2019 (3) TMI 1437 - AT - Service Tax

Classification of services - assessee was providing services to their clients M/s Sagent Pharmaceuticals Inc., USA - whether classified under Scientific and Technical Consultancy Service or otherwise or technical testing and analysis service? - Held that - The nature of activities undertaken by the appellant is undoubtedly much more than mere testing and analysis. It comprises a variety of activities starting from the development of the product suitable for the market based on API to conducting tests and turnover information to their clients for further use. These activities cannot be called mere technical testing and analysis but fall under Scientific and Technical Consultancy Service - On an identical case, in the case of Midas Care Pharmaceuticals Pvt. Ltd. 2014 (8) TMI 743 - CESTAT MUMBAI , the coordinate Bench held that the nature of activity for development of a pharmaceutical product testing etc. falls under the category scientific and technical consultancy service - the services rendered by the appellant in this case have to be classified as Scientific and Technical Consultancy Services . CENVAT Credit - common input services used both in dutiable as well as exempt goods - non-maintenance of separate records - Appellant have been reversing proportionate amount of credit attributable to exempted goods as per the formula prescribed in Rule 6(3A)(b)(iii) of CENVAT Credit Rules, 2004 - Held that - This wrong availment of CENVAT credit needs to be reversed by the appellant and the demand on this ground made in the impugned order needs to be sustained - although the appellant has been filing the returns with the department, they are also expected to not violate any provisions of the Acts or Rules or orders made there under to avail excess CENVAT Credit and thereby evade duty. The ST-3 returns do not require the details of the calculation made as it is expected that the assessee does the calculation on their own correctly. In this case, where there is no ambiguity in the rule itself, the appellant has clearly violated the rule and availed the ineligible CENVAT Credit and therefore the same needs to be reversed for the entire period of demand. The demand of excess CENVAT Credit taken by the appellant under Rule 14 of CCR 2004 read with Section 73(1) of the Finance Act 1994 along with interest under section 75 as well as penalty under rule 15(3) of CCR 2004 needs to be upheld - appeal disposed off.

Summary

Issues:
1. Classification of services rendered by the appellant - 'Scientific and Technical Consultancy Service' or 'technical testing and analysis service'.
2. Reversal of CENVAT Credit under Rule 6(3A)(iii) of CCR 2004.

Issue 1: Classification of services rendered by the appellant

The appellant, engaged in manufacturing excisable goods and providing output services, had a centralized registration for service tax. The dispute arose concerning the classification of services provided to a client as 'Scientific and Technical Consultancy Service' or 'technical testing and analysis service.' The department contended that the services fell under 'technical testing and analysis service,' making them liable for service tax. The appellant argued that their services involved developing products, conducting tests, and providing information for FDA approval, going beyond mere testing. The Tribunal analyzed the activities and held that the services qualified as 'Scientific and Technical Consultancy Services' based on precedents and the nature of the appellant's work.

Issue 2: Reversal of CENVAT Credit under Rule 6(3A)(iii) of CCR 2004

The appellant availed CENVAT Credit on common input services but failed to reverse the credit correctly as required by Rule 6(3A)(iii) of CCR 2004. The rule mandates the reversal of credit based on the ratio of exempted goods and services to total goods and services multiplied by the total CENVAT Credit on input services during the month. The appellant incorrectly considered only the credit on common input services, leading to an excess credit of ?13,63,586. The Tribunal ruled that the appellant's misinterpretation of the rule necessitated the reversal of the excess credit under Rule 14 of CENVAT Credit Rules, 2004. Despite the appellant's compliance with filing returns, the Tribunal emphasized the need to adhere to statutory provisions to avoid availing ineligible credits and evasion of duty.

In conclusion, the Tribunal set aside the demand of Service Tax, interest, and penalty related to the classification of services. However, the demand for CENVAT Credit, along with interest and penalties, was upheld. The judgment highlighted the importance of correctly interpreting rules and complying with statutory provisions to avoid irregularities in availing credits.