TaxTMI 
TaxTMI 
2010 (3) TMI 516
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....submits that the master biometrics services agreement entered into between Pfizer Pharmaceuticals (India) Private Limited and Cognizant Technology Solutions (India) Ltd. Has the following salient features:- (1) Clause 1 - Scope of Work (a) Appellants to provide Pfizer with certain biometric services in connection with Pfizer sponsored clinical studies on a project-specific basis, as agreed under a Work Order (Clause 1.1) (b) Attachment 1 to this agreement describes the nature of services, standards and requirements for performance of the services and the performance metric programme for this agreement. Specific services to be rendered, shall be set out in the work order. (Clause 1.2) (c) Appellants to provide services as described on a project-specific basis or retained staffing basis in individual work orders. Each work order will spicify the nature and scope of services in addition to those described in the scope of service in Attachment-1 of this agreement, time-lines, Budget and payment schedules and must be signed by both parties. (Clause 1.3) (2) Clause 3 - Performance of Service (a) Work Order will identify appellant's employee who will serve as P....
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....tisfied that appropriate milestones and agreed performance requirements have been achieved. (Clause 5.1) (b) Unless otherwise specified in this Agreement or in the work order, project management, quality assurance activity, or other business expenses necessary for the appellants to fulfil its obligations, under this Agreement, and any work order shall be the responsibility of the appellant [Clause 5.2(b)] (c) Appellants will deliver work product to Pfizer at the time and in the form specified in the work order. Unless otherwise specified by Pfizer, in writing, appellant will deliver any as yet undelivered work product to Pfizer within 30 days after completion of the services or termination of the work order, whichever occurs first. [Clause 8.2(a)] (5) Clause 14 - Invalidity of the Projects (a) If appellant makes an error in performance of services, that to call into question the validity of part or all of a project conducted under the work order, appellant will promptly inform Pfizer in writing. An appropriate remedy will be determined within 30 days of Pfizer's receipt of the written notification. (Clause 14.1) (b) If, in the reasonable opinion of Pfizer, part o....
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....er (ii) Global Clinical Data Services (GCDS) Unless otherwise specified in the work order, CRO will provide services in compliance with the SLAs relating to GCDS data flow activities as defined in Exhibit C Work Order (8) The work order relates to:- (a) Retained FTE Work Force - Appellants will recruit and retain a defined number of employees for a period of two years. Such employees of the appellants shall work on Pfizer sponsored studies, performing activities detailed in Attachment-1 of the Agreement (b) Services to be contracted - Data Management and Biostatistics and Reporting (c) Attachments - The attachments to this work order identified below are incorporated into the work order by reference Attachment-1: Service description and Key Contacts. Attachment-2: Scope of Services Attachment-3: Budget and Payment Schedule Attachment-4: Task Ownership Matrix (TOM) (9) Attachment-1: Service Description and Key Contacts: Retained FTE work force Service Description: This will be a retained workforce of Full-Time Equivalent (FTE) staff providing data management and biostatistics and reporting service on behalf of Pfizer as defined in Attachment-1 of the Ag....
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....g Pfizer under this Work Order. The individual will act as the single point of contact and will be responsible for the overall management of the project. Pfizer shall also identify an appropriate person to act as a single point of contact from Pfizer to facilitate seamless communication between the two organizations relating to his Work Order. Appellant's Finance/Human Resource staff will provide support for general administration, salary administration and invoicing. System Access Required Pfizer will procure and provide all required hardware and software for the appellant's staff to carry out activities for Pfizer. This includes computers, printers, mail and print services. This equipment will remain property of Pfizer. Pfizer will set up a local cased line (2 Mbps) connectivity to the Pfizer Head Office in Mumbai from the appellant's location. (11) Attachment-3: Budget & payment schedules (12) Attachment-4: Task ownership matrix By executing this Work Order, Appellant agrees to accept responsibility for the tasks identified as assigned to Appellant in the Task Ownership Matrix (TOM) that follows, some or all of which constitute obligations of a stud....
