2024 (6) TMI 1265 - AT - Service Tax

Levy of service tax - product registration fee paid by the appellants to the foreign regulatory authorities for sale of product to foreign markets - HELD THAT - The service of approval of medicaments to be sold in those foreign countries also undertaken in the foreign country. The issue that whether statutory fees paid to the foreign regulatory authority is liable to service tax in the hands of the recipient of so called service has been decided in various judgments. In the judgment of Sidmak Laboratories India Pvt Ltd 2023 (11) TMI 614 - CESTAT NEW DELHI considering the identical facts and the legal issue involved in the present case, the Tribunal held that ' no service tax was payable on the amounts which the appellants had paid to US FDA to obtain their approval for export of their drugs.' From the above decision it can be seen that the facts and legal issue involved in the present case and the case cited above are absolutely identical, therefore, the ratio of the above decision is applicable in the present case. The demand of service tax in the present case is not sustainable - the impugned order is set aside - Appeal allowed.

Issues Involved:
1. Leviability of service tax on product registration fees paid to foreign regulatory authorities.
2. Applicability of reverse charge mechanism.
3. Definition of "service" under Section 65 B (44) of the Finance Act, 1994.
4. Definition of "person" under Section 65 B (37) of the Finance Act, 1994.
5. Place of Provision of Service Rules, 2012.
6. Revenue neutrality and availability of Cenvat credit.
7. Invocation of extended period of limitation under the proviso to Section 73 (1) of the Finance Act, 1994.
8. Suppression of facts and imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Leviability of Service Tax on Product Registration Fees:
The core issue is whether the service tax is leviable on the product registration fees paid by the appellants to foreign regulatory authorities. The appellants argued that such fees paid to foreign regulatory authorities like USFDA and ANSM are for statutory functions and thus not liable to service tax under the reverse charge mechanism. They cited the decision of the Delhi Tribunal in Sidmak Laboratories India Pvt Ltd vs. CCE & ST, Dehradun, which held that fees paid to foreign regulatory authorities for statutory functions are not subject to service tax.

2. Applicability of Reverse Charge Mechanism:
The appellants contended that no service was provided to them as per Section 65 B (44) of the Finance Act, 1994, and therefore, the product registration fees do not attract service tax under the reverse charge mechanism. They supported their argument with the board circular No. 89/7/2006 dated 18.12.2006, which states that fees collected by sovereign/public authorities for statutory functions are not taxable.

3. Definition of "Service" under Section 65 B (44):
The appellants argued that the product registration fees paid to foreign regulatory authorities do not constitute a "service" as defined under Section 65 B (44) of the Finance Act, 1994. They further argued that the subsidiary companies merely facilitated the registration process and were reimbursed on an actual basis, which does not amount to the provision of a service.

4. Definition of "Person" under Section 65 B (37):
The appellants argued that foreign governments do not fall under the definition of "person" as per Section 65 B (37) of the Finance Act, 1994. Therefore, the fees paid to foreign regulatory authorities are not liable to service tax.

5. Place of Provision of Service Rules, 2012:
The appellants argued that the services, if any, were provided outside India, making them non-taxable under Rule 3 of the Place of Provision of Service Rules, 2012. They contended that the service recipient is not located in India, and thus, the product registration fees are not liable to service tax.

6. Revenue Neutrality and Availability of Cenvat Credit:
The appellants argued that even if the service tax is leviable, the same would be available as Cenvat credit, making the entire exercise revenue neutral. They cited several judgments to support their argument that the service tax is not recoverable due to revenue neutrality.

7. Invocation of Extended Period of Limitation:
The appellants argued that the show cause notice issued on 11.10.2019 for the period 2014-2015 is time-barred. They contended that there was no suppression of facts as the entire exercise was revenue neutral. Therefore, the extended period of limitation under the proviso to Section 73 (1) of the Finance Act, 1994, cannot be invoked.

8. Suppression of Facts and Imposition of Penalty:
The appellants argued that there was no willful suppression of facts, and the issue was purely interpretational. Therefore, the imposition of penalty under Section 78 of the Finance Act, 1994, is not justified.

Tribunal's Findings:
The Tribunal found that the service tax was demanded on fees paid to foreign governmental regulatory authorities for the approval of pharmaceutical products. The Tribunal referred to the judgment in Sidmak Laboratories India Pvt Ltd, which held that fees paid to foreign regulatory authorities for statutory functions are not subject to service tax. The Tribunal concluded that the demand for service tax in the present case is not sustainable. Since the matter was decided on merits, other issues such as location of service and limitation were not addressed.

Conclusion:
The impugned order was set aside, and the appeal was allowed, with the Tribunal pronouncing the judgment in the open court on 26.06.2024.

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