TMI Blog2019 (6) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by them should be considered as export of services. From the facts of the present case we find that appellant have conducted DMPK Studies in respect of the NCE s provided to them by the overseas client. Rule 4 do not put any conditions in respect of alteration or alternation of the goods provided by the service recipient. Reading anything beyond what has been provided in the rules/ statue cannot be proper interpretation put to rules - In the present case we find that the activities under taken by the appellants in terms of DMPK studies squarely fall within the scheme of Rule 4 of POPS Rules, and hence the location of service provider shall be place of provision of service which is in India and hence cannot be treated as export of service in terms of Rule 6A of Service Tax Rules, 1994. Demand of interest and penalties upheld. Appeal dismissed - decided against appellant. - Appeal No. ST/85957/2015 - A/86090/2019 - Dated:- 12-6-2019 - Mr. S.K. Mohanty, Member (Judicial) And Mr. Sanjiv Srivastava, Member (Technical) Shri Vinay Jain, Advocate, for the Appellant Shri M.K. Sarangi, Authorised Representative for the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th provisions of Section 68(1) of the Act read with Rule 6 of the Service Tax Rules, under the provisions of Section 76 of the Finance Act, 1994. However, the total amount of penalty payable by the assessee shall not exceed fifty percent of the service tax payable (i.e. 50% of ₹ 72,72,046/- which is equal to ₹ 36,36,023/-). 2.1 Appellants are registered for providing taxable services under the category of Scientific or Technical Consultancy Services as defined under Section 65 (105) (za) (till 30th June 2012), and thereafter providing taxable services as defined by 65B(44). 2.2 Acting on the intelligence that the services provided by the appellants to their overseas recipients in respect of Drug Metabolism and Pharmacokinetics standalone services (DMPK) under Contract Research Agreements do not qualify as Export of Services in terms of Place of Provision of Services Rules, 2012 read with Rule 6A of Service Tax Rules, 1994, investigations were undertaken and show cause notice dated 01.10.2014 issued to the Appellants, demanding service tax amounting to ₹ 72,72,046/- short/not paid during the period from July 2012 to March 2014. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. Post 1.07.2012, the Place of Provision of Service Rules, 2012 (POPS) determine whether the services have been provided in the taxable territory for the purpose of levy of taxes. As per Rule 3 of the said rules, the place of provision of service is the location of service receiver. In their case the service recipient is located outside India. Therefore the place of provision of service as per the said rule is outside India. As per rule 6A of the Service Tax Rules, 1994, if the place of provision of service is outside India, then it is treated as Export of Services. d. They are providing advice/ information in relation to DMPK studies. These services are not provided qua the goods and Hence Rule 4(a) of POPS shall not be applicable in the present case. Also as per the para 5.4.1 of Guidance Note dealing with Rule 4, the services provided by them will not fall within the category of services to which said rule is applicable. e. DMPK study of drugs cannot be regarded as a test undertaken on goods sent by the service recipient. The innovator samples of NCE are sent by their clients located outside India. These NCE are administered to rats during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 We have heard Shri Vinay Jain, Advocate for the Appellant and Shri M K Sarangi, Additional Commissioner, Authorized Representative for the revenue. 4.2 Arguing for the appellant, counsel while reiterating the submissions made in the appeal stated that . a. The issue is no longer res-integra and in their own case issue has been decided in their favour. [2016 (42) STR 882 (T)]. Revenue has accepted the order of tribunal and no appeal filed against the same. b. Services provided by them fall within the default Rule 3 of POPS and are covered by Rule 6A of Service Tax Rules, 1994 as Export of Services. c. Rule 4(a) of POPS is not applicable in respect of the services provided by them. The DMPK services are not performed on the goods, they are providing advice/ information to their overseas client in relation to DMPK studies. d. The tests are not performed on the goods but on the subject of study i.e. rats who are given these compounds under various conditions. Rule 4(a) will thus not apply in such cases. e. Issue is squarely covered by the decision in case of Advinus Therapeutics Ltd [201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess goes through numerous stages before drug becomes commercially viable. The following are the broad steps involved in the process of drug discovery: 1.3 The appellants enters into Contract Research Agreements with clients for the development of drugs. The process of discovering and bringing a new drug to the public typically costs a pharmaceutical or biotechnology company nearly $900 Million and takes an average of 10- 12 years. Prior to the commencement of the drug discovery process, the Appellant enters into Contract Research Agreement. 1.4 The appellants enter standalone DMPK studies with non resident Indians service receivers (Customers). Under the contract the appellants is engaged to carry out research on various effects of the compounds/ new chemical entities (NCEs). The client provides compounds/ new chemical entities (NCEs) to appellant DMPK studies. 2.1 DMPK stands for Drug Metabolism and Pharmacokinetics. DMPK research studies are required to understand the effect of drug compounds in the body over a course of time. DMPK studies are designed based on nature of compounds, therapeutic target, efficacy doses etc. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation of NCE the study cannot be conducted. The formulation preparation requires extensive research to choose right solvent or combination of solvents from hundred of odd acceptable solvents which are acceptable for animal studies. Many permutations and combinations being taken place before selecting the final formulation. Hence, the provision of Rule 4(a) of POPS Rules, 2012 is not applicable. 