TaxTMI 
TaxTMI 
2021 (9) TMI 81
X X X X Extracts X X X X
X X X X Extracts X X X X
....vailing engineering consultancy service availed under Section 66A of the Act. (3) Adjudication order gets modified by the extent indicated in (1) and (2) above. (4) Cum tax benefit if any admissible shall be granted in accordance with law. (4) There shall not be any penalty under Section 78 of Finance Act, 1994." (Emphasis applied) 1.2 Against such order, the appellant preferred appeal before the Hon'ble Supreme Court and vide judgement reported in 2015 (37) S.T.R. J177 (S.C.), the Hon'ble Supreme Court remanded the matter: "2. In response to the above notice, the respondent has appeared. 3. Learned Counsel for the appellant has no objection if the matter is remanded to the Customs, Excise and Service Tax Appellate Tribunal for fresh hearing and disposal of the appeal being Appeal No. ST/219/2009. We order accordingly. 4. Appeal is disposed of as above. No costs." (Emphasis applied) 2. The issue in Service Tax Appeal No. 41077 of 2013 is connected to the issue in Service Tax Appeal No. 219 of 2009. Hence, both the appeals are heard together and are disposed of by this common Order. 3.1 Brief facts are that the appellants are engaged in the manufacture of motor vehi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13 Period March 2004 to September 2007 October 2006 to September 2007 Impugned Order-in-Original 01/2009 dated 05.01.2009 03/2013 dated 30.01.2013 Show Cause Notice 10/2007 dated 19.11.2007 Demand Rs. 1,65,53,563/- Rs. 50,50,404/- Penalty imposed Rs. 1,65,53,563/- - 7. The two main issues that arise for our consideration in these appeals are: (1) whether the appellants are liable to pay Service Tax under reverse charge mechanism in terms of Section 66 of the Finance Act, 1994 read with 2(1)(d)(iv) of the Service Tax Rules, 1994, before the introduction of Section 66A of the Finance Act; and (2) whether the appellants are liable to pay Service Tax on the TDS portion deducted while paying the consideration to the service provider. 7.1 The first issue as to whether the appellants are liable to pay Service Tax under reverse charge mechanism before the introduction of Section 66A in the Finance Act, 1994 is settled by the decision of the Hon'ble High Court of Bombay in the case of M/s. Indian National Shipowners Association v. Union of India reported in 2009 (13) S.T.R. 235 (Bom.). The Hon'ble High Court held that the liability to pay Service Tax under reverse....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In terms of Section 67 of the Finance Act, 1994, value for the purpose of Service Tax is the actual amount charged by the service provider. Accordingly, during the period March 2004 to September 2007, the appellant discharged Service Tax on the actual amount of consideration agreed upon and paid to the service provider. 9.2.1 It is stressed by the Learned Counsel for the appellant that the amount of consideration is grossed up by the appellant only for the purpose of payment of TDS and the TDS liability is fully borne by the appellant. It is very much clear from the Show Cause Notice itself that the TDS is borne by the appellant. That the demand of Service Tax on the TDS portion is without any legal basis. The issue is no longer res integra and has been settled in favour of the assessee by the Tribunal in the following decisions: (i) M/s. Hindustan Oil Exploration Co. Ltd. v. Commr. of G.S.T. & C.E. [2019 (2) TMI 1248 - CESTAT Chennai]; (ii) M/s. Indian Additives Ltd. v. C.C.E. & S.T. [2018 (6) TMI 523 - CESTAT Chennai]; (iii) M/s. Magarpatta Township Development and Construction Co. Ltd. v. C.C.E. [2016 (3) TMI 811 - CESTAT Mumbai]; (iv) M/s. Garware Polyester Ltd. v. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;...." 10.2 That from the above Section itself it is clear that Service Tax has to be paid on the gross amount charged. Since the appellants have grossed up the value along with TDS, the TDS amount has to be included in the taxable value for discharging their Service Tax liability. She argued that the demand raised is legal and proper. 11. Heard both sides. 12. The relevant part of the Advisory Agreement entered into between the parties (the appellant and the foreign service provider) reads as under: "Section 2. Fixed Fee and Performance Fee In consideration for the Services hereunder, Counterpart shall pay Advisor the following compensation: 2.1 Upon signature of this Agreement, the Counterpart will pay the Advisor a Fixed Fee of 15000 US dollors 2.2 The Counterpart shall also pay to Advisor a "Performance Fee" upon the earlier of (1) sale of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the TDS amount is borne by the appellant. The case of the Department is that when the TDS amount is grossed up with the actual consideration agreed between the parties, the TDS portion would become part of the consideration and has to be included in the taxable value. 