AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 572
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....against the aforesaid confirmed demand. However, the aforesaid service tax claimed to have been paid by the assessee will be subject to the verification of the relevant challans by the jurisdictional Assistant / Deputy Commissioner. 28.2 I also order recovery of interest, at the appropriate rate(s) as applicable during the relevant period, on the demand of service tax as confirmed at para 28.1 above, under the provisions of Section 75 ibid and further order appropriation of the amount of interest of Rs. 14,53,595/- since paid by the assessee vide challan Nos.00067, 00071 and 0072, all dated 30.10.2014, against the aforesaid interest liability. However, the aforesaid interest claimed to have been paid by the assessee will also be subject to the verification of the relevant challans by the jurisdictional Assistant / Deputy Commissioner. 28.3 I impose a penalty of Rs. 40,000/- (Rs. 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....
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....o 31,03.2014. e) That the assessee are liable to Penalty under the provisions of Section 77(2) of the Act for contravening the provisions of Section 70(1) of the Act read with Rule 7 of the Rules." After summarizing his findings as above Commissioner disposed of the Show Cause Notice as per the order referred to in para 1, supra. 2.4 Aggrieved by the order of Commissioner appellants are in appeal before the tribunal. 3.1 Appellants have in their appeal after explaining the activities undertaken by them under Contract Research Agreement in respect of DMPK research studies and the manner of undertaking the said activities have assailed the impugned order stating that- a. The order is non speaking as it fails to consider and render findings in respect of various submissions made by them before the adjudicating authority. Thus relying on the decisions in case of Cyril Lasardo (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 servi....
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....ited [2004) 172 ELT 451 (All)]. j. In the case where such complex interpretation of law is involved penalty should not imposed as held in the following decisions: * Sarup Tanneries Limited [2005 (184) ELT 217 (T)] * Explicit Trading [2004 (169) ELT 205 (T)] * Goyal M G Gases Ltd [2004 (168) ELT 369 (T)] * Kathuria Portfolios [2003 (158) ELT 355 (T)] * Goenka Woolen Mills [2001 (135) ELT 873 (T)] k. They were under bonafide belief that service tax was not payable by them and hence they had not paid the tax. In such a situation when their bonafides are clearly established penalty should have not been imposed on them in view of the decisions in case of Flyingman Air Courier (P) Ltd [2004 (170) ELT 417 (T)] and Gamma Consultancy [2006 (4) STR 591 (T)]. l. In case of Vinay Bele & Associates [2008 (9) STR 350 (Bom)] & Ashish Patil [2008 (10) STR 8 (Bom)] it has been held that penalty under section 76, 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....
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....of CENVAT Credit Rules, 2004 read with Rule 6A of Service Tax Rules, 1994. In para 16 and 17 it has been observed that Rule 4 of POPS is not applicable in situation where there is alteration in form in which it was made available to service provider. This observation made by the tribunal is in accordance with the Rules. e. In case of Star India Pvt Ltd [2015 (38) STR 884 (T-Mum)] it has been held that merely because payment was received in foreign currency cannot be determinant for liability/ non liability to service tax. 5.1 We have considered the submissions made in appeal, during course of arguments along with the impugned order. 5.2 Para 1.2 to 1.4, 2.1, 2.6, 2.8, para L on page 29 and para P on page 33 of the Appeal filed by the Appellant are reproduced below: "1.2 The appellants are interalia engaged in integrated drug discovery and development of drugs. The drug discovery process goes through numerous stages before drug becomes commercially viable. 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 bringi....
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....esent case, innovator samples of NCE are sent by the clients located outside India. These NCE are administered to rats during this study and accordingly, the test reports are prepared and sent to the client. This DMPK study services cannot be said that the activity of testing is being performed on the drugs (NCE). In this example, the above drugs are administered to the rats to determine their efficacy and safety level. P. The (NCE) powder provided by the customer has to be formulated in a suitable vehicle so that it can be given to animals at suitable dose without causing any harm to conduct DMPK studies. The DMPK studies are conducted on the formulation of NCE prepared by the appellant. Without the appellants preparing the formulation of NCE the study cannot be conducted. The formulation preparation requires extensive research to choose right solvent or combination of solvents from hundred of odd acceptable solvents which are acceptable for animal studies. Many permutations and combinations 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 appea....
