2021 (10) TMI 487 - AT - Service Tax

Demand of service tax - Valuation - Inclusion of TDS portion of the royalty paid to the foreign company - foreign company does not have any establishment in India - period April 2007 to March 2008 - HELD THAT - The issue stands decided by the order of the Tribunal in the appellant s own case for a different period in 2018 (6) TMI 523 - CESTAT CHENNAI . The Tribunal had relied upon the decision in the case of Magarpatta Township Development and Construction Co. Ltd. 2016 (3) TMI 811 - CESTAT MUMBAI where it was held that There is nothing on record that indicates that the appellant had recovered that amount of Income Tax paid by them on such amount paid to the service provider from the outside India and any other material to hold that this amount is paid as consideration for services received from service provider. On 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. The levy of service tax on the TDS portion borne by the appellant cannot sustain and requires to be set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Levy of service tax on the TDS portion of royalty paid to a foreign company.

Detailed Analysis:

Issue 1: Levy of service tax on the TDS portion of royalty paid to a foreign company

The appellants, engaged in manufacturing additives, had technical assistance agreements with a US-based company, paying royalty based on net sales. The foreign company had no establishment in India, so appellants registered for service tax under reverse charge mechanism. During an audit, it was found that service tax was not paid on the TDS portion of royalty for a specific period. A Show Cause Notice was issued, leading to the confirmation of demand, interest, and penalty by the original authority and Commissioner (Appeals).

The appellant argued that they had paid service tax on the entire consideration to the foreign service provider, with TDS being a separate payment as per the agreement. The appellant contended that the demand for service tax on the TDS amount was incorrect as they bore the TDS cost. Referring to previous tribunal decisions, the appellant emphasized that the TDS portion should not be subject to service tax.

The issue was whether the levy of service tax on the TDS portion borne by the appellant was legal. The Tribunal, relying on relevant rules, held that service tax liability should be discharged based on the billed amounts by the service provider. Since the appellant had already paid service tax on the billed amounts, the levy on the TDS portion was deemed unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the levy of service tax on the TDS portion borne by them was not valid, and the appeal was allowed accordingly.