5.3 The above paras have been reproduced from the appeal filed so that we are clear about the fact as stated by the appellant themselves and also the analysis, by them to argue that Rule 4(a) of POPS rules is not applicable to the facts of the case. From the facts as recorded above it is evident that appellants- a. Appellants enter into Contract Research Agreement with their overseas client for the purpose conducting studies on certain compounds, formulations called New Chemical Entities (NCEs). b. These NCEs in respect of which these studies are to be conducted are provided to them by their overseas client. c. The study undertaken by the Appellants called DMPK standalone studies on NCEs involve research in to formulation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in accordance with the rule that occurs later among the rules that merit equal consideration. 5.5 Rule 6A of Service Tax Rules, 1994 read as follows: a. 6A. Export of services.- (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices to its customers and the place of provision is located outside India? 4. Applicant inter alia submits that since Rules 5 to 12 are not applicable to the applicant s case, the two rules which are to be considered are Rule 4 and Rule 3; that since the scope of proposed activities to be carried out by the applicant are research based advisory services and are neither related to (a) goods or, (b) requiring physical presence of the customers located outside India and therefore, Rule 4 is not applicable to the activities proposed by the applicant; that the advisory research activities of the applicant are not executionary or performance based service as envisaged in Rule 4 of POP Rules and therefore, the said services are not covered under Rule 4. 5. Revenue submits that in terms of Rule 4(a) of POP Rules, the essential ingredient to levy Service Tax on any service is the location, where the service is provided in respect of goods required to be made physically available by the recipient of service to the provider of service. Further, in terms of Rule 6A(1)(d) of the Service Tax Rules, 1994, any service can be termed as expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary course of business, the said service should require physical presence of the service recipient or his representative; that the activities of the applicant are not with respect to any goods and are not provided in presence of the offshore customers and therefore, the activities of the applicant will not be covered under Rule 4. 9. It is observed from the above referred Rule 4(a) ibid with respect to this case that the place of provision shall be the location where services are actually performed, if (a) services are provided in respect of goods and (b) said goods are required to be made physically available by the recipient of service to the provider of service. 10. It is noticed that applicant s proposed service of Clinical Pharmacology is study carried out for generic drugs. Further, study is proposed to be undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers, etc., provided by applicant s customers located outside India, on eligible volunteers in India. Therefore, it is clear that the formulations in various fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son is given on a pen drive belonging to the customer. Similarly, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in this category, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product by the manufacturer, to carry for door-to-door surveys. 13. Based on above, applicant submits that Rule 4 only contemplates a situation where the goods are temporarily handed over to service provider for servicing and returned after servicing; that their interpretation is supported by the example of detergent packets distributed and feedback by such prospective customers are not said to be covered by Rule 4. It is to be observed that the Education Guide gives example of some services covered under Rule 4 ibid and technical testing/analysis of goods, which are akin to clinical testing, are also included in the example. This example is similar to the proposed service, as compared to the example of detergent packets. The said paragraph of Education Guide also mentions that it will not cover services where the supply of goods by the receiver is not material to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Service relating to Clinical Research provided on stand-alone basis - During personal hearing on 22-7-2016, applicant submitted that services relating to Clinical Pharmacology and Clinical Research would be provided on stand-alone basis and separate invoices would be issued for each service. Applicant submits that the Clinical Research service proposed to be undertaken by the applicant can also not be considered to be service provided in the physical presence of an individual, represented either as the service receiver or a person acting on behalf of the receiver in terms of Rule 4(b) ibid; that the volunteers which are identified, selected and gathered by the applicant are in India and such volunteers having nothing to do with the Drug Company, i.e., the service recipient, and therefore the said volunteers cannot be said to be acting on behalf of the receiver; that the activities of the applicant essentially involves provision of expert opinion on test results and as such are advisory services as opposed to executionary services and therefore, are not covered under Rule 4 of the POPS Rules for the place of provision to be in India. It is observed that where service o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, admitted that the stand-alone DMPK services, wherever client provides the compounds and asks them to perform DMPK studies, may fall under Rule 4 of the PPS Rules and hence service tax may be applicable on these services only and that they would pay service tax in respect of these stand-alone DMPK services w.e.f. 01-07- 2012. 