2013 (9) TMI 324 - AT - Service Tax

Export of Service - Scientific and Technical Consultancy Service u/s 65(105)(za) - Revenue was of the view that the assesse had provided the taxable services of scientific and technical consultancy and it does not constitute export of services under Export of Services Rules, 2005 - Held that - Prima-facie the assesse s activity was of service which was scientific and technical consultancy services taxable u/s 65(105)(za) - The service provided by the assesse had to be treated as an export of service and hence, in terms of Rule 4 of the Export of Services Rules, no service tax would be chargeable - the activity of the assesse would be taxable only when the service had been provided to a customer in India and it would be treated as an export of service under Export of Services Rules, 2005, if it had been received by the person abroad and had been used by that person in relation to his business and payment for the same had been received in convertible foreign exchange. The service of developing the process of synthesis of drug molecules provided by the assesse had to be treated as having been provided to their overseas they cannot be treated as sub-contracts and on that basis having provided the taxable service - Since the service of scientific and technical consultancy covered by Section 65(105)(za) was service in relation to business and is covered by a Rule 3(1)(iii) of the Export of Services Rules and the same prima facie had been received by the overseas clients for the use in their business, the payment for which had been received in foreign currency. Waiver of Pre-deposit Prima facie assesse had a case in their favour - order set aside - The requirement of pre-deposit of service tax demand, interest and penalty was waived for hearing of the appeal and recovery to be stayed till the disposal of the appeal Stay granted.

Summary

Issues:
Service tax liability on scientific and technology consultancy services provided by the appellant to M/s. Jubilant Biosys Ltd.; Export of services rules applicability; Imposition of penalty under Sections 76 and 78 of the Finance Act, 1994.

Analysis:

Service Tax Liability on Consultancy Services:
The appellant, a company in Noida, and M/s. Jubilant Biosys Ltd. in Bangalore, both subsidiaries of Jubilant Life Sciences Ltd., are 100% EOUs providing scientific and technology consultancy services taxable under Section 65(105)(za) of the Finance Act, 1999. The dispute arose when the department alleged non-payment of service tax on services provided by the appellant to M/s. Jubilant Biosys Ltd. The Commissioner held that the services provided were taxable and confirmed a demand of Rs. 2,94,80,000 along with penalties. The appellant argued that the services were provided to overseas clients, not M/s. Jubilant Biosys Ltd., and thus constituted export of services under the Export of Services Rules, 2005.

Export of Services Rules Applicability:
The appellant contended that the services provided to overseas clients, such as M/s. Eli Lilly and Co., USA, were covered under joint agreements with M/s. Jubilant Biosys Ltd. and others. The appellant's services on chemical synthesis of drug molecules were part of these joint agreements and should be treated as exports of services. The Tribunal observed that the appellant's services were provided to overseas clients and not to M/s. Jubilant Biosys Ltd., as the payment was routed through the latter. The agreement clauses supported the appellant's position that they were not sub-contractors but direct service providers to the overseas clients. Therefore, the services were considered exports under Rule 4 of the Export of Services Rules, and no service tax liability arose.

Imposition of Penalties:
The department argued against waiving the pre-deposit requirement, citing the appellant's alleged suppression of facts and invoking extended periods for penalties. However, the Tribunal found in favor of the appellant, noting that the appellant had a strong prima facie case. The requirement of pre-deposit was waived, and recovery stayed pending appeal disposal.

In conclusion, the Tribunal allowed the stay application, finding that the appellant had a prima facie case in their favor regarding the service tax liability on the consultancy services provided. The judgment emphasized the applicability of export of services rules and the distinction between services provided to domestic entities versus overseas clients.