VSL India Private Limited Vs Commissioner of Service Tax (CESTAT Chennai)
CESTAT Chennai held that in agreements where one party is non-resident, it is responsibility of other Indian resident party to meet TDS obligation arising on account of the respective agreement.
Facts- The assessee had entered into an ‘Offshore Services Agreement’ with their holding company namely, M/s. VSL International Ltd., Switzerland (M/s. VSLI) whereby the holding company was to provide the appellant with requisite technical assistance in the fields of consultancy, advisory, operation and other services, as per the terms contained in the agreement. It was also clear that the above services were to be provided by the VSL group as such, including M/s. VSLI and all other subsidiary and affiliate companies with whom separate service agreements could be entered into. Thus, an agreement was signed between the appellant and M/s. VSL, Hong Kong for providing assistance in managerial, financial, sales, marketing, controls and audit, taxes, personnel and training and technical services.
Revenue alleged that as per the terms of the agreement, the appellant had to borne the TDS expenses of its AE over and above the amount shown in the invoice of AE, without including the TDS amount in the value of taxable services.
Conclusion- Held that in agreements where one is a non-resident and such nonresident doesn’t have any PE, then it becomes the responsibility of the other party who is an Indian resident, to meet with the TDS obligation arising on account of the agreement in question. Even if such clause is not there in the agreement, still the resident cannot escape the tax liability and hence it becomes incumbent upon it to deduct tax at appropriate rate, at source, before making the payment. We find that the decisions relied upon by the appellant support our above view.
FULL TEXT OF THE CESTAT CHENNAI ORDER
These appeals are filed by the assessee against the Order-in-Original Nos. 26 to 28/2012 dated 24.02.2012 passed by the Commissioner of Service Tax, Chennai.
2. Facts, in brief, as could be gathered from the Show Cause Notices as well as the impugned Order-in-Original are that the appellant is primarily engaged in the field of civil construction, performing supply of post tensioning slabs / beams, installation, stressing, grouting, etc. The assessee had entered into an ‘Offshore Services Agreement’ with their holding company namely, M/s. VSL International Ltd., Switzerland (‘M/s. VSLI’ for short) dated 03.2006 whereby the holding company was to provide the appellant with requisite technical assistance in the fields of consultancy, advisory, operation and other services, as per the terms contained in the above agreement; it was also clear that the above services were to be provided by the VSL group as such, including M/s. VSLI and all other subsidiary and affiliate companies with whom separate service agreements could be entered into. Thus, an agreement was signed between the appellant and M/s. VSL, Hong Kong for providing assistance in managerial, financial, sales, marketing, controls and audit, taxes, personnel and training and technical services.
3. A Memorandum of Understanding (MOU) dated 01.2008 was drawn between the appellant and M/s. VSLI, which appears to be in furtherance to the earlier agreements between the two parties.
4. It appears that there was an audit of accounts of the appellant by the Internal Audit Group of the Service Tax Commissione rate wherein: (i) wrong availment of exemption under Notification No. 18/2002-S.T. dated 16.12.2002 by wrongly classifying the services imported from its group companies and (ii) non-inclusion of TDS in the taxable value of services received from outside India, were noticed, which prompted the issuance of Show Cause Notice dated 29.07.2010.
5. Subsequently, three Show Cause Notices were issued to the assessee, the details of which are as under:-
