2018 (8) TMI 243 - AT - Service Tax

Taxability - Amount paid as Withholding Tax which was on top of the amounts paid to M/s Shell for the consultancy - Held that - It is not in dispute that the entire consideration for consultancy, as per the agreement, has been offered for payment of Service Tax by the appellant - The Revenue s view is that the withholding tax also needs to be included for payment of Service Tax is not justified as has been held by the Tribunal in the case of M/s Magarpatta Township Development & Construction Company Ltd. V/s Commissioner of Central Excise, Pune-III 2016 (3) TMI 811 - CESTAT MUMBAI - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability for Service Tax on Withholding Tax paid in addition to the consideration for services provided by a non-taxable territory service provider.
2. Interpretation of Section 65(105) (za) of the Finance Act, 1994 and Rule 2 (1)(d)(G) of Service Tax Rules 1994 regarding taxable services provided by a person in a non-taxable territory.
3. Application of Service Tax Valuation Rules, 2006 in the context of services provided from outside India and received in India.

Issue 1 - Liability for Service Tax on Withholding Tax:
The appeal was directed against an order requiring the appellant, a registered society under the Ministry of Petroleum and Natural Gas, to pay Service Tax on the Withholding Tax paid in addition to the consideration for services provided by M/s Shell Global, a non-taxable territory service provider. The appellant contended that they had already discharged Service Tax on the entire consideration paid to M/s Shell under the category of Scientific or Technical Services on a reverse charge basis. The appellant argued that the demand for Service Tax on the withheld tax was not justified, citing a precedent from the Mumbai Bench of the Tribunal. The Tribunal noted that the entire consideration for consultancy had been offered for payment of Service Tax by the appellant, and the withholding tax need not be included for Service Tax payment, as per the cited decision. Consequently, the impugned order was set aside, and the appeal was allowed.

Issue 2 - Interpretation of Finance Act and Service Tax Rules:
The services provided by M/s Shell Global were categorized as Scientific or Technical services under Section 65(105) (za) of the Finance Act, 1994. The appellant was compliant with the provisions of service tax, paying tax on invoices raised by M/s Shell Global. However, the Department contended that the Service Tax liability extended to the withholding tax paid in addition to the foreign currency payments to M/s Shell. The Tribunal, after considering arguments from both sides, emphasized that the Service Tax liability should be discharged on the amounts billed by the service provider, as per Section 67 of the Finance Act, 1994 and Rule 7 of the Service Tax Valuation Rules, 2006. The Tribunal found no evidence to suggest that the withholding tax was part of the consideration for services received, thereby upholding the appellant's position and setting aside the impugned order.

Issue 3 - Application of Service Tax Valuation Rules:
The Tribunal analyzed the Service Tax Valuation Rules, 2006, specifically Rule 7, in the context of services provided from outside India and received in India. The Rule stipulated that the value of taxable service received shall be equal to the actual consideration charged for the services provided. In this case, the appellant had discharged the consideration as per the invoices raised by the service provider, M/s Shell Global. The Tribunal concluded that the Service Tax liability should be based on the amounts billed by the service provider, and there was no basis to include the withholding tax for Service Tax payment. By following the decision of the Tribunal in a similar case, the impugned order was set aside, and the appeal was allowed.

This detailed analysis of the judgment highlights the legal intricacies surrounding the liability for Service Tax on withholding tax, the interpretation of relevant provisions of the Finance Act and Service Tax Rules, and the application of Service Tax Valuation Rules in cases involving services provided from outside India.