By TIOL News Service

MUMBAI, JUNE 05, 2017: THE appellant have received various services under an agreement/contract entered by them with the foreign entity. During the period in question April 2006 to March 2011, appellant discharged the service tax liability after 18.04.2006 as per the provisions of Section 66A under the reverse charge mechanism on the amount actually paid by them to the service provider situated abroad.

The contract/agreement with the service providers situated abroad mandated that the appellant is required to pay income tax etc. on his own account.

The Audit officers observed that appellant had not discharged the service tax liability on the TDS amount paid by them during the relevant period.

The adjudicating authority confirmed the demand along with interest and also imposed penalties.

As the order was upheld by the Commissioner(A), the appellant is before the CESTAT.

It is submitted that the amount paid as TDS by the appellant to the Income Tax Department in the remittances paid to the service providers situated abroad is to the account of the appellant and the said amount is not included in the gross amount charged by the service providers who are situated abroad; that an identical issue had come before the Bench in the case of Magarpatta Township Development and Construction Co. Ltd. – 2016-TIOL-660-CESTAT-MUM wherein the Bench has held in favour of the appellant. Moreover, the entire exercise is revenue neutral as any amount paid by them as service tax, CENVAT credit will be available to them as they are manufacturers of the final products, the appellant added.

The CESTAT noted that the issue is – "Whether the appellant is required to discharge the service tax on an amount paid by them as TDS for the payment remitted to the service providers situated abroad or otherwise."

After considering the submissions made by both sides, the Bench inter alia observed –

"5.1 Undisputedly the agreement and contract entered by the appellant with the service providers indicate payment of specific amount. It is not the case of Revenue that appellant has not paid the said amount and less paid to the service providers situated abroad. On a perusal of the records, we find that this plea of the appellant that the amount paid actually by them is not controverted by the adjudicating authority or by the first appellate authority…

5.2 We find that learned Counsel was correct in bringing to our notice that identical issue came up before this very Bench in the case of Magarpatta Township Development and Construction Co. Ltd. (supra). We have recorded the facts in paragraph No. 2 and in paragraph 7 onwards, after reproducing the provisions of Section 67 of the Finance Act, 1994 and the provisions of Rule 7 of the Service Tax Valuation Rules, 2006 before amendment by Notification No. 24/2012-ST held that the value which is to be considered for the discharge of service tax liability under reversal charge mechanism is equal to the actual consideration charged for the services provided or to be provided. In the case in hand, since it is undisputed that appellant herein had only paid the actual consideration as per the agreement and nothing else…"

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-1866-CESTAT-MUM)