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....ovided further that this sub-rule shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export, subject to conditions as may be specified in this regard. (b) .............. 14. Order of application of rules.- Notwithstanding anything stated in any rule, where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration. 5.5 Rule 6A of Service Tax Rules, 1994 read as follows: a. 6A. Export of services.- (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of servi....
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....estions : Whether the proposed activities of undertaking Clinical Research and Clinical Pharmacology by the applicant are taxable under the Act in light of Rule 3 of the Place of Provision of Services (POP) Rules, 2012 as the applicant renders the said services to its customers and the place of provision is located outside India? 4. Applicant inter alia submits that since Rules 5 to 12 are not applicable to the applicant's case, the two rules which are to be considered are Rule 4 and Rule 3; that since the scope of proposed activities to be carried out by the applicant are research based advisory services and are neither related to (a) goods or, (b) requiring physical presence of the customers located outside India and therefore, Rule 4 is not applicable to the activities proposed by the applicant; that the advisory research activities of the applicant are not executionary or performance based service as envisaged in Rule 4 of POP Rules and therefore, the said services are not covered under Rule 4. 5. Revenue submits that in terms of Rule 4(a) of POP Rules, the essential ingredient to levy Service Tax on any service is the location, where the service is provided in respect....
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....y made available to the service provider; ii. Where the services are performed in the ordinary course of business, the said service should require physical presence of the service recipient or his representative; that the activities of the applicant are not with respect to any goods and are not provided in presence of the offshore customers and therefore, the activities of the applicant will not be covered under Rule 4. 9. It is observed from the above referred Rule 4(a) ibid with respect to this case that the place of provision shall be the location where services are actually performed, if (a) services are provided in respect of goods and (b) said goods are required to be made physically available by the recipient of service to the provider of service. 10. It is noticed that applicant's proposed service of Clinical Pharmacology is study carried out for generic drugs. Further, study is proposed to be undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers, etc., provided by applicant's customers located outside India, on eligible volunteers in India. Therefore, it is clear that the formulations in various forms (go....
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....ce to a manufacturing firm for a consumer product (say, a new detergent) will not fall in this category, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product by the manufacturer, to carry for door-to-door surveys. 13. Based on above, applicant submits that Rule 4 only contemplates a situation where the goods are temporarily handed over to service provider for servicing and returned after servicing; that their interpretation is supported by the example of detergent packets distributed and feedback by such prospective customers are not said to be covered by Rule 4. It is to be observed that the Education Guide gives example of some services covered under Rule 4 ibid and technical testing/analysis of goods, which are akin to clinical testing, are also included in the example. This example is similar to the proposed service, as compared to the example of detergent packets. The said paragraph of Education Guide also mentions that "it will not cover services where the supply of goods by the receiver is not material to the rendering of the service". In the instant case, there is no doubt that receipt of formulation by the applicant for the purpo....
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....Research would be provided on stand-alone basis and separate invoices would be issued for each service. Applicant submits that the Clinical Research service proposed to be undertaken by the applicant can also not be considered to be service provided in the 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) ibid; that the volunteers which are identified, selected and gathered by the applicant are in India and such volunteers having nothing to do with the Drug Company, i.e., the service recipient, and therefore the said volunteers cannot be said to be acting on behalf of the receiver; that the activities of the applicant essentially involves provision of expert opinion on test results and as such are advisory services as opposed to executionary services and therefore, are not covered under Rule 4 of the POPS Rules for the place of provision to be in India. It is observed that where service of Clinical Pharmacology (which is provided in respect of formulations received from service receiver located outside India) is not provided by the applicant and only service of Clinical Research is provi....
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....that they would pay service tax in respect of these stand-alone DMPK services w.e.f. 01-07- 2012. 23.1.4 From the above, I find that the assessee have agreed to the fact that in the case of stand-alone DMPK services, the goods / compounds are supplied by the clients for carrying out In-Vitro & In-Vivo studies and thereafter the outcome of the research effort is transferred to their clients located abroad. This is further evidenced by the copies of Invoices and Purchase Orders/Quote Estimates submitted by the assessee during the course of investigations. Further, I find that the instant Show Cause is limited to stand-alone. DMPK services provided by the assessee, and therefore, in view of the above facts, I have no hesitation in holding that in respect of these services the foreign based clients of the assessee have made the goods/compounds physically available to the assessee for performing services in relation to these goods as required under Rule 4 of the PPS Rules. Consequently, as the goods are made physically available to the service provider i.e. the assessee in India, for performing services in relation to these goods, the place of performance of such services would be in....
