Service tax on TDS portion of foreign royalty was rejected because taxable value is limited to actual consideration charged.

Service tax on the TDS component of royalty paid to a foreign company was found unsustainable because the tax was already discharged on the royalty actually remitted, while the TDS amount was separately paid to the Government of India. The valuation principle applied was that, for services received from outside India, the taxable value is the actual consideration charged for the service. On that basis, the TDS deduction was not treated as consideration for the service, and no service tax liability arose on that portion.

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Issues: Whether service tax is payable on the TDS portion deducted in respect of royalty paid to a foreign company.

Analysis: The appellant showed that the TDS amount was paid separately to the Government of India over and above the royalty remitted to the foreign service provider, and that service tax had already been discharged on the royalty amount actually paid. The Tribunal applied the principle that, for services received from outside India, the taxable value is the actual consideration charged for the service, and held that there was no material to treat the TDS component as consideration for the services received. Following the cited valuation principles, the demand on the TDS portion was held to be unsustainable.

Conclusion: Service tax was not payable on the TDS portion of the royalty, and the demand failed.

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