TMI Blog2017 (7) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... India of consideration in convertible foreign currency in India - Decided in favor of the assessee. - ST/MISC/70167/2016, ST/546/2012 & ST/51757 & 52065/2014-CU[DB] - ST/A/70562-70564/2017-CU[DB] - Dated:- 2-5-2017 - Mr. Anil Choudhary, Member (Judicial) And Mr. Anil G. Shakkarwar, Member (Technical) Shri Devinder Sharma (Advocate) for Appellant Shri B.K. Singh (Advocate) Special Counsel for Respondent ORDER Per: Anil Choudhary The issue in these cross appeals is whether the assessee Jubilant Chemsys Ltd. have exported their service and received convertible foreign exchange as required under the Export of service Rules. The details of the SCN, period involved and the amount in dispute is as follows: - Sr. No. Appeal No. Date of Show c ause notice (SCN) Period covered Service Tax (Rs.) Penalty (Rs.) Impugned Order Nos. 1. ST/546/2012-CU[DB] 21/10/2010 April 2005 to March 2010 2,94,80,000 2,94,80,000 (Section 78) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med refund of the cumulative Cenvat Credit of the input services under Rule 5 of CCR and the said refund was granted pursuant to verification of the invoices, including the receipt of foreign exchange for the transactions in dispute, for which service tax have been subsequently demanded. 3. During the course of audit it was observed by Department that appellant JCL were rendering Research and Development (scientific and technical consultancy service) to Jubilant Biosys Ltd., as reflected in their balance-sheet and accounts for the period in question. Further investigation revealed that the appellant JCL was providing drug discovery services to their customers for which they were conducting Research and Development activity under contract research agreement and were charging contract research fee, shown as income in their accounts including balance sheets. 4. As per show cause notice dated 21 October, 2010, it appeared that for the financial year 2006-07 under the head income ₹ 2,76,409,000/- from contract research fee was shown. Income under the head other income is ₹ 47,000/-. Further profit and loss account for financial years 2005 - 06, 2007 - 08 and 2008 - 09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the appellant is rendering services to JBL in accordance with terms and conditions mentioned in the Master Agreement dated 26 June, 2005 executed between the parties, namely, JBL and JCL. The said agreement reveals that the appellant is engaged in the business of supplying chemistry services to synthesize, improve synthetic processes. The said agreement, inter alia provides as follows: - Copy of approval/renewal letter dated 02.11.2007 (RUD 4) issued by the Department of Scientific and Industries Research in the Ministry of Science Technology, Govt. of India shows that the company is registered as an R D Centre and is involved in Research and Development. The said letter also shows that the party is also availing benefit of Income Tax under Section 80-1B(8A) of IT Act, 1961 as an R D Company. Further in column V of their application for setting up EOU (RUD 5) submitted to the SEZ, the party had not declared any item or capacity for production. Further, against Column VI, the quantity of production is not shown as the same is not required in case of a service unit. This fact is also substantiated by the letter F. No.12-262/2004-100% EOU/7666 dated 05.10.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and delivery of the Compounds . . 6. Records: Company shall prepare and maintain detailed laboratory notebook records of the preparation and analysis of each Compound . Company shall deliver to Jubilant Biosys by not later than fourteen (14) days following the completion of the Services under each Order a final report(s) in the English Language (the Final Report(s) ) including the following information: (l) end of Compound preparation report including outlines of the Compound(s) syntheses and analytical procedures. (2) synthesis completion dates and lot numbers, and (3) a copy of all analytical data of compounds(s) obtained by Company hereunder. .. . 8. Ownership and Licenses : All information received from Jubilant Biosys or obtained as a result of Company's performance hereunder, including but not limited to: core structure, batch records, results, data: reports, Final Reports, laboratory work sheets, methods, Compound information, process information, improvements and the like shall be the sole property of Jubilant Biosys Until the expiration of Company's obligations of confidentiality and non-use under paragraph 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvents, etc. The company is engaged in early-stage drug discovery compound. As per the Memorandum and Articles of Association of the appellant company, their main objects are - to carry on all kind of business activities with respect to commercial research and development for drug (medicine) discovery and drug development including genomics, proteomics, chemistry, biology, bio-technology, biosciences, bio informatics, structural biology, medicinal, chemistry, etc.., including contract research services related to drug discovery, such as process and/or product development. Further, para-six titled 'records' in the Master Agreement, read with para-eight of the said agreement, titled ownership and licenses'; All records of the synthesis/manufacturing of the compounds in the shape of lab notebook, have to be delivered to Biosys on periodic basis. As per para-eight of the Master Agreement, all the rights, ownership and licenses in respect of the activities undertaken in the appellant premises will be with Biosys Ltd., only. Further on going through the contents of ARE-1 dated 26 April, 2007 and 27 January, 2006, wherein certain goods namely Non Haz Lab Chemicals, in powde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antities, shown in grams were being generated during the course of research and development process. Further, as per the definition in Section 65(92) of the Finance Act 1994, the appellant is a scientific organisation engaged research work. Particularly in the field of chemistry related services. The taxable services as per the said definition would cover consultation, which could be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project process design recommending an apt technology, suggestion for improvement in existing technology process, etc. The appellant has been providing services with regard to improvement of chemical processes by conducting synthesis of various chemicals. The consultancy/advice is being given in the form of records/reports being prepared by the appellant as a result of the synthesis carried out by them and the results achieved become property of the customer that is JBL. Thus, it appears that the services provided by the appellant to JBL are covered under the said service under Section 65(92) of the Finance Act, 1994. 