2019 (11) TMI 1511 - AT - Service Tax

Clinical research organization wins tax exemption appeal for clinical trials under Finance Act, 1994.

The Tribunal allowed the appeal, determining that the appellant, a clinical research organization conducting clinical trials, was eligible for exemption ... Valuation - enhancement of taxable value - N/N. 11/2007-ST dated 1st March 2007 - mandates of rule 122 DAB of Drugs and Cosmetics Rules, 1945 have not been complied with - penalty - HELD THAT:- The ‘clinical research organization’ is a generic description for agencies that undertake clinical trial of new drugs. Also, nothing is found on record that a general permission of the Drugs Controller General of India is mandated for eligibility to benefit from the exemption notification. It is admitted in the impugned order that the appellant herein has demonstrated that each tripartite agreement contains the approval granted for clinical trial and it is also contended by Learned Counsel that appropriate entries have been made in the Clinical Trial Registry of India. There is no evidence to controvert either of these claims. The clinical trials conducted by the appellant are in conformity with the conditions prescribed in the exemption notification and, hence, eligible for exclusion from tax under section 65(105)(zzh) of Finance Act, 1994. The appellant has discharged tax liability under the other heads confirmed in the notice. It is contended by Learned Counsel that the appellant is entitled to the threshold exemption as permitted in notification no. 6/2005-ST dated 1st March 2005 - the penalty imposed under section 78 of Finance Act, 1994 will not sustain. Appeal allowed - decided in favor of appellant. Issues:1. Whether the appellant is eligible for exemption under notification no. 11/2007-ST as a 'clinical research organization' for conducting clinical trials.2. Whether the hospital complies with the mandates of rule 122 DAB of Drugs and Cosmetics Rules, 1945.3. Whether the denial of exemption is justified based on the relevant rules.4. Whether the appellant is entitled to the threshold exemption under notification no. 6/2005-ST.5. Whether the penalty imposed under section 78 of Finance Act, 1994 is sustainable.Analysis:Issue 1:The appellant claimed exemption under notification no. 11/2007-ST as a 'clinical research organization' for conducting clinical trials. The impugned order denied the exemption based on non-compliance with rule 122 DAB of Drugs and Cosmetics Rules, 1945. The appellant argued that they meet the criteria as they had approval from the Drug Controller General of India for conducting trials, as evidenced by tripartite agreements with the principal investigator and the pharmaceutical company, and registration with the Clinical Trial Registry of Indian Council of Medical Research. The Tribunal found that the appellant's clinical trials were in conformity with the conditions specified in the exemption notification, making them eligible for exclusion from tax under section 65(105)(zzh) of the Finance Act, 1994.Issue 2:The contention revolved around whether the hospital complied with the mandates of rule 122 DAB of Drugs and Cosmetics Rules, 1945, for being considered a 'clinical research organization.' The adjudicating authority argued that specific approval for each trial was required, which the appellant refuted by demonstrating approval for each trial in the tripartite agreements. The Tribunal noted that the Drugs and Cosmetics Rules, 1945, did not define 'clinical research organization' but concluded that the appellant's clinical trials met the exemption criteria under the relevant notification.Issue 3:The denial of exemption was based on the interpretation of the relevant rules, particularly the definition of 'clinical research organization' and the requirements outlined in the exemption notification. The Tribunal analyzed the impugned order, the relevant rules, and the exemption notification to determine the eligibility of the appellant for exemption. It was observed that the appellant's clinical trials aligned with the exemption conditions, leading to the allowance of the appeal.Issue 4:Regarding the entitlement to the threshold exemption under notification no. 6/2005-ST, the appellant contended that they met the criteria for the exemption. The Tribunal, after considering the arguments and evidence presented, found in favor of the appellant, leading to the conclusion that the penalty imposed under section 78 of the Finance Act, 1994, would not be sustainable.Issue 5:The final issue pertained to the sustainability of the penalty imposed under section 78 of the Finance Act, 1994. Given the Tribunal's findings on the eligibility for exemptions and compliance with relevant rules, the penalty was deemed unsustainable, and the appeal was allowed accordingly.In conclusion, the Tribunal allowed the appeal, emphasizing the eligibility of the appellant for exemption under the relevant notifications and the lack of sustainability of the penalty imposed under the Finance Act, 1994.