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....ned by the appellant, working exclusively under the Management Staff of the appellant and delivering services to Pfizer. (e) Cumulatively, it is a contract defining scope of services that need to be delivered by the appellant. Incidentally, the contract also identifies the nature and type and quality of work force that needs to be employed by the appellants which work force will execute the work under the management of the appellant to the service recipient, viz., Pfizer. (f) The impugned order has clearly overlooked the fact that there is a service level agreement to deliver Biometric Services involving Clinical Programming & Writing (CPW) and Global Clinical Data Services (GCDS) and Data Management and Bio-statistics Reporting. (g) A mere identification of the work force does not result in manpower supply. The definitive difference between manpower supply and consulting engineering is in a manpower supply contract, only the manpower is supplied without identification of any scope of services whereas in the case of a Consulting Engineer Services, the contract may stop with merely identifying the scope of services, or in the alternative, extend it to even identificat....
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....f the Appellant under whose control, supervision and guidance, the entire services are delivered, becomes the employee of Pfizer, is neither factually nor legally correct. At no point of time, the Project Manager of the Appellant can or will become the employee of Pfizer. The finding is contrary to the contract of employment and regulations which are all governed by appropriate statutes. The edifice of the revenue's case falls and the order therefore merits to be set aside. 4. The learned senior counsel is not pressing the appeal in regard to the question of limitation. He further submits the following in regard to the criteria to identify whether the contracts under question should be classified as "Consulting Engineer" or "Manpower Supply":- (1) The contractual obligations may arise under any one of the following categories: (a) A contract for rendition of a specified computer software service. This would get classified under "Consulting Engineer". (b) A contract which obligates supply of certain number of people either temporarily or otherwise. This would get classified under "Manpower Supply". (c) Question arises whether if a contract obligates rendit....
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....y", as it moves out of the said definition. As a matter of fact it is self-evident that all the contracts on record clearly indicate that the deliverables are not mere supply of manpower, but provision of computer software services. Relevant portions of the contract are extracted hereunder:- (i) Appellant to provide Pfizer with certain biometric services in connection with Pfizer sponsored clinical studies on a projectspecific basis, as agreed under a Work Order (Clause 1.1) (ii) Appendix 6 Service Level Agreement read with Exhibit C requires the appellant to provide Clinical Programming and Writing (CPW) and Global Clinical Data Services (GCDS) (iii) Cognizant will deliver Work Product to Pfizer at the times and in the form specified in the Work Order [Clause 8.2(a)] (iv) Attachment-1 to this agreement, describes the nature of services, standards and requirements for performance of the services and the performance metric programme for this agreement. Specific services to be rendered, shall be set out in the work order (Clause 1.2) (v) Appellant to provide services as described on a project-specific basis or retained staffing basis in individual work orders. Each ....
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....de the service and adhere to all applicable current professional standards [Clauses 3.3(g) and (h)] (vi) Unless otherwise specified in this agreement, the work order or Attachment-1 (scope of services), appellant, at its own expense, will provide all the equipments, tools, materials and supplies necessary to accomplish the services (Clause 3.7). (vii) Appellant to notify error in the performance of services (Clause 14.1) (c) Accountability - The accountability in the case of a manpower supply would be in terms of furnishing or supplying the requisite manpower. The contractual obligations would terminate once the requisite people are mobilized and supplied to the service recipient. On the other hand, in the case of the consulting engineer the accountability is in terms at the work and performance done. The measure of accountability is not a number of people or heads who work at a particular site or project. It is the turn around of the quantum and quality of work agreed upon which becomes the yardstick of accountability. The contract clauses very clearly envisage periodical review, periodical audit visits, performance evaluation and accountability in terms of the....
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....ng the services to the absolute satisfaction of the service recipient. The agreements have even conceived an eventuality of termination of the service contract in case the defects are not cured to the satisfaction of the service recipients. On the other hand, if it is a manpower supply contract, such a contract can neither conceive nor envisage a defect liability clause towards provision of service. In short, defective supply of manpower is distinct from defective provision of service. The former will fall into the category of manpower supply while the later would get classified only as "Consulting Engineer". Relevant clauses in the contract on record are as below:-When there is a defect in the services provided by the appellant, appellant will at Pfizer's option, either : (i) repeat, at no additional cost to Pfizer the project or that portion of the project that was invalidated or (ii) permit Pfizer to terminate the applicable project without termination penalty and avail itself of all remedies available under applicable law or in equity (Clause 14.2) (f) Termination - The contracts on record would evidence the fact that a termination would arise for failure to ....
