2023 (10) TMI 1217 - AT - Service Tax

Denial of benefit of Notification No. 17/2004-ST dt. 10.09.2004 - appellant are not holder of intellectual property rights but discharged service tax as receiver of service by virtue of Section 66A of the Finance Act, 1994 - inclusion of TDS amount in the gross taxable value on which service tax was paid - HELD THAT - A similar controversy came before the Mumbai Bench of this Tribunal in M/S ROCHEM SEPARATION SYSTEMS (INDIA) PVT LTD VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I 2015 (1) TMI 1052 - CESTAT MUMBAI . This Tribunal analyzing Notification No. 17/2004-ST and charging Section 66 and Section 66A of the Finance Act, 1994 held that In the present case the charge of service tax is under Section 66 but the appellant being the receiver is liable to pay under Section 66A. The Commissioner s reasoning is not correct and is rejected. Following the above principles consistently held by the Tribunal, there are no merit in the impugned order that the benefit of Notification No. 17/2004-ST dt. 10.09.2004 would not be admissible to the appellant only on the ground that service tax was discharged by them under Sec. 66A of the Finance Act, 1994 on reverse charge mechanism basis. Inclusion of the TDS amount paid by the appellant - HELD THAT - The issue has been recently considered by the Chennai Bench of this Tribunal in the case of M/S. VSL INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI 2023 (3) TMI 802 - CESTAT CHENNAI whereunder this Tribunal after analysing the precedent and the relevant provisions held 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 and the appellant was correct in not including the TDS amount in the value of taxable services. Thus, the TDS amount paid to the Income Tax department by the appellant from his own account cannot form part of the consideration of the service charges paid to the overseas service provider, accordingly, service tax is not payable on the TDS amount paid by the appellant. Also, it is brought on record that subsequent to the payment of the TDS, realizing that being wrongly paid, refund application filed. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Entitlement to the benefit of Notification No. 17/2004-ST when service tax is discharged under Section 66A of the Finance Act, 1994.
2. Inclusion of TDS amount in the gross taxable value on which service tax was paid.

Summary:

Issue 1: Entitlement to the benefit of Notification No. 17/2004-ST

The appellant, engaged in the manufacture and sale of electronic connectors, imported 'IPR services' and 'Management Consultancy' services from related parties outside India, paying service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The appellant claimed exemption under Notification No. 17/2004-ST, which exempts service tax equivalent to the amount of R&D cess paid. The Department contended that the exemption is only available to the holder of IPR paying service tax under Section 66, not to the receiver of service under Section 66A. The Tribunal found that the appellant, being liable to pay service tax under Section 66A, is eligible for the exemption. This view was supported by precedents such as Rochem Separation Systems (India) Pvt Ltd. vs. CST and CCE & ST vs. Cummins Technologies India Ltd, which clarified that Section 66A creates a legal fiction deeming the service recipient as the service provider, thus making them eligible for the exemption under Notification No. 17/2004-ST.

Issue 2: Inclusion of TDS amount in the gross taxable value

The appellant argued that the TDS amount paid to the Income Tax Department should not be included in the gross taxable value for service tax purposes. The Tribunal referred to the Management Service Agreement, which stipulated that taxes applied on invoices are to be borne by the invoiced entity, and similar cases like VSL India Pvt Ltd vs. CST. The Tribunal held that TDS is a tax obligation and does not partake the character of value or consideration for services. Therefore, the TDS amount paid by the appellant from its own funds should not form part of the consideration for the service charges paid to the overseas service provider, and service tax is not payable on the TDS amount.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential relief as per law, concluding that the appellant is entitled to the benefit of Notification No. 17/2004-ST and that the TDS amount should not be included in the gross taxable value for service tax purposes.

(Order pronounced in the court on 26/10/2023)