TMI Blog2018 (4) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of proviso to Section 73(1) of the Finance Act, 1994 - Held that: - it is not a case of mis-declaration or suppression of facts but a case where there is a change of opinion on the manner of assessment by the Department - proviso to Section 73(1) and provisions of Section 78 of the Finance Act, 1994 are not applicable. Penalty u/s 76 - Held that: - there is no contumacious conduct on the part of the Assessee and the entire issue involves interpretation of the legal provisions. Moreover, the assessee has paid service tax to avoid any further dispute, in a revenue neutral situation - penalty set aside by invoking section 80. Demand of interest - Held that: - the issue is squarely covered by the decision in the case of Oil and Natural Gas Corporation Limited Vs CCE Surat [2015 (1) TMI 41 - CESTAT AHMEDABAD], where it was held that nterest is not payable with respect to duty required to be debited in the Cenvat Credit Account provided sufficient balance was available in the Cenvat Credit Account. Nothing has been brought on record that such a credit was not available in the Cenvat Account during the relevant period for debit - interest is not payable by the Appellant on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dred percent EOU scheme. The appellant have been granted permission for carrying out manufacturing operations in a bonded warehouse under the Customs Act and also registered under the Central Excise Act as a manufacturer. The present appeal by the assessee have been filed against the order passed by the Commissioner, Customs, Central Excise Service Tax, Noida, demanding service tax under Section 73 to the Finance Act, 1994 and also imposing penalty under Sections 78 and 76 of the Finance Act, 1994 for the reason that the supply of small quantities of organic compounds manufactured at laboratory scale and supplied to Eli Lilly and Company, Indianapolis (USA) and other drug manufacturing companies outside India, in collaboration with Jubilant Biosys Ltd, Bangalore, another hundred percent EOU (JBL for short) and Jubilant Life Sciences Ltd (JLL for short). As per the Revenue, the appellant have not actually exported their services and/or products, but have given services and or sold their products to Jubilant Biosys Ltd., as a sub-contractor or agent of theirs. The amount received from JBL for supplies under the agreements, including the amount for the work, executed under agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry of Science Technology, Government of India, states that the appellant company is registered as R D Centre and is involved in research and development. Further, in their application for setting up EOU submitted to the SEZ, the assessee have not declared any item or capacity for production. Further, in the column VI of the said form, the quantity of production is not shown as the same is not required in case of a service unit. These facts are also evident from the letter of Commissioner, SEZ, Noida, wherein the approval has been given for the Drug Discovery Services including but not limited to medicinal chemistry services, Syn, Organic Chemistry Services and Biology Services . The said approval also mentions the related products as chemical compounds, chemical libraries, scaffolds, analogue and/or lead compounds, intermediate Combi-chem libraries, proteins and protein structures, protein crystals, co-crystals, biological assay and screening data and analytical data for all the above. It appeared that from the study of related products that the same are normally required for conducting Research and Development activity in the sphere i.e. Drug Discovery Services in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Company's obligations of confidentiality and non-use under paragraph 9 thereof, Company covenants to promptly disclose to Jubilant Biosys all discoveries inventions, improvements, innovations and the like made by the Company hereunder or otherwise..... 5. From the above clauses of the agreement, it appeared that the appellant is engaged in carrying out Research Development Services in relation to the chemical processes. It further appeared that whatever results are obtained by the appellant assessee as a result of the research/synthesis, the same are to become the property of the customer, namely, JBL. The compounds generated/synthesized as the result of research/synthesis as a part of the research work conducted by the party and are only ancillary as the same represent the proof of the results/outcome of the synthesis conducted. Agreement further shows that JBL are engaged in pharmaceutical research and desire to utilize the services of appellant JCL to synthesize, improve synthetic processes, manufacture and/or supply synthetic organic compounds for JBL. 6. Further scrutiny of purchase orders placed by JBL, Bangalore, during the period from 15/11/2005 to 15/01/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t premises will be with Biosys Ltd., only. Further on going through the contents of ARE-! dated 26th April, 2007 and 27th January, 2006, wherein certain goods namely Non Haz Lab Chemicals, in powder form and lab chemicals were exported to Austin Chemicals, USA and on being asked to explain the quantity and price of the goods as mentioned in the said ARE-1 and as to whether the price was realized, it was stated that, I have gone through the ARE-1 dated 26/04/2007, vide which 1.460g of Non Haz Lab Chemicals have been exported and value shown in the invoices is notional, USD 419.51, with respect to ARE-I dated 27/01/2006, vide which 5.74g of lab chemicals have been exported, value shown is notional USD 445 only. As for service rendered, the payment is received through Biosys for which separate invoices are raised in the name of Biosys and the amount so billed was duly realized from them. 7. Ongoing through the company s website, namely www.jchemsys.com, the home page of the website describes about the various activities carried out at the premises of the appellant, such as collaborative research, development and manufacturing partnership with pharmaceutical companies. Further on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services provided by the appellant to JBL are covered under the said service under Section 65(92) of the Finance Act, 1994. 