2014 (8) TMI 743 - AT - Service Tax

Technical testing and analysis service - Agreement with Ranbaxy for development of product - Held that - From the reading of the definitions provided under the Finance Act, the definition of taxable service is to any person, by a technical testing and analysis agency, in relation to technical testing and analysis. As the appellants are manufacturing the medicines as per the formulae developed by them or provided by the principal and during the manufacture, the appellants are undertaking certain test to find out whether the products are as per the formulae hence it cannot be said that the appellants are technical testing and analysis agency. - From the impugned order passed by the Commissioner (Appeals), we find that verification was conducted through jurisdictional Superintendent and the jurisdictional Superintendent of the Range reported that the service under discussion relates to research and development activity and the appellants are not undertaking the testing and analysis activity separately. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against demand of service tax and penalties imposed for technical testing and analysis service.
2. Contention regarding agreements with pharmaceutical companies for development, manufacture, and testing of products.
3. Interpretation of taxable service under Section 65(105)(zzh) of the Finance Act.
4. Dispute over whether the appellants qualify as a technical testing and analysis agency.

Analysis:
1. The appellant appealed against the demand of service tax and penalties for providing technical testing and analysis services under Section 65(106) of the Finance Act. The Revenue also appealed for enhancement of penalties. The contention was based on agreements with pharmaceutical companies for product development, manufacture, and testing, arguing that they are not a technical testing and analysis agency.

2. The agreements with pharmaceutical companies involved joint product development, manufacturing, and testing. The appellants conducted testing during manufacturing processes, ensuring product compliance with formulae and technical specifications. The Revenue argued that such testing activities qualified as technical testing and analysis services, subject to service tax.

3. The definition of taxable service under Section 65(105)(zzh) of the Finance Act includes services provided by a technical testing and analysis agency. The appellants maintained that their activities, including product development and testing, did not categorize them as a technical testing and analysis agency, as they were primarily engaged in manufacturing pharmaceutical products based on agreed formulae.

4. The Tribunal analyzed the agreements and activities of the appellants, concluding that they were not solely focused on testing and analysis services but were primarily involved in research, development, and manufacturing processes. The jurisdictional Superintendent's report supported this finding, stating that the appellants' activities related to research and development, not standalone testing and analysis. Consequently, the demand for service tax and penalties was set aside, and the appeal was allowed. The Revenue's appeal for penalty enhancement was dismissed accordingly.