Service tax valuation excludes TDS deducted by the recipient, as tax applies only to actual service consideration.

Service tax valuation under section 67 of the Finance Act, 1994, read with Rule 7 of the Service Tax Valuation Rules, 2006, is confined to the actual consideration charged for the service. An amount deducted by the recipient as TDS from payments to a foreign service provider does not, by itself, become part of the service consideration and cannot be added to the taxable value. On that basis, a demand raised only on the TDS differential was held inconsistent with the valuation scheme and was set aside in favour of the assessee.

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Issues: Whether service tax could be demanded on the TDS amount deducted by the service recipient from the consideration payable to the foreign service provider while computing the taxable value of the imported service.

Analysis: Section 67 of the Finance Act, 1994 governs valuation of taxable services and, read with Rule 7 of the Service Tax Valuation Rules, 2006, requires service tax to be levied on the actual consideration charged for the service. The amount deducted towards TDS does not form an additional consideration for the service received, and the taxable value cannot be artificially enhanced by treating the TDS component as part of the service consideration. The demand confirmed only on the TDS differential was therefore inconsistent with the valuation scheme applied to the service transaction.

Conclusion: The demand of service tax on the TDS amount was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: For service tax valuation, tax is chargeable only on the actual consideration for the service, and an amount deducted as TDS by the recipient cannot be added to the taxable value unless it is itself part of the consideration for the service.

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