2016 (3) TMI 811 - AT - Service Tax

Liability of Service tax on TDS amount absorbed by the assessee on foreign remittance - Reverse charge as per provision of Section 66(A) of the Finance Act, 1994 - Reverse Charge Mechanism - Amount paid to foreign architect as consultancy charges under Technical Consultancy Services - Department contended that appellant having discharged the Income Tax liability on the amount so paid, Service Tax liability arises on the Income Tax amount deducted as TDS and paid to Government of India - Held that - appellant had discharged the consideration as raised in the invoice/bill but 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 is consideration for services received from service provider. As per Section 67 with Rule 7 of Service Tax Valuation Rules, the Service Tax liability needs to be discharged on amounts which have been billed by the service provider. Therefore, appellant is not liable to pay service tax. - Decided in favour of appellant with consequential relief

Summary

Issues involved:
Service Tax liability under "Technical Consultancy Services" - Reverse Charge Mechanism applicability.

Analysis:
The appeal challenged an Order-in-Appeal regarding Service Tax liability under "Technical Consultancy Services" due to engaging a foreign architect for designing commercial buildings. The Revenue contended that the appellant must discharge Service Tax under the Reverse Charge Mechanism as per Section 66(A) of the Finance Act, 1994. The appellant argued that they had already discharged Income Tax liability on the amount paid to the architect, and therefore, Service Tax should not apply. The Tribunal examined the agreement, Section 67 of the Finance Act, 1994, and the Service Tax (Determination of Value) Rules, 2006. The Departmental Representative reiterated that the appellant should discharge Income Tax liability.

The Tribunal considered both sides' submissions and the records. The main issue was whether the Income Tax amount paid by the appellant to the foreign architect should attract Service Tax under the Reverse Charge Mechanism. The Tribunal noted that the appellant had entered into an agreement with the architect and had already discharged Service Tax on the amount paid. They analyzed Section 67 of the Finance Act, 1994, which specifies the valuation of taxable services for charging Service Tax. The Tribunal emphasized that the gross amount charged by the service provider is the basis for discharging Service Tax liability.

The Tribunal also referred to Service Tax Valuation Rules, 2006, specifically Rule 7, which states that the value of taxable service provided from outside India is equal to the actual consideration charged for the services provided. After examining the invoice raised by the service provider, the Tribunal concluded that the appellant had paid the consideration as per the invoice without recovering the Income Tax amount. Therefore, the Tribunal held that Service Tax liability should be discharged based on the billed amounts by the service provider. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.

In conclusion, the Tribunal's decision clarified that Service Tax liability under "Technical Consultancy Services" should be based on the gross amount charged by the service provider, as per Section 67 of the Finance Act, 1994, and Rule 7 of the Service Tax Valuation Rules, 2006.