2009 (4) TMI 121 - AT - Service Tax

Tribunal classifies services as taxable, orders partial deposit pending appeal

The Tribunal held that the services provided by the applicants were classified under 'Scientific or Technical Consultancy' and 'Market Research Agency,' ... Scientific or Technical Consultancy Service - Market Research Agency - classification rule under Rule 65A of the Service Tax Rules - time-bar and extended limitation for suppression/mis-declaration - intellectual property right service and its temporal applicability - definition of 'organization' for the purpose of service taxScientific or Technical Consultancy Service - definition of 'organization' for the purpose of service tax - intellectual property right service and its temporal applicability - classification rule under Rule 65A of the Service Tax Rules - Whether the services rendered in relation to transfer of trade marks, transfer of know how for formulations and bulk drugs and associated technical assistance fall within the scope of 'Scientific or Technical Consultancy Service' or are otherwise covered by IPR service. - HELD THAT: - The Tribunal examined the agreements and found the transfer of technical know how was intrinsically linked to transfer of the trade marks and that the suite of agreements envisaged manufacture of branded formulations under the advice, technical assistance and training provided by the appellant. The definition of 'Scientific or Technical Consultancy Service' requires the advice/technical assistance to be rendered by a scientist, technocrat, science/technology institution or an organization; the Tribunal observed that the appellants could not, prima facie, exclude themselves from the category of an 'organization', particularly having regard to their subsidiary research unit, and that the single commercial arrangement could not be dissected to avoid classification as a consultancy service. Reliance on the subsequent introduction of IPR service (with effect from 10 9 2004) does not immunise these transactions because Rule 65A permits classification under a more specific pre existing head and the perpetual nature of the trade mark transfer also placed it outside the newly introduced IPR service in any event. Consequently, prima facie the transactions are amenable to classification as technical consultancy services under the law prevailing for the relevant period. [Paras 7, 8]Prima facie the agreements and attendant technical assistance fall within the scope of 'Scientific or Technical Consultancy Service' for the period in question and are not excluded by the subsequent introduction of IPR service.Market Research Agency - Whether the marketing assistance and product promotion activities undertaken by the appellants constitute taxable 'Market Research Agency' services. - HELD THAT: - The Tribunal considered the marketing assistance agreement and noted that the specified product promotion and market development services required the appellants to conduct market work in relation to the product and new dosage forms/strengths, which prima facie fell within the statutory description of a commercial concern conducting market research. The nature of the listed activities indicated that they were not mere promotional acts but involved market research elements captured by the definition of the service. [Paras 9]Prima facie the marketing assistance/product promotion and market development services are classifiable as 'Market Research Agency' services for the relevant period.Time-bar and extended limitation for suppression/mis-declaration - Whether the demand is time barred or the extended period of limitation is invokable. - HELD THAT: - The Tribunal rejected the appellants' contention that an earlier SCN and its subsequent dropping extinguished the Department's right to invoke the extended limitation. It observed that where suppression or mis declaration is established, the extended limitation is available and an earlier SCN which was later dropped for reasons other than time bar does not necessarily preclude issuance of a fresh SCN within the extended period. The earlier SCN was dropped because the demand was not sustainable under a different service category, not on limitation grounds; hence, prima facie the extended period appears invokable for the transactions under dispute. [Paras 10]Prima facie the extended period of limitation is invokable and the demand is not time barred on the basis relied upon by the appellants.Final Conclusion: The Tribunal found prima facie merit in the Department's classification of the transactions as taxable under 'Scientific or Technical Consultancy Service' and as 'Market Research Agency' services and held that the extended limitation period is prima facie invokable. The appellants were directed to pre deposit Rs. two crores within eight weeks; on such pre deposit the balance of the service tax and penalties was stayed pending disposal of the appeal, failing which the appeal would be dismissed. Issues Involved:1. Classification of services provided by the applicant under 'Scientific or Technical Consultancy' and 'Market Research Agency'.2. Applicability of service tax on the transfer of know-how and marketing assistance agreements.3. Invocation of the extended period of limitation for the demand of service tax.4. Prima facie case for waiver of pre-deposit and financial hardship.Detailed Analysis:1. Classification of Services:- Scientific or Technical Consultancy:- The core issue is whether the services provided by the applicant fall under 'Scientific or Technical Consultancy' as defined under section 65(92) of the Finance Act, 1994.- The applicants argued that they are a manufacturing company and cannot be classified as a 'scientist or technocrat or a science or technology institution or organization.'- They cited the Tribunal's decision in Mitra Hang (India) Ltd. v. CCE, which supported their contention that manufacturers do not fall under the specified categories.- However, the Tribunal noted that the applicants, having a 100% subsidiary Kopran Research Laboratories Ltd., could be considered a research organization, thus falling under the definition of 'organization.'- Market Research Agency:- The applicants contended that their marketing assistance services did not involve market research and thus should not be classified under 'Market Research Agency' services.- The Tribunal found that the services provided, such as product promotion and market development, involved market research activities as defined under section 65(41) of the Finance Act, 1994.2. Applicability of Service Tax:- Transfer of Know-How:- The applicants had entered into agreements for the transfer of know-how for formulations and bulk drugs, arguing that these did not involve advice, consultancy, or technical assistance.- The Tribunal observed that the transfer of know-how was intrinsically linked with the transfer of trademarks and involved technical assistance, thus falling under 'Scientific or Technical Consultancy.'- Marketing Assistance Agreements:- The applicants provided marketing assistance services, which the Tribunal found to be in the nature of market research, thus classifiable under 'Market Research Agency' services.3. Invocation of Extended Period of Limitation:- The applicants argued that the extended period of limitation could not be invoked as the facts were within the knowledge of the Department, citing the Supreme Court's decisions in ECE Industries Ltd. v. CCE and Nizam Sugar Factory v. Collector of Central Excise.- The Tribunal held that the extended period of limitation was applicable as the earlier show-cause notice was dropped on grounds other than time bar, and the present demand was within the permissible period from the relevant date.4. Prima Facie Case for Waiver of Pre-Deposit:- The Tribunal concluded that the applicants did not make a strong prima facie case for a total waiver of pre-deposit.- Considering the financial hardship plea, the Tribunal directed the applicants to pre-deposit Rs. 2 crores towards service tax within eight weeks, with the balance amount and penalties stayed pending the appeal's disposal.Conclusion:The Tribunal determined that the services provided by the applicants fell under 'Scientific or Technical Consultancy' and 'Market Research Agency' services, making them liable for service tax. The extended period of limitation was deemed applicable. The applicants were directed to make a partial pre-deposit, with the balance and penalties stayed pending appeal.