2014 (1) TMI 258 - AT - Service Tax

Clinical testing service - Classification of service - scientific or technical consultancy or technical testing and analysis - Held that - The ambit of scientific or technical consultancy on one hand and technical testing and analysis on the other, is thus very clear. The overseas companies were providing service pertaining to clinical testing of the appellant s formulations and analysis of its samples, clearly an activity falling within the ambit of technical testing and analysis and outside the ambit of scientific or technical consultancy . The taxable services were provided outside the Indian territory. The services provided by the overseas companies thus fall within ambit of Section 65(105)(zzh); and since these services were wholly provided outside India, are not liable to service tax from the appellant under the reverse charge mechanism in Section 66A of the Act, in view of clause (ii) of Rule 3 of the 2006 Rules - Decided in favour of assessee.

Summary

Issues involved:
Classification dispute regarding service provided by overseas companies for technical testing and analysis versus scientific or technical consultancy service under the Finance Act, 1994.

Analysis:
1. The appellant, a consumer healthcare company, remitted funds to overseas technical testing and analysis agencies for extrusion trials and analysis of data and samples. The Revenue claimed the service fell under "scientific or technical consultancy" service, while the appellant argued it should be classified as "technical testing and analysis" service, exempt from tax under Rule 3(ii) of the 2006 Rules due to being provided outside India.

2. The adjudicating authority initially held the appellant liable for service tax, interest, and penalties under the reverse charge mechanism. However, upon closer examination, it was evident that the service provided by the overseas companies was more aligned with technical testing and analysis rather than scientific or technical consultancy, as defined under the Act. Since the services were performed outside Indian territory, they were exempt from tax under Rule 3(ii) of the 2006 Rules.

3. The distinction between "scientific or technical consultancy" and "technical testing and analysis" services was crucial. Scientific or technical consultancy involves expert advice on scientific or technical aspects, while technical testing and analysis pertain to physical, chemical, or biological testing of goods. The services provided by the overseas companies for clinical testing of formulations clearly fell within the scope of technical testing and analysis, making them exempt from service tax under the reverse charge mechanism.

4. The judgment quashed the adjudication order holding the appellant liable for service tax, interest, and penalties, emphasizing that the services provided by the overseas companies were correctly classified as technical testing and analysis, falling outside the purview of the Act. The appeal was allowed without costs, and the pre-deposit requirement was waived, based on the analysis and arguments presented.

This detailed analysis of the judgment highlights the classification dispute between scientific or technical consultancy and technical testing and analysis services, ultimately leading to the exemption of the appellant from service tax liability based on the nature and location of the services provided by the overseas companies.