2024 (8) TMI 1333 - AT - Service Tax

Classification of service - appellant had performed service in India and delivered clinical study report to their foreign client through E-mail Courier or website - case of the department is that since the performance of service is in India and the clinical study was carried out on the goods supplied by the service recipient therefore the service of the appellant does not fall under the category of Export of Service in terms of Rule 4 of Place of Provision of Service Rules 2012 - HELD THAT - The appellant have carried out the clinical study on the drugs supplied by the foreign based service recipient. After carrying out the clinical study on the goods supplied by the service recipient the technical report thereof was supplied to the service recipient. The service recipient is located outside India. On the identical facts and the activity involved in the present case various judgments have been passed - reliance can be placed in COMMISSIONER OF CENTRAL EXCISE PUNE-I VERSUS SAI LIFE SCIENCES LTD. 2016 (2) TMI 724 - CESTAT MUMBAI where it was held that it can be safely said that the Research Development Service performed by the Appellant is export of service in terms of Rule 3 of Rules 2012. Earlier also for the period July 2012 to September 2012 October 2012 to December 2012 and January 2013 to March 2013 the said services were treated as export of services by the department and no relevant material has been placed on record to treat the same differently for the period in dispute. Therefore the Scientific and Technical Consultancy Services provided by the Appellant to DITC is to be treated as export of service. In the case of M/S FERTIN PHARMA RESEARCH DEVELOPMENT INDIA PVT. LTD. VERSUS COMMISSIONER OF CGST NAVI MUMBAI 2018 (10) TMI 1373 - CESTAT MUMBAI the tribunal observed the appellants are eligible to cash refund of the accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules 2004 except in relation to credit availed input services denied by the Learned Commissioner (Appeals) observing that necessary evidences in relation to Building maintenance charges were not produced to establish the nexus with the output service and secondly the rent-a-cab service since placed under the exclusion clause of the definition of input service after amendment to Rule 2(l) of the Cenvat Credit Rules 2004 with effect from 1-4-2011. Thus the activity of clinical trial on the drugs supplied by the foreign service recipient to the appellant amounts to export of service hence same is not liable to service tax - the impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the clinical trial services provided by the appellant to a foreign client qualify as "Export of Service" under Rule 4 of the Place of Provision of Service Rules, 2012.
2. Whether the appellant is liable to pay service tax on the services provided to foreign clients.
3. The applicability of penalties and interest under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Qualification as "Export of Service":
The central issue was whether the clinical trial services conducted in India but delivered to a foreign client via electronic means qualify as "Export of Service" under Rule 4 of the Place of Provision of Service Rules, 2012. The department argued that since the services were performed in India on goods supplied by the recipient, they do not qualify as export. The appellant contended that their services, primarily involving the analysis of drug effects, do not fall under the exclusion provided in Rule 4, which pertains to goods like machinery or equipment. The tribunal referenced several judgments, including "Commissioner Of Central Excise, Pune-I Vs. Sai Life Sciences Ltd" and "Dow Chemical International (P) Ltd. Vs. Commr. Of CGST, Navi Mumbai," which supported the view that services provided to foreign clients, where the deliverables are sent outside India, qualify as export services. The tribunal concluded that the appellant's services indeed qualify as export, as the primary deliverable, the clinical study report, is consumed by the foreign client outside India.

2. Liability to Pay Service Tax:
The adjudicating authority had initially confirmed a demand for service tax, asserting that the services were not exported. However, the tribunal, after considering the appellant's arguments and precedents, found that the services provided were indeed exported. The tribunal emphasized that the location of the service recipient and the receipt of payment in convertible foreign exchange are crucial factors in determining the export status. The tribunal referred to the principle that service tax is a destination-based consumption tax, as highlighted in the "All India Federation of Tax Practitioners v. Union of India" case, where services consumed abroad are not liable for service tax in India. Consequently, the tribunal held that the appellant was not liable to pay service tax on the services rendered to their foreign clients.

3. Applicability of Penalties and Interest:
The original order had imposed penalties under Sections 76 and 77(2) of the Finance Act, 1994, and demanded interest under Section 75. Given the tribunal's finding that the services were exported and not liable to service tax, the basis for imposing penalties and interest was effectively nullified. The tribunal set aside the penalties and interest, aligning with the view that the appellant's actions did not warrant such measures, as the services were legitimately exported and not subject to tax.

Conclusion:
The tribunal ruled in favor of the appellant, setting aside the demand for service tax, penalties, and interest. It recognized the services as export, thus exempt from service tax under the relevant rules and legal precedents. The appeal was allowed with consequential relief, affirming the appellant's position and providing clarity on the export of services in similar contexts.