No service tax on TDS portion of royalty paid to foreign company: CESTAT

Case Details: Indian Additives Ltd. v. Commissioner of GST & Central Excise - [2021] 131 taxmann.com 111 (Chennai - CESTAT)

Judicial and Counsel Details

• • Ms. Sulekha Beevi C.S., Judicial Member and P. Anjani Kumar, Technical Member
  • Smt. Radhika Chandrasekar, Adv. for the Appellant. 
  • Arul C. Durairaj, (AR) for the Respondent.

Facts of the Case

The appellants were engaged in the manufacture of additives and entered into technical assistance agreement with foreign company. As per the agreement, the appellant would pay royalty to the foreign company. Since the foreign company did not have any establishment in India, the appellant registered themselves with the Service Tax Department for payment of service tax under reverse charge mechanism. During scrutiny of accounts, it was noted that appellants did not pay service tax on the TDS portion of the royalty paid by them to the foreign company. After due process of law, the original authority confirmed the demand, interest and imposed penalty. In appeal, Commissioner (Appeals) upheld the same and appeal was filed before CESTAT.

CESTAT Held

The Honorable CESTAT found that the issue to be decided would be whether service tax to be levied on the TDS portion borne by the appellant. The CESTAT relied upon the decision of the Tribunal in the case of Magarpatta Township Development and Construction Co. Ltd. v. CCE, Pune – 2016 (43) STR 132 wherein it was held that Service Tax liability needs to be discharged on amounts which have been billed by the service provider and not on the TDS portion which was borne by appellant. Moreover, the value would be equal to the actual consideration charged for the services provided or to be provided for the purpose of discharging Service Tax for the service provided from outside India. Therefore, in the present case, the levy of service tax on the TDS portion borne by the appellant was not proper and liable to be set aside.