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2019 (6) TMI 572

..... t of service post 2012, the service provided needs to be tested in terms of rule 6A of the Service Tax Rules, 1994 read with POPS Rules. As per (d) of Rule 6A(1), for service to be export of service, the place of provision of service should be outside India. Appellants have argued relying on the provisions of the POPS Rules and para 5.4.1 of the Education Guide that place of provision of the service in their case is outside India. We are not in agreement with the submissions made by the appellant that in case of DMPK Standalone Studies, where NCE has been made available to them by the overseas client for undertaking the said studies, the services will be covered by Rule 3 of POPS and hence Export of Services under Rule 6A of Service Tax Rules, 1994. Appellants have relied upon the decisions in their own case to argue that the services provided 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 anythi .....

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..... y of ₹ 40,000/- (₹ 10,000/- each for every half yearly return filed during the period from July 2012 to March 2014), for their failure to furnish correct details in the ST-3 returns filed, under the provisions of Section 77(2) of the Act, read with the provisions of Section 70 of the Act. 28.4 I also impose a penalty @ ₹ 100/- for every day during which the failure to pay service tax continued or @ 1% of the tax as determined at para 28.1 above, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax, for their failure to pay the Service Tax in accordance with 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 t .....

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..... sardo (Dead) Vs Juliana Maria Lasarado [2004 (7) SCC 431, para 11 &12] and Shukla & Brothers [2010 (254) ELT 6 (SC)] the order needs to be set aside on this account itself. b. The made submissions in respect of the law as it existed prior to 01.07.2012, i.e. before the introduction of scheme taxable services and negative list of services. Since entire period of demand is post 01.07.2012 the submissions are not reproduced here. 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 cas .....

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..... 77 & 78 are not mandatory in view of section 80. m. Also in case of Hindustan Steel Ltd [1969 (2) SCC 627] it has been held that penalty should be impose for contumacious conduct. 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 case .....

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..... 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 involves extensive knowledge sharing through emails and telecons from appellants and the study sponsor (customer) to come up wi .....

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..... 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 doses in suitable carrier (solvent), administering those doses to identified guinea pigs (rats) and studying the effect of the doses administered and reporting the outcome of studies to the overseas client. d. Appellants admittedly were classifying these services provided by them to overseas clients under the category Scientific or .....

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..... ent 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, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification. 5.6 Thus for the services to be treated as export of service post 2012, the service provided needs to be tested in terms of rule 6A of the Service Tax Rules, 1994 read with POPS Rules. As per (d) of Rule 6A(1), for service to be export of service, the place of provision of service should be outside India. Appellants have argued relying on the provisions of the POPS Rules and para 5.4.1 of the Education Guide that place of provision of the service in their case is outside India. However we find that in case of Step Pharmaceuticals, [2017 (049) STR .....

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..... sential 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 export of service where the place of provision of service is outside India. By synchronous reading of Rule 6A(1)(d) of Service Tax Rules and Rule 4(a) of POP Rules, any service to be termed as export of service, it should be performed in relation to the goods which are made physically available by the recipient of the service in the non-taxable territory i.e. outside India to the provider of service located in India. In the instant case, the samples are made available to the applicant, the service provider, in India and location of actual performance of services is the premises of the applicant. Thereafter, only the report is being sent to the service recipient. As the said samples are entirely available in India either provided by the foreign customer or otherwise, the provisions of Rule 4(a) of POP Rules are aptly applicable to the instant case. Further the fact of locati .....

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..... a, on eligible volunteers in India. Therefore, it is clear that the formulations in various forms (goods) shall be provided by applicant s customers located outside India, who is recipient of service from the applicant - provider of service. Further, service of Clinical Pharmacology is in respect of said formulation, which is provided to the applicant by its customers from outside India. Therefore, said service of Clinical Pharmacology satisfies above referred 2 conditions and therefore would fall in the ambit of Rule 4(a) of POP Rules. 11. The contention of the applicant is that as per requirement of Rule 4(a) of POP Rules, it is mandatory that the services are provisioned qua the specific goods and not class thereof. It is observed that the language of said Rule 4(a) does not state that services provided be in respect of specific goods. Therefore, the contention of the applicant is not correct. 12. Further, applicant placed reliance on Paragraph 5.4.1 of the Education Guide published by TRU, which is one of the Wings under Central Board of Excise & Customs (C.B.E. & C.). Said paragraph is reproduced as under : 5.4 Rule 4 - Performance based services 5.4.1 What are the ser .....

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..... nstant case, there is no doubt that receipt of formulation by the applicant for the purpose of clinical trials is crucial to rendering of services. Therefore, service relating to Clinical Pharmacology will be covered under Rule 4(a) ibid, even as per Education Guide relied upon by the applicant. It is noticed that Paragraph 1.2 of Education Guide clarifies that it is neither a Departmental Circular nor a manual of instructions issued by C.B.E. & C. Further, it states that it does not command the required legal backing to be binding on either side in any manner. In any case, contents of Education Guide cannot be substitute for POP Rules. As provisions of Rule 4 of POP Rules are clear, Education Guide cannot take precedence over it. 14. Applicant submits that the other service provided by him to the customers located outside India would be Clinical Research, which involves Project Management, Regulatory Affairs, Medical Writing, Project Monitoring, Bio-Statistics & Programming and Compliance. ……... 15. It is observed from the application submitted by the applicant that he would be charging consideration from the customers on project to project basis. It is appar .....

