2019 (2) TMI 1248 - AT - Service Tax

Valuation - non-inclusion of TDS amount in assessable value - reverse charge mechanism - services received from foreign service provider - Held that - The appellant has furnished documents to show that though TDS amount is deposited the same is borne by the appellant and has not been made part of the consideration. On perusal of documents, we are convinced that TDS has been borne by the appellant - reliance placed in the case of M/S. MAGARPATTA TOWNSHIP DEVELOPMENT AND CONSTRUCTION CO. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-III 2016 (3) TMI 811 - CESTAT MUMBAI - the demand of service tax alleging that TDS has not been included in the gross value is incorrect on facts and cannot sustain. Valuation - inclusion of the expenses of air fare, accommodation service and other incidental expenses incurred for the foreign service provider in assessable value - Held that - Service tax is payable on the gross amount charged as consideration which will include the expenses for rendering service also. The appellant has not been able to establish that these expenses are reimbursable expenses. When the expenses are incurred for providing the services, these are definitely includable in the value for discharging the service tax liability - demand upheld. Classification of services - GTA Services or clearing and forwarding agency service? - appellant has contended that the services were provided as part of clearing and forwarding service - Held that - It is seen that the CFS agent has charged the appellant separately as freight charges for GTA service. When the appellant has paid the freight charges for transportation of the goods, they are liable to discharge the service tax under this category as service recipient - demand set aside. Penalty - Held that - It is seen that they have been paying service tax as well as filing the returns regularly. The non-payment of service tax under these two categories was with regard to bonafide belief as to the interpretation that the appellant entertained - penalty do not sustain and is set aside. Appeal allowed in part.

Summary

Issues:
1. Non-inclusion of TDS amount in service tax under reverse charge mechanism.
2. Non-inclusion of expenses incurred for foreign service providers in service tax calculation.
3. Liability for service tax on Goods Transport Agencies (GTA) service.

Analysis:

1. Non-inclusion of TDS amount:
The appellant, engaged in oil and gas exploration, was found liable to pay service tax on TDS amount as per Rule 2(1)(d)(iv) of Service Tax Rules, 1994. However, the appellant argued that TDS was borne by them and not part of the consideration. The Tribunal, citing precedent, agreed with the appellant's stance, setting aside the demand for service tax on TDS amount under the reverse charge mechanism. The Tribunal emphasized that TDS borne by the appellant should not be included in the gross value for service tax calculation.

2. Non-inclusion of expenses for foreign service providers:
Regarding expenses like airfare and accommodation incurred for foreign service providers, the appellant contended that these were not reimbursed and should not be included in the gross value for service tax. The Tribunal disagreed, stating that such expenses for providing services should be included in the value for service tax calculation. Consequently, the demand for service tax on these expenses was upheld.

3. Liability for service tax on GTA service:
The appellant was held liable to pay service tax on Goods Transport Agencies (GTA) service as per Rule 2(1)(d)(v) of Service Tax Rules. The Tribunal found that when the appellant paid freight charges separately for transportation services, they were obligated to discharge service tax under this category as the service recipient. Therefore, the demand for service tax on GTA service was upheld.

Penalties:
The Tribunal waived the penalties imposed on the appellant for non-payment of service tax under the second and third issues. It noted that the appellant had a genuine belief regarding the interpretation of service tax liabilities, evidenced by regular payment of service tax and filing returns. The penalties were set aside based on the appellant's bonafide belief.

In conclusion, the appeal was partly allowed, with the demand for service tax on TDS amount being set aside, while the demands for service tax on expenses for foreign service providers and GTA service were upheld. Penalties imposed were waived due to the appellant's genuine belief and regular compliance with service tax obligations.