By TIOL News Service

MUMBAI, MAR 18, 2016: THE issue that falls for consideration is whether the amount of Income Tax discharged by the appellant as TDS & paid to the GOI, on the amount paid by them to foreign architect needs to be taxed under ‘Reverse Charge Mechanism' and Service Tax liability can be fastened on the appellant or otherwise.

As per the provisions of Income Tax Act, the appellant is required to pay Income Tax on such amount, which he has done from his own pocket.

The Bench,after considering the submissions,extracted the provisions of section 67 of the Finance Act, 1994 and emphasizing on the phrase "gross amount charged" observed that upon a holistic reading, section 67(i) mandates for discharging Service Tax liability on the amount which is charged by the service provider.

Adverting to the Rule 7 of the Service Tax Valuation Rules, 2006 (before amendment by Notfn. 24/2012-ST) the Bench observed -

"It can be seen …that for the purpose of discharge of Service Tax for 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 the amount of Income Tax paid by them on such amount paid to the service provider from outside India and any other material to hold that this amount is paid is consideration for services received from service provider."

Holding that upon a plain reading of section 67 read with Rule 7 of Service Tax Valuation Rules, Service Tax liability needs to be discharged only on amounts which have been billed by the service provider, the impugned order was set aside and the appeal was allowed.

(See 2016-TIOL-660-CESTAT-MUM)