International Flavours & Fragrances India P. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, in the case of International Flavours & Fragrances India P. Ltd. Vs Commissioner of GST & Central Excise, ruled that Service Tax cannot be levied on the Tax Deducted at Source (TDS) amount paid by an Indian service recipient on foreign remittances under the Income Tax Act, 1961, when that amount is over and above the foreign service provider’s invoice value. The tribunal held that the TDS is an obligation under income tax law and does not constitute part of the “consideration” for the service under the Service Tax framework.
Background of the Dispute
The appellant, International Flavours & Fragrances India P. Ltd., imported various services, such as testing, auditing, and consultancy, from service providers located outside India. Under the reverse charge mechanism (Section 66A of the Finance Act, 1994), the Indian recipient was responsible for paying the service tax.
The dispute arose because, to comply with Section 195A of the Income Tax Act, 1961, the appellant had grossed up the payment amount and deposited the TDS liability with the Income Tax Department, rather than deducting the tax from the foreign service provider’s invoice. The Service Tax Department issued a Show Cause Notice demanding differential service tax on this TDS portion (the grossed-up amount) on the premise that it formed part of the “consideration” for the imported services. Both the Adjudicating Authority and the Commissioner (Appeals) confirmed the demand, leading to the appeal before CESTAT.
