TDS borne on foreign service fees is not part of service tax value under reverse charge mechanism.

Income tax deducted at source and borne by an assessee for services received from foreign service providers is not part of the taxable value for service tax under reverse charge mechanism. The taxable value is the actual contractual consideration for the service, and a TDS amount merely discharged as a statutory withholding obligation does not become additional consideration. On that basis, the TDS amount could not be added to the assessable value, and the differential service tax, interest and penalties were not sustainable.

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Issues: Whether income tax deducted at source and borne by the assessee, in respect of services received from foreign service providers, forms part of the taxable value for service tax under reverse charge mechanism.

Analysis: The taxable value for service tax is the actual consideration charged for the service. Where the assessee, under the contractual arrangement, bears the income tax liability and merely discharges the statutory obligation of deduction at source, the TDS amount is not an additional consideration for the service. The value of the service received remains the agreed contractual consideration, and the amount of tax borne by the assessee cannot be added to the assessable value for service tax purposes.

Conclusion: The TDS amount borne by the assessee is not includible in the taxable value. The demand of differential service tax, interest and penalties could not be sustained and the assessee succeeded.

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