8. As per the audit objection communicated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red or otherwise are being cleared/supplied By them. Had it been so the appellant must charge the value price of such goods. It further appeared that the appellant was providing R D services to JBL which are amply covered under Section 65(92) and taxable under Clause 105 (za) of Section 65 of the Finance Act, 1994. Therefore, the appellant is liable to pay service tax on the amount charged by them from JBL. So far the invocation of extended period of limitation is concerned it is observed in the SCN that tax is leviable on the amount billed during the period 2005-06 to 2009-10 for the services rendered. The details of services rendered by the appellant to JBL and payments received. Therefore, on the basis of information available under the related party information from the balance-sheet of the appellant for the period in question, a total tax of ₹ 329.41 lakhs was demanded and it further appeared that the appellant have suppressed these facts from the Department. Although they were registered under the said category of 'scientific or technical consultancy' services, but did not discharge their liability of service tax on the said taxable service. The said transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Devinder Sharma has urged, referring under the research service agreement entered on 14 November, 2005 between Eli Lilly Company, Indianapolis, USA and jubilant Biosys Ltd, Bangalore (together with its subsidiaries and affiliates, including Jubilant Chemsys Ltd and Jubilant Organosys Ltd, collectively called JUBILANT ). Further the recitals state that jubilant is engaged in the business of providing biology and Chemo Informatics and related services and Eli Lilly proposes to retain Jubilant to provide services to them for from time to time for the purpose of assisting Lilly in researching and developing pharmaceutical products. Further para 4.2 provides for sub contracting of project services, which provides for the avoidance of doubt, it is understood that Jubilant Biosys Ltd, Jubilant Chemsys Ltd and Jubilant Organosys Ltd are each parties to this agreement, may perform services hereunder directly, and therefore shall not be regarded as subcontractors. The agreement further provides that Jubilant Biosys Ltd shall represent the three companies collectively for all day-to-day correspondence, etc. with Eli Lilly. It is further evident that Eli Lilly will send all correspondenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable opinion of JBL, JCL has failed to perform or complete its corresponding to an invoice, upon written notice to JCL by JBL, JBL shall the right to delay or payment of such invoice until such performance is complete and accepted by JBL. So far the records of research is concerned, it is provided that JCL shall prepare and maintain detailed laboratory notebook records of the preparation and analysis of each compound. JCL shall deliver to JBL not later than 14 days following the completion of the services under each order of final report in the English language, including the information stipulated. Further, regarding ownership and licenses it provides - all information received from JBL or obtained as a result of JCL's performance hereunder, including but not limited to core chemical structure, batch records, results, etc. shall be the sole property of JBL and JBL shall be free to disclose and use as JBL information, regardless of origin for any purpose. It is further urged that in accordance with the said agreements JBL as the lead venture was receiving the research orders from Eli Lilly and Company, USA and also from other clients situated abroad and accordingly assigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. In the show cause notice on the one hand, the learned Commissioner alleges concealment of facts and in the same states all information has been derived from the records maintained and the books of accounts maintained in the ordinary course of business, including balance sheets and the ST-3 returns. The learned Commissioner categorically observed that the disputed amount of turnover have been reflected in the statutory returns as exempt service, due to export. Accordingly, the learned counsel prays that the demand for extended period is also not sustainable. There being no contravention of law or misconduct and or suppression on their part. 14. The learned AR for Revenue Shri B.K. Singh have relied on the findings in the impugned order and he further relies on the ruling in the case of Dharampal Satyapal v/s CCE, New Delhi, 2005(183) ELT 241(SC) , wherein it was held on the issue of limitation and bona fide belief, that right to claim proforma/modvat credit against duty on final products was different from defence of bona fide in a case where circumstances mentioned in proviso to Section 11A(1) of Central Excise Act stands proved by Department for invoking larger period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. USA shall give all notices, correspondence etc. to the lead Venture JBL acting for all the three co-ventures. We further take notice of the clause in the said agreement that all the three are not subcontractors of each other, but they are all contractors in their individual capacity for the foreign client and JBL is the representative of all the three companies, as the lead partner. We also take notice of the certificate of chartered accountants, annexed in the paper book, which was also before the court below, which certifies that during the period in question, the affairs of the appellant have been verified and examined the payments made by Jubilant Biosys Limited to Jubilant Chemsys Ltd for its share of activities under the work orders received from the parties located outside India. It further certifies that entire consideration for the work executed was initially received in EEFC account of JBL and thereafter the Revenue share of JCL was transferred to its bank account in foreign currency. It further certifies that during the period April 2005 to March 2012 JBL, has not made any payment to appellant JCL for any research work carried out on account of JBL for which any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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