Product registration fees paid to foreign regulatory authorities not liable to service tax under Sidmak precedent

The CESTAT Ahmedabad allowed the appeal concerning service tax levy on product registration fees paid to foreign regulatory authorities. The appellant pharmaceutical company paid fees to foreign regulators for approval to sell medicaments in overseas markets. Following the precedent in Sidmak Laboratories India Pvt Ltd, the Tribunal held that statutory fees paid to foreign regulatory authorities for drug export approval are not liable to service tax. The Tribunal found the facts and legal issues identical to the cited case, making its ratio applicable. The service tax demand was deemed unsustainable, and the impugned order was set aside.

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Issues Involved:
1. Leviability of service tax on product registration fees paid to foreign regulatory authorities.
2. Applicability of reverse charge mechanism.
3. Definition of "service" under Section 65 B (44) of the Finance Act, 1994.
4. Definition of "person" under Section 65 B (37) of the Finance Act, 1994.
5. Place of Provision of Service Rules, 2012.
6. Revenue neutrality and availability of Cenvat credit.
7. Invocation of extended period of limitation under the proviso to Section 73 (1) of the Finance Act, 1994.
8. Suppression of facts and imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Leviability of Service Tax on Product Registration Fees:
The core issue is whether the service tax is leviable on the product registration fees paid by the appellants to foreign regulatory authorities. The appellants argued that such fees paid to foreign regulatory authorities like USFDA and ANSM are for statutory functions and thus not liable to service tax under the reverse charge mechanism. They cited the decision of the Delhi Tribunal in Sidmak Laboratories India Pvt Ltd vs. CCE & ST, Dehradun, which held that fees paid to foreign regulatory authorities for statutory functions are not subject to service tax.

2. Applicability of Reverse Charge Mechanism:
The appellants contended that no service was provided to them as per Section 65 B (44) of the Finance Act, 1994, and therefore, the product registration fees do not attract service tax under the reverse charge mechanism. They supported their argument with the board circular No. 89/7/2006 dated 18.12.2006, which states that fees collected by sovereign/public authorities for statutory functions are not taxable.

3. Definition of "Service" under Section 65 B (44):
The appellants argued that the product registration fees paid to foreign regulatory authorities do not constitute a "service" as defined under Section 65 B (44) of the Finance Act, 1994. They further argued that the subsidiary companies merely facilitated the registration process and were reimbursed on an actual basis, which does not amount to the provision of a service.

4. Definition of "Person" under Section 65 B (37):
The appellants argued that foreign governments do not fall under the definition of "person" as per Section 65 B (37) of the Finance Act, 1994. Therefore, the fees paid to foreign regulatory authorities are not liable to service tax.

5. Place of Provision of Service Rules, 2012:
The appellants argued that the services, if any, were provided outside India, making them non-taxable under Rule 3 of the Place of Provision of Service Rules, 2012. They contended that the service recipient is not located in India, and thus, the product registration fees are not liable to service tax.

6. Revenue Neutrality and Availability of Cenvat Credit:
The appellants argued that even if the service tax is leviable, the same would be available as Cenvat credit, making the entire exercise revenue neutral. They cited several judgments to support their argument that the service tax is not recoverable due to revenue neutrality.

7. Invocation of Extended Period of Limitation:
The appellants argued that the show cause notice issued on 11.10.2019 for the period 2014-2015 is time-barred. They contended that there was no suppression of facts as the entire exercise was revenue neutral. Therefore, the extended period of limitation under the proviso to Section 73 (1) of the Finance Act, 1994, cannot be invoked.

8. Suppression of Facts and Imposition of Penalty:
The appellants argued that there was no willful suppression of facts, and the issue was purely interpretational. Therefore, the imposition of penalty under Section 78 of the Finance Act, 1994, is not justified.

Tribunal's Findings:
The Tribunal found that the service tax was demanded on fees paid to foreign governmental regulatory authorities for the approval of pharmaceutical products. The Tribunal referred to the judgment in Sidmak Laboratories India Pvt Ltd, which held that fees paid to foreign regulatory authorities for statutory functions are not subject to service tax. The Tribunal concluded that the demand for service tax in the present case is not sustainable. Since the matter was decided on merits, other issues such as location of service and limitation were not addressed.

Conclusion:
The impugned order was set aside, and the appeal was allowed, with the Tribunal pronouncing the judgment in the open court on 26.06.2024.

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