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....s their features/ characteristics, etc. The intention that these goods/ samples would be returned back to them would not be the paramount in the minds of the clients behind offering these goods/samples for such analysis. Further, the assessee's contention that during the course of provision of services, certain goods locally procured by them are also used along with the goods/compounds submitted by the clients, would have no bearing on this case as far as the goods / compounds made available by the client(s) are worked upon for delivering the intended services. Further, I find that it cannot be disputed that the goods/compounds supplied by the clients are not abstract material but are movable objects or things that can be touched, felt or possessed as clarified in the Guidance Note. 23.2.4 In view of the above, the assessee's contention that the services provided by them is not qua the goods is not acceptable and I hold that the standalone DMPK services provided by the assessee are performed on the goods! compounds supplied by their foreign based clients and hence this service activity of the assessee is covered under Rule 4 of the PPS Rules." 5.9 In view of the discus....
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....ted with services or goods. 17.The goods supplied to the respondent, minor though the proportion may be, are subject to alteration in the course of research. It is not asserted anywhere that these goods, in its altered or unaltered form, are sent back to the service recipient; if it were, the provisions of Customs Act, 1962 would be invoked to eliminate tax burden. If the goods cease to exist in the form in which it has been supplied, it cannot be said that services have been provided in respect of goods even if it cannot be denied that services have been rendered on the goods. Consequently, the provisions of Rule 4(1) are not attracted and, in terms of Rule 6A of Service Tax Rules, 1994, the definition of export of services is applicable thus entitling the appellant to eligibility under Rule 5 of Cenvat Credit Rules, 2004." 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 anything beyond what has been provided in the rules/ statue cannot be proper i....
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....nterpretation' (14th ed. 2016 p.-879) after referring to Re, Micklethwait, (1885) 11 Ex 452; Partington v. A.G., (1869) LR 4 HL 100; Rajasthan Rajya Sahakari Spinning & Ginning Mills Federation Ltd. v. Deputy CIT, Jaipur, (2014) 11 SCC 672, State Bank of Travancore v. Commissioner of Income Tax, (1986) 2 SCC 11 and Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, summed up the law in the following manner - "A taxing statute is to be strictly construed. The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY AND LORD SIMONDS, means : 'The subject is not to be taxed without clear words for that purpose : and also that every Act of Parliament must be read according to the natural construction of its words. In a classic passage LORD CAIRNS stated the principle thus : "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other word....
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....r of the law, no question of unjustness as such arises [CIT v. Jalgaon Electric Supply Co., AIR 1960 SC 1182]. But equitable considerations are not relevant in construing a taxing statute, [CIT, W.B. v. Central India Industries, AIR 1972 SC 397], and similarly logic or reason cannot be of much avail in interpreting a taxing statute [Azam Jha v. Expenditure Tax Officer, Hyderabad, AIR 1972 SC 2319]. It is well-settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for the Legislature to determine the same [Kapil Mohan v. Commr. of Income Tax, Delhi, AIR 1999 SC 573]. Similarly, hardship or equity is not relevant in interpreting provisions imposing stamp duty, which is a tax, and the Court should not concern itself with the intention of the Legislature when the language expressing such intention is plain and unambiguous [State of Madhya Pradesh v. Rakesh Kohli & Anr., (2012) 6 SCC 312]. But just as reliance upon equity does not avail an assesse, so it does not avail the Revenue." The passages extracted above, were quoted with approval by this Court in at least two decisions being Commissioner of Income Tax v. Kastu....
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....is liable to pay interest at the rate as may be determined by the Central Government from time to time. This is evident from the opening part of sub-section (1) of Section 11, which runs thus : "Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 11A, shall in addition to the duty be liable to pay interest at such rate ........" The terminal part in the quotation above, which is couched with the words "shall" and "be liable" clearly indicates that there is no option. As discussed earlier, this is a civil liability of the assessee, who has retained the amount of public exchequer with himself and which ought to have gone in the pockets of the Central Government much earlier. Upon reading Section 11AB together with Sections 11A and 11AA, we are of firm view that interest on the duty evaded is payable and the same is compulsory and even though the evasion of duty is not mala fide or intentional." Thus we uphold the demand of interest under Section 75 of the Finance Act, 1994. 5.13 Pena....