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..... outside India) is not provided by the applicant and only service of Clinical Research is provided, then this service would not be in relation to formulation. Further, there will not be 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) of POP Rules. Therefore, such service will not fall in the ambit of Rule 4 ibid. 5.7 In our view the services provided by the appellants in present case are akin to services of Clinical Pharmacology considered by the Authority for Advance Ruling in the decision referred to above. It cannot be disputed that in the present case the studies conducted are in respect of NCE provided by the overseas client to the Appellant. Commissioner has dealt various issues raised by the appellant to argue that the DMPK studies undertaken by them are not qua the goods provided by the overseas suppliers in para 23 of the impugned order. In para 23.1.3 and 23.1.4 Commissioner has recorded his findings stating as follows: 23.1.3 In this regard, I find that the activities of the assessee primarily relates to drug discovery services which involves medicinal chemistry, DMPK & .....

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..... ia, for performing services in relation to these goods, the place of performance of such services would be in India as stipulated under Rule 4 of the PPS Rules. 5.8 In para 23.2.3 and 23.2.4 after considering the submissions made by the appellants in respect of applicability of Rule 4 of POPS and Education Guide para 5.4.1, Commissioner has recorded as follows: 23.2.3 On analyzing the contents of the aforesaid guidance note issued by the CBEC, I find that services in the nature of 'technical testing/ inspection/ certification/ analysis of goods' is very much covered within the ambit of Rule 4 of the PPS Rules. In fact, I find that the services provided by the assessee are in the nature of research and analysis of compounds supplied by the clients with reference to the drug distribution metabolism and pharmaco kinetic study (DMPK), and thereafter transferring the outcome of the research effort to the foreign based client(s). Further, I find that it cannot be disputed that DMPK services are conducted with reference to these goods/ compounds supplied by the client(s) and therefore these goods/compound are the essence for provision of these services and without which, no resear .....

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..... ice activity of the assessee is covered under Rule 4 of the PPS Rules. 5.9 In view of the discussions as above we are not in agreement with the submissions made by the appellant that in case of DMPK Standalone Studies, where NCE has been made available to them by the overseas client for undertaking the said studies, the services will be covered by Rule 3 of POPS and hence Export of Services under Rule 6A of Service Tax Rules, 1994. Appellants have relied upon the decisions in their own case to argue that the services provided by them should be considered as export of services. We find the said decision has been passed without considering the provisions of Place of Provision of Service Rules, 2012. Further the decision of tribunal does not lay down any where that the said decision is in respect of DMPK Standalone services being provided by the appellant. The said decision is clearly distinguishable on this account. Further as the said decision has not even considered the Place of Provision of Service Rules, 2012 which are soul of the scheme for determination of place of provision of service, for determining whether the same is provided in taxable territory (India) or outside the tax .....

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..... . Reading anything beyond what has been provided in the rules/ statue cannot be proper interpretation put to rules. Both the decisions in case of Sai Life Sciences and Advinus Therapeutic have proceeded mainly on the principle that taxes should not be exported. The taxes are to be determined as per the taxing statue and it is for legislator and tax policy makers to determine as to what should be taxed and what should not be taxed. High sounding phrases as this cannot restrict or expand the scope of taxing statue. In case something falls within the scheme of taxation the same cannot be exempted till specifically exempted by a proper notification. 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. 5.11 We do not find any relevance of the ruling from Australia in respect of VAT relied upon by the appellant s relevant in present facts and circumstances. A constitutional bench of Suprem .....

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..... ithin the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute. VISCOUNT SIMON quoted with approval a passage from ROWLATT, J. expressing the principle in the following words : In a taxing Act one has to look merely at what is clearly said. This is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It was further observed : In all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as there is no equity in matters of taxation.... Yet again, it was observed : It may thus be taken as a maxim of tax law, which although not to be overstressed ought not to be forgotten that, the subject is not to be taxed unless the words of .....

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..... cisions being Commissioner of Income Tax v. Kasturi Sons Ltd., (1999) 3 SCC 346 and State of West Bengal v. Kesoram Industries Limited, (2004) 10 SCC 201 [hereinafter referred as Kesoram Industries case for brevity]. In the later decision, a Bench of seven-Judges, after citing the above passage from Justice G.P. Singh s treatise, summed up the following principles applicable to the interpretation of a taxing statute : (i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed : it cannot imply anything which is not expressed : it cannot import provisions in the statute so as to supply any deficiency : (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature s failure to express i .....

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..... . 5.13 Penalties under Section 76 and 77 of Finance Act, 1994 are in nature of civil penalties and are imposed in cases where the person who by his act of omission or commission has failed to fulfill the obligations cast on him under the statue. By not paying the service tax on due date appellants have made themselves liable to penalty under section 76 of Finance Act, 1994 for the period of delay in the payment of the taxes. By not furnishing the correct information as required on ST-3, appellant have made themselves liable to penalty under Section 77(2) read with Section 70 of the Act. Hence the penalties imposed upon by the adjudicating authority are upheld. We do not find any merits in the claim of the appellants for waiver of penalty under Section 80. Section 80 of the Finance Act, 1994 is not the licence to condone the irregularities in the payment of taxes and filing of the returns. It was provided to remove the genuine difficulties that tax payers would have encountered during the initial implementation of tax regime on services. The scheme of taxation of services was introduced in 1994 and the case under consideration is for period July 2012 to 2014. Thus we do not find any .....

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