2016 (11) TMI 107 - AT - Service Tax

Classification of service - organic synthesis and related process research - classified under Scientific and Technical Consultancy (STC) service or Technical Testing and Analysis (TTA) service? - Section 65 (106) - Section 65 (105) (zzh) - Section 65 (105) (za) of the Finance Act, 1994 - Held that - the assessee is required to synthesize chemical entities and submit monthly reports of the progress thereof. Merit is found in the departments contention that these test reports are more about the produced compound in terms of its purity, constituents, the degree of deviation from expected etc. There can be no doubt that such activity will involve innumerable trials, testing of intermediate and final resultant chemical entities and scientific analysis at every stage. In fact the service performed by the assessee is closely monitored by GRUNENTHAL by telephone, fax and e-mail. It is not the case that the assessee is in the position of a scientific or technical consultant to GRUNENTHAL. On the other hand, from the facts on offer, the assessee is only carrying out predominantly testing and analysis work - outsourced by GRUNENTHAL to them. The testing and analysis are primary protocol for carrying out the process research. This conclusion is borne out by the fact that chemicals Euro 150 per item will be additionally reimbursed to the assessee - the services carried out by the assessee are nothing but technical testing and Analysis services as defined at the material time in Sec-65(105) of the Finance Act, 1994. Appeal allowed - decided in favor of Department.

Summary

Issues: Classification of services under Technical Testing and Analysis (TTA) service or Scientific and Technical Consultancy (STC) service

Analysis:
1. The respondent, a company registered under Scientific and Technical Service (STC) under Service Tax provisions, provided services related to organic synthesis and research for foreign clients. The appellant sought to classify these services under Technical Testing and Analysis (TTA) service.
2. The original authority confirmed the classification under TTA service, but the Commissioner Appeals allowed the appeal against this decision.
3. The Department filed an appeal arguing that the services provided did not involve knowledge sharing, advice, or consultancy, but primarily focused on creating sample compounds and conducting analytical testing, which falls under TTA service.
4. The explanation under Section 65(106) of the Finance Act, 1994 clarifies that Technical Testing and Analysis include testing undertaken for clinical testing of drugs and formulations but not for determining diseased conditions.
5. The appellant contended that their services were Scientific and Technical Consultancy, not Technical Testing and Analysis, emphasizing that they provided expertise in organic synthesis and research.
6. The Tribunal analyzed the nature of work carried out by the respondent, which involved synthesizing chemical entities, conducting research, and providing technical expertise to foreign clients.
7. The Research Agreement with one of the clients outlined the scope of work, which included synthesizing chemical entities, providing regular reports, and following specific protocols.
8. The Tribunal concluded that the services provided were primarily technical testing and analysis, as the work involved synthesizing compounds, conducting tests for purity and constituents, and providing analytical reports to clients.
9. Therefore, the Tribunal set aside the previous order and classified the services under Technical Testing and Analysis, in line with the definition provided in the Finance Act, 1994.

This detailed analysis highlights the key arguments, definitions, and considerations that led to the classification of the services provided by the respondent under Technical Testing and Analysis service instead of Scientific and Technical Consultancy service.