8. The audit objection dated 9th April, 2010, communicated to the appellant, directed the appellant to deposit the proposed amount on the grounds: (i) That the master agreement dated 26th June, 2005 and the work orders issued in accordance with the said master agreement are for manufacture and supply of compounds and no services have been rendered and all the payments have been received against supply of compounds. In support of their claim they have stated that Clause I of the agreement between the appellant JCL and the JBL stipulates that appellant shall conduct chemistry and analytical services for JBL. That the compound to be supplied and quantity and purity of each compound, price, time frame, delivery date etc., will be as per terms of the agreement and (ii) That the services provided by them to JBL are not liable to service tax. As the actively involved amounts to manufacture and the same is excluded from the purview of service tax. 9. The aforementioned contentions of the appellant were not tenable to the Revenue in view of the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir liability of service tax on the said taxable service. The said transactions with regard to value of taxable service and the service tax payable thereon was never mentioned in the ST-3 returns filed by appellant. These facts came to notice of the Department when audit of their account was conducted in January, 2010. It is further mentioned in the SCN that scrutiny of ST-3 returns shows that there has all along been an attempt by the appellant to conceal the material facts of provision of taxable service as the entire amount of receipts against said services under the category of Scientific or Technical Consultancy was claimed as exempt under export of service. Thus, there has been misrepresentation of facts as they never disclosed the said facts on their own, in any manner. On similar charges show cause for other period was also issued, as more fully described hereinabove. 11. The SCN's were adjudicated on contest and vide impugned common Order-in-Original, the demand was confirmed on the ground that the appellant have done the work in the nature of a sub-contractor or agent of JBL and have actually not exported their services. Accordingly, tax, Penalties and interest ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71.91 (7.41) 71.91 (7.41) Merck 19.40 (2.0) 19.40 (2.0) Amgen 15.61 (1.93) 66.28 (6.83) 81.89 (8.76) Sub-Total 153.84 (19.01) 505.06 (62.42) 628.41 (68.86) 1327. 31 (146. 17) Forest 14.50 (1.79) 206.15 (21.23) 220.65 (23.02) AstraZene ca 209.73 (21.60) 209.73 (21.60) Sub-Total 14.50 (1.79) 415.88 (42.83) 429.78 (44.62) Grand Total 153.84 (19.01) 519.56 (64.21) 1044.29 (111.69) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENVAT account and had also paid interest on the service tax amount for the period as sufficient balance was not available in the CENVAT account. The Appellant has recovered service tax from JBL and issued invoices so as to enable JBL to take CENVAT credit of the service tax paid. The Appellant had submitted before the Commissioner that neither any interest nor penalty is payable to the extent the service tax has been paid by the Appellant. However, the Commissioner has confirmed the demand of interest and penalty on such amount. Further, a part of the duty paid for the normal period of limitation has been appropriated against the demand for the extended period. 14. As regards the applicability of extended period of limitation, the learned counsel for the Appellant-assessee submits that conditions for applicability of the proviso to Section 73(1) of the Finance Act, 1994 are not satisfied for the following reasons: (a) The SCN admits that it has been issued in pursuance to an audit objection and is based on the audited annual accounts (profit and loss account and balance sheet and notes to the accounts) of the Appellant; (b) The SCN admits that the value of services has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Counsel submits that even if the service tax, which has been paid was actually payable on any transactions covering the normal period, there are sufficient grounds for invoking provisions of Section 80 of the Finance Act for not imposing any penalty. Appellant has already explained in details that the conditions for invoking proviso to Section 73(1) of the Finance Act are not satisfied in the facts and circumstances of the case and consequently, there are no grounds for invoking penal provisions under Section 78 or 76 of the Finance Act. Moreover, the issue involves interpretation of the provisions of the Act and Rules and is Revenue neutral. Thus, there was reasonable cause for failure to pay service tax, if any, to justify applicability of Section 80 to the facts of the case and therefore, no penalty is to be imposed under Section 76 of the Act. Reliance has been placed on the following decisions of the CESTAT and High Court: ETA Engineering Limited Vs CCE 2004 (174) E.L.T. 19 (T-LB) Daurala Organics Vs CCE 2014 (35) S.T.R. 214 (Allahabad- HC) 16. As regards order on payment of interest on the amount of service tax paid by the Appellant for the normal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 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 [PR, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue is squarely covered by the decision in the case of Oil and Natural Gas Corporation Limited Vs CCE Surat-2015 (38) S.T.R. 867 (Tri-Ahem), wherein this Tribunal has observed as under: 5.1 In view of the above case law and also the settled proposition of law even in a clandestinely evasion cases also the Cenvat credit of inputs/input services admissible, during the period of offence, is allowed to be abated from the total duty demanded even at the appeal stage. The interest payable is only calculated on the duty liability finally determined and not with respect to the duty demanded in the show cause notice. In this case appellant stands on a better footing as the Cenvat credit was available in the Cenvat account but could not be debited. It has to be thus held that interest is not payable with respect to duty required to be debited in the Cenvat Credit Account provided sufficient balance was available in the Cenvat Credit Account. Nothing has been brought on record that such a credit was not available in the Cenvat Account during the relevant period for debit. Appeal of the appellant is thus required to be allowed on merits. In view of the settled positi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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