NO SERVICE TAX APPLICABLE ON TDS PORTION WHEN TDS AMOUNT HAS BEEN BORNE BY TAXPAYER

The appellants are engaged in the manufacture of motor vehicles and IC engines. During the period from March 2004 to September 2007, appellants received Technical Consultancy Services and Project Consultancy Services from various service providers who were not having their offices in India As per Section 68(2) of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, if the service provider does not have an office in India and his usual place of residence is in a country other than India, then the service receiver who has his business establishment in India is liable to pay Service Tax on behalf of the service provider. The appellants thus paid Service Tax on the value of service charges under reverse charge mechanism though they were the service recipients. While paying the Service Tax, they did not include the tax deducted at source (TDS) for determining the taxable value. The Department was of the view that the TDS portion has also to be included in the taxable value for discharging Service Tax. Show Cause Notice No. 10/2007 dated 19.11.2007 was issued proposing to demand the differential Service Tax along with interest and also for imposing penalty. After due process of law, the Original Authority vide Order-in-Original No. 01/2009 dated 05.01.2009, confirmed the demand along with interest and imposed penalty under Section 78 of the Finance Act, 1994. Hence, the appeal in Service Tax Appeal No. 219 of 2009. The Petitioner, to substantiate, the case raised three issues to the Tribunal. Firstly, whether the Petitioner is 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 its very introduction. Secondly, whether the Petitioner is liable to pay Service Tax on the TDS portion deducted while paying the consideration to the service provider

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;
2. Whether the appellants are liable to pay Service Tax on the TDS portion deducted while paying the consideration to the service provider.