2022 (10) TMI 515 - AT - Service Tax

Refund of the accumulated CENVAT credit - denial of refund has been premised on the assumption that they had themselves conducted clinical trials on goods supplied by their holding company - taxable territory - rule 4(a) of Place of Provision of Services Rules, 2012 - HELD THAT - It is seen from the records that no demand has been raised in relation to the alleged taxable service owing to which the present claim for refund has been denied for not being export within the meaning of rule 6A of Service Tax Rules, 1994. It is only by raising such demand that taxability can be asserted and exports held as not having taken place. Rule 4 of Place of Provision of Services Rules, 2012 is a deviation from the default principle set out in rule 3 of Place of Provision of Services Rules, 2012, which, itself, has been structured to conform to the new paradigm of taxing all services other than in negative list and omnibus declaration in section 65B(44) of Finance Act, 1994 that does not identify the beginning and end of specific services. Essential to invoking of rule 4 of Place of Provision of Services Rules, 2012 is the providing of goods upon which service can be rendered. No records are available of such having been done and there is also no reference in the show cause notice to such. The impugned order is set aside and the refund application is restored to the original authority for proceeding in accordance with the provisions of the said notification on the finding that it is rule 3 of Place of Provision of Services Rules, 2012 which applies - Appeal disposed off.

Summary

Issues:
Denial of refund under notification no. 27/2012-Central Excise Act, 1944 for specific quarters based on the activity of 'clinical trials' conducted on goods supplied by a holding company. Interpretation of rule 4 of Place of Provision of Services Rules, 2012 in relation to the provision of services within the taxable territory. Reference to a previous case involving disagreement on taxability of overseas money transactions. Applicability of rule 3 and rule 4 of Place of Provision of Services Rules, 2012 in determining tax liability and eligibility for refund.

Analysis:
The appeal challenged the denial of a refund amounting to Rs. 18,06,176 under notification no. 27/2012-Central Excise Act, 1944 for specific quarters due to the alleged conduct of 'clinical trials' on goods supplied by a holding company. The appellant argued that the denial was based on the assumption that the activity fell within the taxable territory under rule 4 of Place of Provision of Services Rules, 2012. It was contended that their inability to conduct such trials without approval from Indian regulatory bodies was not considered, and the mere description of expenses as 'clinical trial expenses' in invoices did not prove the provision of services within the rule.

The Authorized Representative, on the other hand, argued that the definition of 'clinical trials' in agreements with Indian entities required the supply of formulations and drugs, justifying the invocation of rule 4 of Place of Provision of Services Rules, 2012. Reference was made to a previous case where a Larger Bench was sought due to a disagreement on taxability of similar overseas transactions.

Upon review, the Tribunal found that the denial of refund was primarily based on the presumption of taxability under rule 4 of Place of Provision of Services Rules, 2012. The argument for a Larger Bench was dismissed as the existing precedent was binding until overturned and did not warrant disagreement. It was clarified that the reference for a Larger Bench was interim and did not bind coordinate benches.

The Tribunal noted that no demand had been raised regarding the alleged 'taxable service,' leading to the denial of the refund claim. It emphasized that taxability could only be asserted through a raised demand, and the absence of such demand indicated that exports were not deemed non-existent.

Regarding the application of rule 4 of Place of Provision of Services Rules, 2012, the Tribunal highlighted that the rule required the provision of goods for service delivery, which lacked evidence in this case. The absence of findings or allegations that goods were provided for service to the overseas entity rendered the denial of refund improper. Consequently, the impugned order was set aside, and the refund application was remitted to the original authority for further proceedings based on the application of rule 3 of Place of Provision of Services Rules, 2012. The appeal was disposed of accordingly.