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.... the deliverables, responsibility and accountability including termination is traceable to the provision of service and not supply of manpower, such a contract of service irrespective of the mode of payment which could be a per-diem basis would still be consulting engineer service and not manpower service. Relevant clauses in the contract on record are as below:- (i) The consideration to be received by appellant from Pfizer is to include fixed and variable costs such as space rentals, utilities, consumables, telephone, courier and travel to and fro Pfizer location and facility management support. In addition, the consideration to be received by the appellant from Pfizer is also to include management, recruitment and administrative costs, [per sea cost (column B) and Management charges (column F)]. (ii) The consideration received by appellant from Pfizer also includes other charges such as IT infrastructure and support services, management services, software licensing etc. (sample invoice reproduced in Order-in-Original). (h) Identification of manpower vis-a-vis supply of manpower: A contract for supply of manpower cannot stop with identification of manpower. It would....
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.... the respective appellants. In such circumstances how is it open to the revenue to construe the transaction as "Manpower Supply" and not "Consulting Engineer". A mere supervisory role does not vest control. The contract in the instant case stops with identification of the work force. It defines the scope of work and also defines who should perform the scope of work, it nowhere defines that such scope of work by such people should be performed under the exclusive control of the client. If so the entire contract contemplating deliverables, attaching responsibilities, fastening accountability, making the appellant work on defects, leading to termination for failure to perform work would all become redundant and superfluous. To reiterate, appellants respectfully submit that testing the transactions and the contract under question on the strength of the above parameters, it would become self-evident that the transaction under questions are not for "Manpower supply" but only provision of "Computer Software" services falling under Consulting Engineer. Without prejudice to the above submissions, assuming but not admitting if both the entries namely Consulting Engineer vis-a-vis....
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....should revenue test the transaction under section 65A(2)(c) the classification has to be made in terms of the sub-clause which occurs first among the sub-clauses which equally merit consideration. If this test is applied "Consulting Engineer" comes first vide sub-clause (g) to section 65(105) as against 'manpower supply' which falls under sub-clause (k) to section 65(105) of the Act. In short, even if rules of classification are applied, the transaction under question can only get classified under "Consulting Engineer" and not "Manpower supply". 5. The learned Special Counsel Shri N. Rajagopalan appearing for the Department has submitted as follows:- (1) The appellant's contentions in the appeal memorandum are as follows: (i) The services rendered included 'software development' but the Commissioner has not properly appreciated this aspect. In support thereof, reference is made to Attachment-2 of the 'Scope of Services'; relies on Clauses 8.2(a), 14, 3.5, 5.1 of the contract with Pfizer Pharmaceuticals; (ii) consideration received on man-hour basis will not make the contract as 'manpower supply contract'; the considerations paid by Pf....
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....tion with Pfizer sponsored clinical studies on a project-specific basis. (Clause 1.1); Attachment 1 to the agreement 'describes the nature of services etc. However, specific services to be rendered by the appellant and the other terms and conditions will be governed by the WORK ORDER. (Cause 1.2); Clause 1.3 states that the appellant will provide services as described on a project-specific basis or retained staffing basis in individual work orders. As per this clause, the work order will specify the clinical studies to be undertaken or a defined number of staff will be provided by the appellant to work on number of undefined studies; the work order will specify the terms and requirements or provision of retained staff. In the event of any conflict, or inconsistency, between the provisions of the agreement and a Work Order, the provisions of work order will prevail. Clause 3.1 states that the work order will identify an employee of the appellant who will serve as 'Project Manager' for the project or for the management of retained staff. (4) The above clauses clearly make a distinction between execution of a project study vis-a-vis supply of manpower. Each is governed ....
