In my opinion TDS should be deducted in this case..
Circular 1/2014 comes into play only when any of the TDS provision is invoked. I think circular 1/2014 should only be used to assess the amount on which TDS is to be deducted.
First we have to assess whether or not section 194C is invoked. Section 194C clearly states that “Amount Paid or Credited” w/o differentiating between basic fees and service tax. Hence while assessing the applicability of section 194C we should consider the entire amount including ST. Once section 194C is invoked then only circular 1/2014 comes into play and we should deduct TDS on amount exclusive of ST.
It is just my interpretation. I think it is a controversial issue and different people are bound to interpret it differently. Hence it is better to go safe and deduct TDS.
CAclubindia
