2011 (3) TMI 224 - AT - Service Tax

Demand - Scientific or technical consultancy - transaction value as cum-tax value - Under the marketing assistance agreement the appellant agreed to provide marketing and product-related services and assistance to Cadila. The agreement mentioned eight services alphabetically from A to H including Market Development (Product Growth Achievement) Services G and Product Promotion Services H . Cadila was liable to pay a sum of Rs.2 crores per annum to the appellant for five years and the appellant was liable to provide marketing assistance and services to them during this period. The supplementary agreement dated 26.11.2001 between the appellant and Cadila amended the definition of services in the Marketing Assistance Agreement and accordingly there were two services to be provided by the appellant to Cadila under the Marketing Assistance Agreement and these were Production Promotion Services and Market Development (Product Growth Achievement) Services. Held that - Amount received to be treated as gross amount - the appellant is not liable to pay service tax under the head scientific or technical consultancy on any amount collected from Cadila under the relevant agreements and not liable to be penalized on account of these transactions - But the appellant is liable to pay service tax under the head market research agency s service on the taxable value of the services provided to Cadila under the Marketing Assistance Agreement.

Issues Involved:
1. Classification of services under "scientific or technical consultancy".
2. Classification of services under "market research agency".
3. Applicability of extended period of limitation.
4. Treatment of transaction value as cum-tax value.
5. Applicability of penalties.

Issue-wise Detailed Analysis:

1. Classification of Services under "Scientific or Technical Consultancy":
The primary issue was whether the appellant provided "scientific or technical consultancy service" to Cadila under the agreements dated 18.09.2001. The appellant argued that the services rendered did not involve advice, consultancy, or scientific/technical assistance, but were rather permanent transfers of intellectual property rights, which fall under "intellectual property service" introduced on 10.09.2004. The Tribunal agreed with the appellant, noting that the transactions involved the transfer of brand names/trademarks, technical know-how for manufacturing bulk drugs, and formulations, which do not constitute "scientific or technical consultancy" as defined under Section 65(92) of the Finance Act, 1994. The Tribunal emphasized that the appellant was not a science or technology institution or organization, and the services provided did not fit the definition of "scientific or technical consultancy".

2. Classification of Services under "Market Research Agency":
The appellant provided "Product Promotion Services" and "Market Development Services" to Cadila under the Marketing Assistance Agreement dated 18.09.2001 and the Supplementary Agreement dated 26.11.2001. The Tribunal found that these services, which included developing prospective customers, providing an annual growth plan, and assisting in formulating marketing strategies, inherently involved market research. Therefore, the services provided by the appellant fell within the scope of "market research agency service" as defined under Section 65(105)(y) read with Section 65(69) of the Finance Act, 1994. Consequently, the appellant was liable to pay service tax under this head.

3. Applicability of Extended Period of Limitation:
The appellant argued that the extended period of limitation was not invocable as the department was aware of the transactions from an earlier show-cause notice dated 16.04.2003. However, the Tribunal found that the appellant did not voluntarily disclose the provision of market research services to Cadila, nor did they submit relevant information to the department. The Tribunal upheld the invocation of the extended period of limitation for the demand of service tax on market research agency services.

4. Treatment of Transaction Value as Cum-Tax Value:
The appellant contended that the transaction value should be treated as inclusive of tax, and the tax element should be deducted to arrive at the taxable value of the service. The Tribunal agreed, citing the precedent set in the case of "Advantage Media Consultant" affirmed by the Supreme Court, which allowed the deduction of service tax from the gross amount charged when service tax was not collected separately from the customer. This principle was applied retrospectively, granting the appellant the benefit of Section 67(2) of the Finance Act, 1994.

5. Applicability of Penalties:
The Tribunal noted that the impugned order did not contain findings in support of the penalties imposed on the appellant. Consequently, the Tribunal set aside the penalties related to the transactions under "scientific or technical consultancy". However, for the services classified under "market research agency", the Commissioner was directed to re-examine the question of penalties afresh, providing the appellant with a reasonable opportunity of being heard.

Conclusion:
The Tribunal concluded that the appellant was not liable to pay service tax under the head "scientific or technical consultancy" for the amounts collected from Cadila under the relevant agreements. However, the appellant was liable to pay service tax under the head "market research agency service" for the services provided to Cadila under the Marketing Assistance Agreement. The adjudicating authority was directed to re-quantify the demand and re-examine the imposition of penalties, giving the appellant an opportunity to be heard. The appeal was disposed of in these terms, and the application for extension of stay was dismissed.

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