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2024 (7) TMI 112 - AT - Service TaxService tax liability on TDS amount - royalty payments made to the foreign company - non-payment of service tax on TDS portion of the royalty amount retained - HELD THAT - Prima facie there does not appear to be a bar on tax being a part of assessable value. The Hon ble Apex Court (5 judges) in Jain Bros. Others vs The Union Of India Others JAIN BROTHERS AND OTHERS VERSUS UNION OF INDIA AND OTHERS 1969 (11) TMI 1 - SUPREME COURT , a case pertaining to Income Tax, held that ' If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over.' It is found that the TDS paid/ 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/ deemed by law - 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 in the absence of the legislature itself sanctioning such a provision, mandating double taxation, in the Act, agreed upon - the service tax is not payable on the TDS paid by the appellant on behalf of the foreign service provider. The issue is no longer res integra as it has already been decided by the Tribunal in the appellants own case and in the case of ADANI BUNKERING PVT. LTD VERSUS COMMISSIONER OF C.E., AHMEDABAD-II 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 appellant is not liable to pay service tax on the TDS paid by them on behalf of the foreign service provider - the demand confirmed in the impugned order is not sustainable - the impugned order is set aside - appeal allowed.
Issues:
Appeal against Order in Appeal No. 73 & 74/2015 dated 30.3.2015 passed by Commissioner of Service Tax (Appeals - I), Chennai. Detailed Analysis: Issue 1: Tax Liability on TDS portion of royalty payment The appellant, a service provider under various categories, entered into an agreement with a foreign company, paying royalty on net sales. The department alleged non-payment of service tax on the TDS portion of the royalty retained by the appellant. Show Cause Notices were issued for recovery. The appellant argued that they discharged service tax on the entire consideration paid to the foreign provider and separately paid TDS. Citing Section 67 and Rule 7 of Service Tax Valuation Rules, the appellant contended that service tax is payable only on the amount charged by the service provider. Previous tribunal decisions supported the appellant's stance. The Tribunal held that service tax is not applicable to TDS paid by the appellant, setting aside the demand confirmed in the impugned order. Issue 2: Legal Interpretation of Taxation and TDS The Tribunal analyzed the legal aspect of taxation and TDS payments. Referring to a Supreme Court case, it acknowledged the possibility of double taxation if expressly sanctioned by the legislature. However, it emphasized that TDS, being a statutory liability, cannot be considered as part of the consideration for taxable services unless mandated by law. The Tribunal agreed with the appellant's argument that TDS should not be subject to service tax unless specifically provided for by the legislature. Citing previous tribunal decisions, the Tribunal concluded that TDS deposited over and above the invoice value is not liable to service tax. Conclusion The Tribunal ruled in favor of the appellant, holding that service tax is not payable on the TDS portion of royalty payments made to a foreign service provider. Citing relevant legal provisions and previous tribunal decisions, the Tribunal set aside the demand confirmed in the impugned order and allowed the appeals with consequential relief, if any, as per law.
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