TDS Paid Over and Above Invoice Value Cannot Be Subjected to Service Tax: CESTAT Ahmedabad

Case Overview

Case Name: Adani Bunkering Pvt. Ltd Vs Commissioner of C.E. (CESTAT Ahmedabad)
Appeal Number: Service Tax Appeal No. 11512 of 2016
Date of Order: 22/01/2024
Forum: CESTAT Ahmedabad (Division Bench)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, delivered a significant ruling on 22 January 2024, holding that Tax Deducted at Source (TDS) independently borne and deposited by a service recipient — over and above the invoice amount raised by a Foreign Service Provider — does not form part of the taxable value for the purposes of service tax levy. The appeal filed by Adani Bunkering Pvt. Ltd was allowed with consequential relief, and the impugned order was set aside.

Background and Facts of the Case

The central issue before the Tribunal was whether an assessee who discharges TDS from its own funds — in excess of the invoice value billed by a Foreign Service Provider — is required to include that TDS amount in the taxable value for computing service tax liability.

The undisputed factual position was as follows:

  • Adani Bunkering Pvt. Ltd had availed services from Foreign Service Providers and discharged service tax under the reverse charge mechanism on the entire invoice value raised by those providers.
  • Separately, in compliance with the provisions of the Income Tax Act, the assessee bore and deposited TDS liability entirely from its own funds.
  • The TDS amount was not deducted from the amounts payable to the foreign service providers; rather, it was paid over and above the invoice consideration.
  • The Revenue sought to include this TDS component within the taxable value and levied a service tax demand accordingly.

The assessee challenged this demand before CESTAT Ahmedabad.

Learned Counsel appearing for Adani Bunkering Pvt. Ltd advanced the following arguments:

On the Valuation Issue

  • The issue was no longer res integra given a consistent line of judicial precedent holding that service tax is not chargeable on TDS when the same is paid over and above the invoice amount and borne independently by the service recipient.
  • Section 67 of the Finance Act, 1994 governs the mechanism for determining the taxable value of services. It provides that service tax is chargeable on the gross amount charged by the service provider. In the present case, the gross amount charged was the invoice value alone, and the TDS deposited was neither part of that invoice nor remitted to the foreign service provider.
  • Therefore, service tax was payable only on the invoice value.

On SEZ Exemption (Alternative Ground)

  • The services were availed and consumed within a Special Economic Zone (SEZ), and accordingly, exemption under Section 26 of the Special Economic Zones Act, 2005 could not be denied.
  • It was argued that in cases of conflict between the Finance Act and the SEZ Act, the provisions of the SEZ Act would prevail — a position affirmed by the Andhra Pradesh High Court in GMR Aerospace Engineering Ltd. Vs. Union of India, 2019 (31) G.S.T.L. 596 (A.P.), subsequently upheld by the Supreme Court vide order dated 26.07.2019 in SLP (C) Diary No. 22140/2019.
  • The barges deployed were exclusively used for authorised operations of the SEZ, entitling the assessee to a refund of service tax under Notification No. 12/2013-ST dated 01.07.2013, making the entire situation revenue neutral.

On Limitation (Alternative Ground)