TDS borne by the service recipient is not includible in taxable service value.

The appellant challenged an order confirming service-tax demands arising from an audit for October 2007 to March 2012.

The demands included tax on TDS paid in connection with services received from a Japanese service provider, GTA liability, and ineligible CENVAT credit of Rs. 6,297, together with penalties.

The appellant argued that the TDS was not part of the contractual service consideration and that advance service-tax payments had been adjusted against later GTA liabilities; it had also paid the disputed CENVAT credit and 25% of the penalty.

The Commissioner had confirmed the demands in part, and the appellant appealed.

Whether TDS paid by the appellant under the agreement with the foreign service provider formed part of the taxable value of the services received.

Whether the appellant’s adjustment of advance service-tax payments against subsequent GTA liabilities could be disallowed for non-compliance with Rule 6(1A) of the Service Tax Rules, 1994.

Whether the demand and penalty relating to the CENVAT credit of Rs. 6,297 could be sustained after the appellant paid the credit and 25% of the penalty.

Section 67 of the Finance Act, 1994 taxes the value of the taxable service, while Rule 7(1) of the Service Tax (Determination of Value) Rules, 2006 provides that, for services taxable under Section 66A, value is the actual consideration charged.

The Tribunal applied the principle in VSL India Pvt. Ltd. v. CST, Chennai that TDS withheld and paid by the recipient is not part of consideration where the contract treats it as the recipient’s tax obligation rather than an amount payable to the service provider.

Rule 6(1A) of the Service Tax Rules, 1994 permits advance payment of service tax and its adjustment against later liabilities, subject to prescribed intimation and reporting; relying on Plantech Consultants Pvt. Ltd. v. CCE, Pune, the Tribunal treated non-compliance with the intimation procedure as a procedural lapse where the advance payment and adjustment were established.

The CENVAT-credit demand and penalty were considered under Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

The agreement provided that payments to the Japanese service provider were net receivables and that Indian taxes, including TDS, were to be borne by the appellant.

The Tribunal therefore treated the TDS as the appellant’s tax obligation, not consideration received or receivable by the provider, and held that it could not be included in taxable value.

As to GTA services, the Tribunal accepted that the appellant had paid the advance tax and adjusted it against subsequent liabilities.

Following Plantech Consultants, it held that failure to meet the intimation procedure did not justify retaining the excess payment or disallowing the adjustment.

The appellant had paid the CENVAT credit amount and 25% of the penalty; the Tribunal nevertheless upheld the credit demand, interest, appropriation and penalty.

The demands relating to GTA services and TDS on the services received from the foreign provider, together with the corresponding penalties, were set aside.

The demand of Rs. 6,297 for ineligible CENVAT credit and the penalty of Rs. 1,575—being 25% of the penalty amount paid by the appellant—were upheld.