TMI Blog2021 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Supreme Court in UNION OF INDIA VERSUS INDIAN NATIONAL SHIPOWNERS ASSOCIATION [ 2009 (12) TMI 850 - SC ORDER ] - the demand of Service Tax till 18.04.2006 cannot sustain. Levy of service tax - TDS borne by the appellant while grossing up of the consideration payable to the service provider - HELD THAT:- The TDS is paid / deposited to Government by the appellant out of a statutory liability. Such activity of deducting the tax at source is a legal obligation and the amount so deducted cannot be taken as consideration for services rendered. The amount on which the parties have reached a consensus ad idem can only be the consideration for the services. Further, the amount of tax deducted varies and depends upon the rate in force. There is no agreement by the parties with regard to the amount of TDS that has to be deducted. It wholly depends upon the law prevailing in the direct tax regime. The decision in the case of M/S. HINDUSTAN OIL EXPLORATION CO. LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE [ 2019 (2) TMI 1248 - CESTAT CHENNAI ] have categorically held that when the TDS amount has been borne by the assessee and only the consideration for the services as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with law. (4) There shall not be any penalty under Section 78 of Finance Act, 1994. (Emphasis applied) 1.2 Against such order, the appellant preferred appeal before the Hon ble Supreme Court and vide judgement reported in 2015 (37) S.T.R. J177 (S.C.), the Hon ble Supreme Court remanded the matter: 2. In response to the above notice, the respondent has appeared. 3. Learned Counsel for the appellant has no objection if the matter is remanded to the Customs, Excise and Service Tax Appellate Tribunal for fresh hearing and disposal of the appeal being Appeal No. ST/219/2009. We order accordingly. 4. Appeal is disposed of as above. No costs. (Emphasis applied) 2. The issue in Service Tax Appeal No. 41077 of 2013 is connected to the issue in Service Tax Appeal No. 219 of 2009. Hence, both the appeals are heard together and are disposed of by this common Order. 3.1 Brief facts are that the appellants are engaged in the manufacture of motor vehicles and IC engines. During the period from March 2004 to September 2007, appellants received Technical Consultancy Services and Project Consultancy Services from various service providers who were not havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impugned Order-in-Original 01/2009 dated 05.01.2009 03/2013 dated 30.01.2013 Show Cause Notice 10/2007 dated 19.11.2007 Demand ₹ 1,65,53,563/- ₹ 50,50,404/- Penalty imposed ₹ 1,65,53,563/- - 7. The two main issues that arise for our consideration in these appeals are: (1) whether the appellants are liable to pay Service Tax under reverse charge mechanism in terms of Section 66 of the Finance Act, 1994 read with 2(1)(d)(iv) of the Service Tax Rules, 1994, before the introduction of Section 66A of the Finance Act; and (2) whether the appellants are liable to pay Service Tax on the TDS portion deducted while paying the consideration to the service provider. 7.1 The first issue as to whether the appellants are liable to pay Service Tax under reverse charge mechanism before the introduction of Section 66A in the Finance Act, 1994 is settled by the decision of the Hon ble High Court of Bombay in the case of M/s. Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of the Income Tax Act and the consideration for Service Tax purposes continues to remain ₹ 100. TDS being a statutory liability was borne by the appellant and never charged to the foreign service provider. 9.1.3 During the relevant period, as per Section 2(1)(d)(iv) of the Service Tax Rules, 1994, the appellant was liable to pay Service Tax on the aforesaid payments under reverse charge mechanism. In terms of Section 67 of the Finance Act, 1994, value for the purpose of Service Tax is the actual amount charged by the service provider. Accordingly, during the period March 2004 to September 2007, the appellant discharged Service Tax on the actual amount of consideration agreed upon and paid to the service provider. 9.2.1 It is stressed by the Learned Counsel for the appellant that the amount of consideration is grossed up by the appellant only for the purpose of payment of TDS and the TDS liability is fully borne by the appellant. It is very much clear from the Show Cause Notice itself that the TDS is borne by the appellant. That the demand of Service Tax on the TDS portion is without any legal basis. The issue is no longer res integra and has been settled in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d facts with an intention to evade payment of Service Tax is without any legal or factual basis. 9.3.3 He argued that the demand raised invoking the extended period of limitation cannot be sustained and the penalties may also be set aside. 10.1 Learned Authorized Representative appearing for the Department supported the findings in the impugned order. She adverted to Section 67 of the Finance Act, 1994, which reads as under: (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; . 10.2 That from the above Section itself it is clear that Service Tax has to be paid on the gross amount charged. Since the appellants have grossed up the value along with TDS, the TDS amount has to be included in the taxable value for discharging their Service Tax liability. She argued that the demand raised is legal and proper. 11. Heard both sides. 12. The relevant part of the Advisory Agreement ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the service provider is to be paid the actual consideration agreed for the service rendered. It is also agreed that TDS amount cannot be deducted from the consideration so agreed. In other words, it is agreed by the parties that TDS has to be borne by the appellant who is the service recipient. 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 difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. It has to be noted that in the present case, there is no consent from the foreign counterpart to reduce his consideration by deducting the income tax liability from the agreed consideration. While doing business with the foreign counterpart and making payment, they are bound to deduct 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. 14.2.2 For the purposes of discharging their obligation of deducting tax at source, the appellants have grossed up the TDS to the actual consideration. After deposit of TDS, the service provider has received only the amount that has been agreed between the parties. There is no dispute about the fact that TDS amount has been borne by appellant. It is mentioned in paragraph 3 of the Show Cause Notice dated 19.11.2007 itself, which reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments, we are convinced that TDS has been borne by the appellant. For example, the letter dated 10.5.2006 shows that the appellant has to pay USD 319710 to the foreign company, namely, Thai Nippon Steel Engineering Construction Corporation Ltd. The said amount has been fully paid as per the foreign certificate remittances. They have not deducted TDS but in fact have discharged the TDS liability. The appellant has borne the same as expenses of their company. On such score, we find that the demand of service tax alleging that TDS has not been included in the gross value is incorrect on facts and cannot sustain. We find that the issue is covered by the decision relied upon by the ld. counsel in the case of Magarpatta Township Development Construction Co. Ltd. (supra), wherein the facts are as under:- 3. The learned Counsel took us through the facts of the case and submits that the agreement entered by the appellant with the foreign architect is very clear as the said agreement states that amount to be paid by the foreign architect not to be taxed i.e. by the appellant. He would take us through the agreement and bring to the notice specific clauses; appellant has discharged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual consideration charged for the services provided or to be provided. (2) Notwithstanding anything contained in sub-rule (1), the value of taxable services specified in clause (ii) of rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, as are partly performed in India, shall be the total consideration paid by the recipient for such services including the value of service partly performed outside India. It can be seen from the above reproduced Rule that for the purpose of discharge of Service Tax for the service provided from outside India, the value is equal to the actual consideration charged for the services provided or to be provided. In the case in hand, we specifically asked for the invoice/bill raised by the service provider and on perusal of the same, we find that appellant had discharged the consideration as raised in the said invoice/bill. 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 as consideration for services received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 9. In our considered view, the plain reading of Section 67 with Rule 7 of Service Tax Valuation Rules, in the case in hand, Service Tax liability needs to be discharged on amounts which have been billed by the service provider. 10. In view of the foregoing, in the facts and circumstances of this case it is to be held that that impugned order is sustainable and liable to be set aside and we do so. 11. By following the decision (supra) we set aside the impugned order and allow the appeal. 14.5 The above decisions have categorically held that when the TDS amount has been borne by the assessee and only the consideration for the services as agreed upon by the parties has been paid to the service provider, the same cannot be included in the taxable value for determining the Service Tax liability. 15. From the discussions made above and following the decisions cited supra, we hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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