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TMI Blog2025 (2) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... s service providers; as per the agreements, the overseas service providers charged an amount on a pre-defined timeline by auto debiting the bank account of the appellant; the appellant used to deposit withholding tax (in short "WHT") on the amount paid during a particular month for the charges. 2.2 In respect of agreement with MasterCard, the appellants were charging WHT @6% on the association charges on a gross-up basis and the grossed-up rate worked out @6.38%; the appellant paid the WHT @6% for the period 2012-13 to 2016-17; M/s MasterCard have not reimbursed such WHT to the appellants. In respect of MasterCard, the appellants have paid service tax on grossed up basis on the Consideration paid from the period 01.04.2013 onwards; however, they did not pay service tax on grossed up basis for the period 01.07.2012 to 31.03.2013. In respect of VISA, the appellants paid service tax on grossed up basis on the Consideration received for the period April 2013 to November 2013; April 2014 to July 2014; April 2015 to May 2015; however, they did not discharged service tax for the period July 2012 to March 2013; December 2013 to March 2014; August 2014 to March 2015 and June 2015 to June 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Commissioner of GST & CE - 2019 (25) G.S.T.L. 252 (Tri. - Chennai) T.V.S. Motor Company Ltd. Versus Commr. Of C. Ex. & S.T., Chennai-III Commissionerate 2021 (55) G.S.T.L. 459 (Tri. - Chennai) FCI Oen Connectors Ltd Versus Commissioner of Central Tax, Cochin 2023 (10) TMI 1217-CESTAT Bangalore Centre For High Technology Versus C.S.T. -Service Tax - Delhi 2018 (8) TMI 243 - CESTAT New Delhi 4. Learned Counsel for the appellants further submits that reimbursable expenditure does not form part of consideration for the period 13.05.2015; in terms of the Agreement with VISA, the WHT paid by the appellant is reimbursable by VISA on periodical basis; it has been held in the case of Intercontinental Consultants and Technocrats Ltd. - 2018 (10) GSTL 401 (SC); therefore, in any case, demand of service tax on WHT paid in respect of services rendered by VISA is liable to be set aside for the period prior to 13.05.2015. He submits that the definition of "Consideration" was amended w.e.f. 13.05.2015; as per the amended definition, the reimbursable expenditure incurred by the service provider was also brought under the definition of "Consideration"; however, it is pertinent to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has borne the TDS (WHT amount) on behalf of VISA @ 10% of the gross value; the amount is claimed as reimbursement from the overseas service provider. He submits that as per invoice issued by MasterCard; the appellant had borne and paid the TDS on behalf of MasterCard. He submits that on going through the License Agreement with MasterCard, it appears that the appellants agreed to pay all taxes that might be charged and payment shall be made to the appellants without deduction for any such taxes; the appellants have booked the TDS amount paid by them, on behalf of VISA/ MasterCard, under expenses in the general ledger; it is an evidence to show that the appellants have incurred these expenses and therefore are liable to pay service tax on the grossed up charges in terms of Rule 7 of Point of Taxation Rules, 2011 read with Section 67 of the Finance Act. He submits that Shri Sunil Mittal in his statements dated 12.10.2017 and 13.10.2017 accepted that the WHT paid by them on behalf of VISA are reimbursed and they paid service tax on net basis and that they are not discharging service tax on the WHT paid on behalf of MasterCard. Revenue relies on Sheladia Rites - 2019 (27) GSTL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment on account of suppression only. Rule 6(3) is not applicable as it pertains to non-provision of service or deficiency of service; the argument on revenue neutrality negates the very scheme of service tax which requires to be paid at every stage as applicable. The appellants have paid service tax for some period and have not paid for some periods and therefore, no issue of interpretation is involved; hence, extended period is correctly invoked; interest under Section 75 is justified as there is violation of Section 70 inasmuch as the appellants did not file ST-3 Returns properly; in view of the suppression of fact, penalty under Section 78 is also imposable. 9. Heard both sides and perused the records of the case. Brief issue involved in the case is as to whether the Withholding Tax paid by the appellants in respect of the consideration received from their overseas partners i.e VISA and MasterCard, in the assessable value of the service tax payable by the appellant under Reverse Charge Mechanism. It is the argument of the appellant that in terms of the Agreement with Master Card, the appellants were not being reimbursed the WHT paid by them; they have been paying servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed Explanation.-For the purposes of this section,- 4[(a) "consideration" includesi) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.] 3[***] (c) "gross amount charged" includes payment by cheque, cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined 13. A plain meaning of the expression the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount simply, because of the reason that no price is charged by the assessee/service provider from the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the consideration paid as quid pro qua for rendering such a service. 14. We find that in terms of the exposition, as above, of the provisions of Section 67A of the Finance Act, 1994, gives an understanding that the consideration received must be for the service provided. In case, a part of the consideration is identifiable not to be for provision of such service, the same cannot be considered as consideration for the purposes of payment of service tax. In the impugned case, we find that there is a clear-cut demarcation between the two Agreements. While the Agreement with MasterCard does not recognize the payment of WHT by the appellants as reimbursable expenses, the Agreement with VISA considers it to be reimbursable subject to provision of proof. In case of the MasterCard Agreement, the entire consideration received by the appellants is to be treated as gross consideration as that is the amount paid by the appellant to the overseas MasterCard for the services received. Therefore, rightly the appellant treated the grossed-up value as the consideration and discharged the due service tax. 15. We find that Mumbai Bench of the Tribunal in the case of Magarpatta Township Developers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) that: 14.1.1 Section 67 of the Finance Act, as reproduced above, would show that Service tax is payable on the gross amount charged by the service provider. The Department does not dispute that the TDS amount is borne by the appellant. The case of the Department is that when the TDS amount is grossed up with the actual consideration agreed between the parties, the TDS portion would become part of the consideration and has to be included in the taxable value. 14.1.2 Section 195 of the Income-tax Act, 1961, is basically concerned with the Tax Deducted at Source (TDS) for the non-residents. The Act lays out a provision to avoid revenue loss as a result of tax liability in the hands of a foreign resident, by deducting such tax at source from the payments made to them. This is to ensure that the tax due from non-residents is secured at the earliest point of time so that there is no difficulty in its collection for the reason that the nonresident may sometimes have no assets in India. Failure to do so will render the person liable to penalty. 14.1.3 On perusal of Section 195, it uses the word "any sum chargeable under the provisions of the Act". Unlike other provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct the tax and deposit with the Government. The appellants have thus grossed up the TDS and complied with the statutory obligation. The situation would be different if the TDS is deducted from the actual consideration and is not borne by the Indian counterpart. When the foreign counterpart does not agree to forego the TDS portion from the consideration agreed, then it becomes legally incumbent upon the appellant to gross up the value as under Section 195A. 17. From the above decisions of the Tribunal, it is clear that the consideration as received for the service, that is to say the consideration mentioned in invoice to be to such service, is the assessable value for the purposes of levy of service tax, provided no other amounts have been paid over and above the value shown in the invoice. As far as the amounts that flow to the service provider (to the service receiver in case of reverse charge), the same constitutes gross consideration in terms of Section 67D. We find that Revenue relies on the decision in the case of Sheladia Rites (supra). We find that every case needs to be understood in the facts and circumstances of the particular case. In the impugned case herein, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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