have grossed up the amount and paid their liability in terms of Section 195A of the Income Tax Act, 1961. The grossing up of amount under section 195A is only for the purpose of payment under Income Tax Act and not for computing the service tax. Accordingly, she contended that the demand of service tax confirmed on the TDS paid by them is not sustainable. The appellant further submits that the issue is no longer res integra as the said issue has already been decided by the Tribunal in favour of the appellant in the case of Adani Bunkering Pvt. Ltd. Vs. CCE, Ahmedabad - II reported in 2024 (1) TMI 984 - CESTAT Ahmedabad. Accordingly, she prayed for setting aside the demand confirmed in the impugned order.
4. The learned AR Shri M. Selvakumar reiterated the findings in the impugned order.
5. Heard both sides and perused the appeal documents.
6. We find that the appellant has imported services from the foreign service provider and paid the consideration as indicated in the invoice. No TDS has been deducted by them from the invoice value. The TDS paid by them was to comply with the provisions of the Income Tax Act. The appellant submits that service tax was paid on the gross value as per section 67 without making any deductions towards the "withholding of tax". We agree with the contention of the Appellant that 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. Accordingly, we observe that service tax is not payable on the TDS paid by the appellant on behalf of the foreign service provider.
7. We find that the issue is no longer 'res integra' as the same issue has already been decided by the Tribunal in the case of Adani Bunkering Pvt. Ltd. Vs. CCE, Ahmedabad - II reported in 2024 (1) TMI 984 - CESTAT Ahmedabad wherein the Tribunal has held 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 relevant portion of the order is reproduced below:-
"9. In our considered view, the plain reading of Section 67 with Rule 7 of Service Tax Valuation Rules, in this case in hand, Service Tax liability needs to be discharged on amounts which have been billed by the service provider."
d) VSL India Private Limited (supra):-
"24.1 Now, we shall consider the issue of includability of TDS amount in the value of taxable services. Section 195 of the Income tax Act, 1961 deals with Tax to be deducted at source when payment is made to non-residents or foreign companies. This is basically to plug revenue loss that may occur if by any chance the non-resident doesn't file income tax return in India. Further, under said section, such sum alone is taxable which has the character of 'income'. Thus, the TDS is a tax obligation which can never partake the character of value or consideration for the transaction or of the goods or of services. It is not uncommon that any business contract/agreement inter-se parties primarily focuses on the value/consideration and then spells out as to who would bear the TDS obligation. This cannot be construed as to mean that TDS is also a part of such value/consideration. This is also because, any value/consideration agreed upon is strictly the choice of the parties but the TDS depends on the rate in force at the relevant point of time.
24.2 Thus, when it is contended that the assessee 'grossed up' the TDS, it is understood to mean that the assessee has indeed received only the amount as agreed towards value/consideration and the expenditure towards TDS are met by the assessee. So, when such TDS is not received from the non- resident since it is not towards value/consideration, there is no merit in requiring such assessee to include even the TDS it paid in the value of services, as in the case on hand. There is an argument advanced for the Revenue that as per the terms of agreement, it is for the appellants to bear the TDS and thus it is to be treated as part of the consideration. We are unable to yield to the said contentions since in such agreements where one is a non-resident and such non-resident doesn't have any PE, then it becomes the responsibility of the other party who is an Indian resident, to meet with the TDS obligation arising on account of the agreement in question. Even if such clause is not there in the agreement, still the resident cannot escape the tax liability and hence it becomes incumbent upon it to deduct tax at appropriate rate, at source, before making the payment. We find that the decisions relied upon by the appellant support our above view."
In view of the above judgments, it can be seen that in the identical facts it was held that the TDS deposited which is over and above the invoice value cannot be charged to service tax."
8. We observe that the decision cited above is squarely applicable to the present case on hand. By following the ratio of the decision 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 and set aside the same.
9. In view of the above discussions, we set aside the impugned order and allow the appeal, with consequential relief if any, as per law.
(Pronounced in open court on 31.01.2024)
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