T.V.S. Motor Company Limited Vs Commissioner of Central Excise (CESTAT Chennai)
M/S. TVS Motor Company (Petitioner) had appealed against the Tribunal’s Final Order No. 652 of 2012 dated June 13, 2012. The Petitioner had appealed in the Supreme Court against the order dated June 13, 2012, and the Court vide order 2015 (37) S.T.R. J177 (S.C.) disposed of the matter. The Petitioner then again appealed in the Tribunal vide Service Tax Appeal No. 41077 of 2013 and considering the connection between the two appeals, the Tribunal had passed a common Final Order Nos. 42277-42278 / 2021.
In this case, the Petitioner 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 Petitioner 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 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.
The Honorable Tribunal took cognizance of both the issues and opined that, the first issue is settled by the decision of the Hon’ble High Court of Bombay in the case of Indian National Ship-owners Association v. Union of India [2008 (12) TMI 41 – BOMBAY HIGH COURT, dated March 23, 2009]. The Honorable High Court held that the liability to pay Service Tax under reverse charge mechanism would arise only after the introduction of Section 66A of the Finance Act with effect from April 18, 2006. The said decision was upheld by the Hon’ble Supreme Court in Union of India v. Indian National Ship-owners Association [2009 (12) TMI 850 – SC ORDER].
In the second issue, the Tribunal held that TDS is deposited to the Government out of a statutory liability and the amount so deducted cannot be taken as consideration for services rendered.
Further, the amount of tax deducted depends upon the rate in force and it wholly depends upon the law prevailing in the direct tax regime.
The Honorable Tribunal relied on the decision in the case of M/s. Hindustan Oil Exploration Co. Ltd. v. Commissioner of GST & Central Excise [2019 (2) TMI 1248 – CESTAT CHENNAI] in which it was categorically stated that when the TDS amount has been borne by the assessee and only the consideration for the services as agreed upon by the parties has been paid to the service provider, the TDS amount cannot be included in the taxable value for determining the Service Tax liability, thus the demand for the entire period (March, 2004 to September, 2007 and October, 2006 to September, 2007) cannot sustain and requires to be set aside – the issue was also decided in favour of the Petitioner.
Cases Discussed
- M/s. Hindustan Oil Exploration Co. Ltd. (CESTAT Chennai), [2019 (2) TMI 1248 3 CESTAT Chennai].
- M/s. Indian Additives Ltd. (CESTAT Chennai), [2018 (6) TMI 523 3 CESTAT Chennai].
- M/s. Centre for High Technology (CESTAT New Delhi), [2018 (8) TMI 243 3 CESTAT New Delhi].
- M/s. Garware Polyester Ltd. (CESTAT Mumbai), [2017 (5) TMI 1142 3 CESTAT Mumbai].
- M/s. Magarpatta Township Development and Construction Co. Ltd. (CESTAT Mumbai), [2016 (3) TMI 811 3 CESTAT Mumbai].
- Commissioner of Central Excise, Raigad v. Jawaharlal Nehru Port Trust P. Ltd. (CESTAT Mumbai), 2015 (40) S.T.R. 533 (Tri.-Mumbai).
- M/s. Indian National Shipowners Association v. Union of India (Bombay High Court), 2009 (13) S.T.R. 235 (Bom.).
FULL TEXT OF THE CESTAT CHENNAI ORDER
The appeal in Service Tax Appeal No. 219 of 2009 was originally disposed of by this Tribunal vide Final Order No. 652 of 2012 dated 13.06.2012. By the said order, the Tribunal had held as under:
“22. In the light of the aforesaid discussions it is ordered:-
(1) That there shall not be levy of service tax on the engineering consultancy services availed from foreign consultant abroad prior to 18.04.2006.
(2) There shall be levy of service tax at the applicable rate for the period 19.04.2006 to 30.09.2007 on the gross amount of consideration inclusive of income tax deducted at source involved in availing engineering consultancy service availed under Section 66A of the Act.
(3) Adjudication order gets modified by the extent indicated in (1) and (2) above.
(4) Cum tax benefit if any admissible shall be granted in accordance with law.
(4) There shall not be any penalty under Section 78 of Finance Act, 1994.”
(Emphasis applied)
1.2 Against such order, the appellant preferred appeal before the Hon’ble Supreme Court and vide judgement reported in 2015 (37) S.T.R. J177 (S.C.), the Hon’ble Supreme Court remanded the matter:
“2. In response to the above notice, the respondent has appeared.
3. Learned Counsel for the appellant has no objection if the matter is remanded to the Customs, Excise and Service Tax Appellate Tribunal for fresh hearing and disposal of the appeal being Appeal No. ST/219/2009. We order accordingly.
4. Appeal is disposed of as above. No costs.”
(Emphasis applied)
2. The issue in Service Tax Appeal No. 41077 of 2013 is connected to the issue in Service Tax Appeal No. 219 of 2009. Hence, both the appeals are heard together and are disposed of by this common Order.
3.1 Brief facts are that 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.
3.2 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.
4. The Tribunal vide Final Order No. 652 of 2012 dated 13.06.2012 confirmed the demand in respect of TDS amount and remanded to the Original Authority for the limited purpose of verifying and allowing the claim of cum-tax benefit, if any. The matter was taken up by the Original Authority vide de novo Order-in-Original No. 03/2013 dated 30.01.2013 and the Original Authority held that the appellant is not entitled to the benefit of cum-tax. Aggrieved by such order and the confirmation of demand in this regard, the appellant has filed the appeal in Service Tax Appeal No. 41077 of 2013.
5. When the matter was taken up for hearing, Shri R. Sai Prashanth, Learned Counsel, appeared on behalf of the appellants and Ms. K. Komathi, Learned Authorized Representative, appeared on behalf of the Department.
6. The period involved, the details of the impugned orders, Show Cause Notice and the demands in these two appeals are given in the table below:
