2008 (9) TMI 144 - AT - Service Tax

Client deducted TDS while paying management consultancy service charges to the respondent whether service tax was payable on the withheld TDS amount or not - held that liability to pay income-tax arising out of income from the services rendered is on the assessee - TDS amount deducted was payable only on behalf of the assessee to the Income-tax Dept. so it is not justified to exclude the said amount from the gross amount for the purpose determining the service tax

Summary

Issues:
1. Department appealing against Commissioner's order on service tax and penalty.
2. Treatment of withheld TDS amount for service tax calculation.
3. Reduction of service tax demand and interest by Commissioner.
4. Setting aside of penalties by Commissioner.

Analysis:

1. The Department appealed against the Commissioner's order regarding service tax and penalties. The respondent provided "management consultancy services" to Rajasthan Government agencies, and TDS was deducted from the service charges. The Department contended that service tax should be calculated on the entire TDS amount, as the Rajasthan Government agencies had already paid the service tax separately. The Department argued against the reduction of service tax demand and interest by the Commissioner, as well as the setting aside of penalties.

2. The Department argued that the TDS amount withheld by the Rajasthan Government agencies was solely for income tax payment on behalf of the appellant. They maintained that the service tax should be calculated on the entire withheld TDS amount, as the service tax had already been paid separately by the agencies. The Department's position was supported by the argument that the TDS amount should not be excluded from the gross amount for determining service tax liability.

3. The Commissioner (Appeals) had reduced the service tax demand and interest, considering the TDS amount as cum-duty tax for the purpose of service tax calculation. The respondent contended that there was no mala fide intention, and it was a matter of interpreting the law regarding service tax on the withheld TDS amount. The respondent sought the benefit of section 80 of the Finance Act to support their position.

4. The Tribunal carefully considered the submissions and held that the liability to pay income tax on the services rendered rested with the appellant. They concluded that the TDS amount withheld was only for income tax payment and should not be excluded from the gross amount for service tax calculation. The Tribunal allowed the Department's appeal, reinstating the original authority's determination of service tax and interest. Regarding penalties, the Tribunal agreed with the respondent's argument that it was a matter of legal interpretation, upholding the Commissioner's decision to set aside the penalties.

5. In summary, the Tribunal allowed the Department's appeal on the treatment of withheld TDS amount for service tax calculation, reinstating the original authority's determination. The penalties set aside by the Commissioner were upheld, considering the issue as a matter of legal interpretation.