Reverse charge service tax cannot be levied on TDS paid separately from the foreign service fee

Service tax under reverse charge was not payable on the TDS amount remitted to the Income Tax Department in connection with payments to foreign service providers. The relevant taxable value was the actual consideration charged for the services, and the record showed that the agreed contractual amount had already been paid to the foreign suppliers. The TDS payment was an additional tax obligation of the appellant and was not part of the gross amount charged for the services. On that basis, the demand could not be sustained and the appeal was allowed in favour of the assessee.

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Issues: Whether service tax under the reverse charge mechanism was payable on the TDS amount remitted by the appellant to the Income Tax Department in relation to payments made to foreign service providers.

Analysis: The appellant had paid the agreed consideration to the foreign service providers, and the record did not show that any lesser amount was paid under the contract. The disputed TDS amount was paid to the Income Tax Department and was not part of the gross amount charged by the foreign service providers. Following the earlier decision on identical facts, the value relevant for service tax under reverse charge was held to be the actual consideration charged for the services provided or to be provided, and not an amount additionally paid towards tax obligations of the appellant. On that basis, the demand could not be sustained.

Conclusion: Service tax was not payable on the TDS component, and the demand was unsustainable. The appeal was allowed in favour of the assessee.

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