Service tax valuation excludes recipient-borne TDS where it is a separate statutory withholding obligation, not service consideration.

For service tax valuation under reverse charge, only the actual consideration for the service is includible in taxable value. Amounts withheld and borne by the recipient as income-tax TDS are a separate statutory obligation and do not form part of the agreed consideration for services received from a foreign provider. The service tax demand on the TDS amount could not be sustained, and the issue was decided in favour of the assessee.

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Issues: Whether tax deducted at source borne by the recipient is includible in the taxable value of services received from foreign service providers for the purpose of service tax under reverse charge mechanism.

Analysis: The consideration payable under the agreement was net of taxes, and the recipient discharged income-tax withholding separately as a statutory obligation. The amount deducted as TDS was not part of the consideration for the services, nor was it an additional payment made to the foreign service provider for the services rendered. Under the valuation scheme, service tax is chargeable on the actual consideration charged for the service, and a statutory tax payment borne by the recipient cannot be treated as service consideration merely because it was grossed up under income-tax law.

Conclusion: TDS borne by the appellant was not includible in the taxable value, and the service tax demand on that amount could not be sustained. The issue is decided in favour of the assessee.

Ratio Decidendi: For service tax valuation, only the actual consideration for the service is includible; a statutory withholding-tax liability borne and paid by the recipient is not part of the taxable value unless it forms part of the agreed consideration.

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