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....ve was to undertake clinical study on the molecules as per the protocol, and usage of computer software was just incidental. On this ground also, the service did not fall under if related service. (7) 'Information technology software' means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment'. Clause 53(a) of section 65 of the Finance Act, 1994. Taxable service is defined in clause (zzzze) of section 65(105). A reading of the definition and the scope of taxable service, it will be clear that they relate to development of software. A close look at the agreement between the appellant and Pfizer will make it clear that the major thrust was for undertaking clinical study and not development of software. In any case, during the period covered in the present proceedings, the service rendered by the appellant was restricted to supply of manpower. Further, the persons recruited were not computer software engineers, and hence, they....
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....charged the tax liability. When there is no scope for any confusion, the appellant cannot plead that they had no intention to avoid the tax. Hence, the plea of time bar and penalty merits no consideration. Therefore, it is prayed that the appeal be rejected. 6. The learned Special counsel has filed the additional submissions as follows:- (1) The appellant's contention is that they entered into an agreement with M/s. Pfizer Pharmaceutical (I.) (P.) Ltd., ('Pfizer', in short) known as Master Biometric Services Agreement (MSA) effective from 1-12-2004, and as per the various terms and conditions thereto, the appellant was to provide certain biometric services. The various clauses in the agreement would make it clear that the appellant was responsible to render the biometric services. Reference was made to pages 14 and 15 of the appeal paper book which explains the 3 stages, namely, Retained Full Time Equivalent (FTE) model-stage 1; Func tional Service Provider (FSP) model-stage 2 and Preferred Full Service Provider model-stage 3. In the first two years, the parties worked under the Fit model. Under the Full Time Equivalent (FTE), model, appellant will recruit a....
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....o carry out the activities. Attachment-3 to the Work Order, contains the Budget and Payment schedule. Attachment-4 to the Work Order provides for periodic review in execution of this Work Order. (3) Thus the Work Order, with its 4 Attachments is self contained and is very clear and it calls upon the appellant to only recruit and retain the specified number of staff who will perform the functions on Pfizer projects. Change Orders 1 and 2 similarly call upon the appellant to provide further number of staff and gives the discipline of functions. A look at the Scope of Services also make it very clear that under the FTE model, the scope of services expected from the appellant was just only to recruit and provide the staff. Thus there are 2 phases in the MSA. The first one, when the service is performed as per FTE model; the second one is when the appellant moves to FSP model, when another Work Order will be issued. Only when the appellant moves to FSP model, the entire functional responsibilities fall on the appellant and they need perform all the functions as in the various Attachments to MSA. The current proceedings relate to the period when the appellant rendered the service as i....
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....Work Order dated 21-3-2005 along with its attachments, and further changes to the Work Order; (ii) This Work Order under the FTE model called upon the appellant to provide staff as per the requirement of Pfizer; (iii) Pfizer assisted in recruitment; and trained the staff; (iv) Computer hardware and software were provided by Pfizer; (v) This Work Order is covered by a separate Budget that is, the Budget is only for providing the staff, and has nothing to do with charges for the main study; (vi) The Budget is on 'per seat cost', that is, including creation of infrastructure facilities. Since the service tax is to be charged on the gross value realized, the entire cost is to be taken for computing the service tax; (vii) The Work Order dated 21-3-2005 does not entrust any work other than providing the staff; (viii) The scope of the service rendered is to be judged in terms of this Work Order and the Attachments to this Work Order; (ix) Only when the appellant moved to providing the service under FSP model, the functional responsibilities will fall on them; (x) A separate Work Order will be issued, when the appellant moved to FSP model. (8) In conclusion, it is submitted that....
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.... period under the FTE model, the manpower recruited by the appellants under contract with Pfizer have been retained by the appellants. The manpower so recruited is deployed under the responsibility of the appellants and are paid for by the appellants. He states that the appellants are responsible for the overall project management. He has taken us through the work order and the attachments to demonstrate that the contracted service is only in the nature of data management, biostatistics and reporting. The employees recruited work under the management of appellants and they work from the premises of the appellants and it cannot be said that the manpower has been supplied to Pfizer. His main thrust of the argument is that Pfizer is specialized in the pharmaceutical industry whereas the appellants are specialized in the information technology industry. The manpower recruited and retained by the appellants are given specialized training to be able to provide specialized service as specified by their client namely Pfizer. 10. We find force in the contentions made by the appellants that the work force recruited and retained by the appellants are required to work under a Project Manage....