2026-VIL-1653-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Includability of TDS, borne by the service recipient and not recovered from the Foreign Service Provider, in the value of taxable service - Appellant received service from a Foreign Service Provider and did not pay service tax on the portion withheld as TDS towards Income Tax - Whether the withholding tax borne by the appellant is includible in the value of taxable service – HELD - Tax deducted at source and paid to the credit of the Central Government by a service recipient out of its own funds, without recovering the same from the foreign service provider, does not form part of the value of taxable service under Section 67, not being consideration flowing to the service provider but a statutory obligation discharged by the recipient on its own account, this principle being settled by a consistent line of decisions of the Tribunal - The withholding tax retained by the appellant from its own funds is not includible in the value of taxable service, no service tax is payable on that component - The remand directed by the Commissioner (Appeals) on this aspect was unnecessary and is set aside, and the penalty referable to this demand cannot survive – The appeal is allowed - Applicable rate of tax applicable under RCM under Section 66A of the Finance Act, 1994 where the service was received while the rate stood at 12% but payment to the Foreign Service Provider was made after the rate was reduced to 10% - Appellant discharged service tax at ten per cent on services received from a Foreign Service Provider, contending that liability under Section 66A arises only on payment and that the rate on the date of payment governs, whereas the department confirmed a differential demand on the footing that twelve per cent was the applicable rate - Whether the rate applicable under the reverse charge mechanism is the rate in force on the date the service is received or the rate on the date of payment - HELD - The rate chargeable is the rate in force when the service is rendered, not the rate on the date of billing or receipt of payment, this principle having been applied on the reverse charge side as well, where the date of receipt of the service, not the date of payment, fixes the rate under Section 66A - A contrary decision relied upon by the appellant arose on the forward charge and did not advert to the decisions establishing the receipt-of-service test, and is accordingly not followed - The services in the present case were received while the rate stood at twelve per cent, and the deferral of payment to a later date after reduction of the rate does not attract the reduced rate - The demand confirmed on this count, together with interest, is sustainable in law; however, given that the dispute is one of interpretation, no penalty is leviable in this regard - Impugned order sustained to the extent it upholds this demand together with interest, but set aside as to the demand on the withholding tax component - Appeal partly allowed - Power to remand - The original authority found TDS to have been borne by the appellant and not deducted from the consideration payable to the provider, yet confirmed the demand treating the withholding tax as part of the consideration; the Appellate Authority, noticing this inconsistency, remanded the matter for factual verification instead of resolving it - Whether the Commissioner (Appeals) had power to remand the matter under Section 85 of the Finance Act, 1994 - HELD - The amendment to Section 35A(3) of the Central Excise Act, 1944 withdrawing the power of remand of the Commissioner (Appeals) has no bearing on an order passed under the Finance Act, 1994, since Section 83 of that Act does not make Section 35A applicable to service tax, and Section 85(4) confers on the Commissioner (Appeals) power to pass such order as he thinks fit, including an order of remand, in an appeal under Section 85 - The power to remand is, however, not to be exercised as a matter of course, more so in a case touching public revenue which ought to attain finality without needless rounds of adjudication - A remand is warranted only where a fact material to the decision remains to be ascertained, serving no purpose where that fact already stands recorded and is undisputed - The original authority had itself found that the withholding tax was borne by the appellant and not recovered from the Foreign Service Provider, yet confirmed the demand on the opposite footing in the operative part of the same order, an infirmity which the Commissioner (Appeals), having noticed the inconsistency, ought to have resolved rather than remanding.
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