23.1.4 From the above, I find that the assessee have agreed to the fact that in the case of stand-alone DMPK services, the goods / compounds are supplied by the clients for carrying out In-Vitro In-Vivo studies and thereafter the outcome of the research effort is transferred to their clients located abroad. This is further evidenced by the copies of Invoices and Purchase Orders/Quote Estimates submitted by the assessee during the course of investigations. Further, I find that the instant Show Cause is limited to stand-alone. DMPK services provided by the assessee, and therefore, in view of the above facts, I have no hesitation in holding that in respect of these services the foreign based clients of the assessee have made the goods/compounds physically available to the assessee for performing services in relation to these goods as require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guidance Note support this view. In fact, I find that the clients would give certain goods/ samples for testing/inspection/certification/analysis', the intended purpose of which would be the testing/inspection or analysis report relating to these goods/ samples as regards their features/ characteristics, etc. The intention that these goods/ samples would be returned back to them would not be the paramount in the minds of the clients behind offering these goods/samples for such analysis. Further, the assessee's contention that during the course of provision of services, certain goods locally procured by them are also used along with the goods/compounds submitted by the clients, would have no bearing on this case as far as the goods / compounds made available by the client(s) are worked upon for delivering the intended services. Further, I find that it cannot be disputed that the goods/compounds supplied by the clients are not abstract material but are movable objects or things that can be touched, felt or possessed as clarified in the Guidance Note. 23.2.4 In view of the above, the assessee's contention that the services provided by them is not qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to enunciate that Rule 4(1) is intended to resorted when services are rendered on goods without altering its form that in which it was made available to the service provider. This is the harmonious construct that can be placed on the applicability of Rule 4 in the context of tax on services and the general principle that taxes are not exported with services or goods. 17. The goods supplied to the respondent, minor though the proportion may be, are subject to alteration in the course of research. It is not asserted anywhere that these goods, in its altered or unaltered form, are sent back to the service recipient; if it were, the provisions of Customs Act, 1962 would be invoked to eliminate tax burden. If the goods cease to exist in the form in which it has been supplied, it cannot be said that services have been provided in respect of goods even if it cannot be denied that services have been rendered on the goods. Consequently, the provisions of Rule 4(1) are not attracted and, in terms of Rule 6A of Service Tax Rules, 1994, the definition of export of services is applicable thus entitling the appellant to eligibility under Rule 5 of Cenvat Credit Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute. 26. Justice G.P. Singh, in his treatise Principles of Statutory Interpretation (14th ed. 2016 p.-879) after referring to Re, Micklethwait, (1885) 11 Ex 452; Partington v. A.G., (1869) LR 4 HL 100; Rajasthan Rajya Sahakari Spinning Ginning Mills Federation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC 672, State Bank of Travancore v. Commissioner of Income Tax, (1986) 2 SCC 11 and Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, summed up the law in the following manner - A taxing statute is to be strictly construed. The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY AND LORD SIMONDS, means : The subject is not to be taxed without clear words for that purpose : and also that every Act of Parliament must be read according to the natural constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reasonably clear, the Courts will be unable to regard it as of any effect [IRC v. Ross and Coutler, (1948) 1 All ER 616]. Further elaborating on this aspect, the Learned author stated as follows : Therefore, if the words used are ambiguous and reasonable open to two interpretations benefit of interpretation is given to the subject [Express Mill v. Municipal Committee, Wardha, AIR 1958 SC 341]. If the Legislature fails to express itself clearly and the taxpayer escapes by not being brought within the letter of the law, no question of unjustness as such arises [CIT v. Jalgaon Electric Supply Co., AIR 1960 SC 1182]. But equitable considerations are not relevant in construing a taxing statute, [CIT, W.B. v. Central India Industries, AIR 1972 SC 397], and similarly logic or reason cannot be of much avail in interpreting a taxing statute [Azam Jha v. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. It is well-settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for the Legislature to determine the same [Kapil Mohan v. Commr. of Income Tax, Delhi, AIR 1999 SC 573]. Similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate not below 10% and not exceeding 36% p.a. The actual rate of interest applicable from time to time by fluctuations between 10% to 36% is as determined by the Central Government by notification in the Official Gazette from time to time. There would be discretion, if at all the same is incorporated in such notification in the gazette by which rates of interest chargeable u/s. 11AB are declared. The second aspect would be whether there is any discretion not to charge the interest u/s. 11AB at all and we are afraid, language of Section 11AB is unambiguous. The person, who is liable to pay duty short levied/short paid/non-levied/unpaid etc., is liable to pay interest at the rate as may be determined by the Central Government from time to time. This is evident from the opening part of sub-section (1) of Section 11, which runs thus : Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 11A, shall in addition to the duty be liable to pay interest at such rate . ..... X X X X Extracts X X X X X X X X Extracts X X X X
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