14.1.2 Section 195 of the Income Tax Act, 1961, is basically concerned with the Tax Deducted at Source (TDS) for the non-residents. The Act lays out a provision to avoid revenue loss as a result of tax liability in the hands of a foreign resident, by deducting such tax at source from the payments made to them. This is to ensure that the tax due from non-residents is secured at the earliest point of time so that there is no difficulty in its collection for the reason that the non-resident may sometimes have no assets in India. Failure to do so will render the person liable to penalty. 14.1.3 On perusal of Section 195, it uses the word "any sum chargeable under the provisions of the Act". Unlike other provisions in Chapter XVII (TDS provisions), Section 195 uses "any sum" instead of "any income by way of". This would mean any sum that is paid to the non-resident which bears the character of income and gross amount, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion and is not borne by the Indian counterpart. When the foreign counterpart does not agree to forego the TDS portion from the consideration agreed, then it becomes legally incumbent upon the appellant to gross up the value as under Section 195A. 14.2.2 For the purposes of discharging their obligation of deducting tax at source, the appellants have grossed up the TDS to the actual consideration. After deposit of TDS, the service provider has received only the amount that has been agreed between the parties. There is no dispute about the fact that TDS amount has been borne by appellant. It is mentioned in paragraph 3 of the Show Cause Notice dated 19.11.2007 itself, which reads as under: "As per Section 67 of the Finance Act, 1994, '...where service tax is chargeable on any taxable service with reference to its value, then such value shall- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him.' In view of the above, it appears that the TDS charges, which was borne by the assessee, has to be included in the value of taxable services received by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has not been included in the gross value is incorrect on facts and cannot sustain. We find that the issue is covered by the decision relied upon by the ld. counsel in the case of Magarpatta Township Development & Construction Co. Ltd. (supra), wherein the facts are as under:- 3. The learned Counsel took us through the facts of the case and submits that the agreement entered by the appellant with the foreign architect is very clear as the said agreement states that amount to be paid by the foreign architect not to be taxed i.e. by the appellant. He would take us through the agreement and bring to the notice specific clauses; appellant has discharged the Service Tax liability on the actual amount paid by them to such consultant. He would then take us through the provision of Section 67 of the Finance Act, 1994 and submit that the said Section contemplates discharge of Service Tax liability on the gross amount charged by the service provider. He would submit that the architect has charged the gross amount that indicated in the agreement. Subsequently, learned Counsel would take us through the provision of Service Tax (Determination of Value) Rules, 2006, as per Rule 7 during the rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the service provided from outside India, the value is equal to the actual consideration charged for the services provided or to be provided. In the case in hand, we specifically asked for the invoice/bill raised by the service provider and on perusal of the same, we find that appellant had discharged the consideration as raised in the said invoice/bill. There is nothing on record that indicates that the appellant had recovered that amount of Income Tax paid by them on such amount paid to the service provider from the outside India and any other material to hold that this amount is paid as consideration for services received from service provider. 9. In our considered view, the plain reading of Section 67 with Rule 7 of Service Tax Valuation in this case in hand, Service Tax liability needs to be discharged on amounts which have been billed by the service provider." 14.4.3 In the case of M/s. Centre for High Technology (supra), the Tribunal discussed the issue and held in favour of the assessee, which reads as under: "10. After the considering the arguments made by both sides and perusal of record, we note that dispute is with reference to the amount paid as Withholdin....