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TMI Blog2011 (3) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... Held that: - Amount received to be treated as gross amount - the appellant is not liable to pay service tax under the head scientific or technical consultancy on any amount collected from Cadila under the relevant agreements, and not liable to be penalized on account of these transactions - But the appellant is liable to pay service tax under the head market research agency s service on the taxable value of the services provided to Cadila under the Marketing Assistance Agreement. X X X X Extracts X X X X X X X X Extracts X X X X ..... istance to Cadila. The agreement mentioned eight services alphabetically from [A] to [H] including Market Development (Product Growth Achievement) Services [G] and Product Promotion Services [H]. Cadila was liable to pay a sum of Rs.2 crores per annum to the appellant for five years and the appellant was liable to provide marketing assistance and services to them during this period. The supplementary agreement dated 26.11.2001 between the appellant and Cadila amended the definition of services in the Marketing Assistance Agreement and accordingly there were two services to be provided by the appellant to Cadila under the Marketing Assistance Agreement and these were Production Promotion Services and Market Development (Product Growth Achievement) Services. For providing these services, the appellant received a total amount of Rs.5 crores (Rs.500 lakhs) from Cadila during the period from 2001-02 to 2003-04. Part of the demand of tax is on this amount of Rs.500 lakhs and the same is under the head market research agency service . The appellant had also received an amount of Rs.38.99 lakhs from M/s. Global Pharma, Dubai and M/s. Kampala Pharma, Uganda, as consideration for Product Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, providing consultation on any technical problem or about new technology etc. One point considered in the said circular was whether services rendered by doctors, medical colleges, nursing homes, hospitals, diagnostic and pathological labs etc. would come under the purview of the proposed levy. It was clarified that these categories of service providers were not known as scientists or technocrats or science or technology institutions or organizations and, therefore, they would not be covered under the above head for levy of service tax. The learned counsel pointed out that the above clarification was based on common parlance. The appellant-company was not known as a science or technology institution or organization in common parlance and hence could not be held to have rendered scientific or technical consultancy service to Cadila. Therefore, according to the counsel, nothing contained in the aforesaid agreements could be relied upon to hold that the appellant provided scientific or technical consultancy service to Cadila. The learned counsel, then, submitted that the transactions covered by the aforesaid agreements would squarely fall under intellectual property service which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the Maharashtra Value-Added Tax Act, 2002, the same could not be subject to levy of service tax. The argument was that trade mark and technical know-how were goods and sale of such goods could not be service for levy of service tax. 3.5. The learned counsel also argued that, in any case, the extended period of limitation was not invocable for recovery of any amount of service tax from the appellant. In this connection, it was submitted that a demand of service tax raised in an earlier show-cause notice dated 16.4.2003 on an amount of Rs.5 crores paid by Cadila to the appellant as consideration for transfer of technical know-how was dropped by the adjudicating authority. It was submitted that, where the factum of receipt of payment from Cadila by the appellant was within the knowledge of the department, it could not be alleged that the appellant suppressed the same with intent to evade payment of service tax. In this connection, reliance was placed on Nizam Sugar Factory vs. CCE, A.P. 2006 (197) ELT 465 (SC) and ECE Industries Ltd. vs. CCE, New Delhi 2004 (164) ELT 236 (SC). Therefore, according to the counsel, the extended period of limitation was not invocable in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganization was capable of rendering such service. In this context, he also referred to the Directors Report (2005-06) of the appellant-company and relied on a part of the report to show that Kopran Research Laboratories Ltd. (KRLL) was a wholly owned subsidiary of the appellant-company carrying out research and development activities, that the appellant-company was incurring all expenses related to such R & D activities, that even the day-to-day expenses of KRLL were supported by the appellant-company and that KRLL agreed to give to the appellant-company the right to exploit the patents, intellectual property and all rights appurtenant thereto in any manner so as to recover the current and future dues. It was also pointed out that the directors of the appellant-company had passed a resolution to initiate the process for merging KRLL with it. Thus the learned JCDR endeavoured to show that the appellant-company was virtually engaged in scientific and technical activities through KRLL during the period of dispute. For this reason also, the appellant should be held to have provided scientific or technical consultancy service to Cadila. Referring to the High Court s decision in Indian N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dropped on 28.12.2006 and the present demand did not relate to any period after 28.12.2006, argued the ld. JCDR. 5. After giving careful consideration to the submissions, we have found valid points in the submissions of the counsel. The issue debated before us revolves around the definition of scientific or technical consultancy under Section 65 of the Finance Act, 1994. This definition reads thus:- 'Scientific or technical consultancy means any advice, consultancy or scientific or technical assistance rendered in any manner, either directly or indirectly, by a scientist or a technocrat or any science or technology institution or organization, to a client, in one or more disciplines of science or technology. As rightly pointed out by the learned counsel, three ingredients should be established to bring a service within the ambit of scientific or technical consultancy and these are (a) advice, consultancy or scientific or technical assistance should be rendered in any manner to a client; (b) it should be rendered by a scientist or technocrat or any science or technology institution or organization; and (c) it should be rendered in one or more disciplines of science or technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, we are not inclined to deem the latter to be a science or technology institution or organization. The two companies are distinct legal entities and, therefore, the functional character of one cannot be claimed by, nor infused into, the other. The submissions made in this context by the learned JCDR seemed to suggest that the doctrine of lifting of corporate veil was being invoked. In our view, this doctrine is not applicable to the facts of this case. As rightly submitted by the learned counsel, the Revenue has not alleged and established that the appellant-company provided advice, consultancy or scientific or technical assistance to Cadila in any specific discipline of science or technology. In the result, the argument of the counsel that the service rendered by the appellant-company to Cadila under the relevant agreements cannot constitute scientific or technical consultancy as defined under Section 65 of the Finance Act, 1994 merits acceptance. This argument also stands fortified by the view taken in Matrix Laboratories case wherein it was held that scientific or technical consultancy was not involved in sale of entire technology for a consideration. 6. As already indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. (underlining added) We have also perused the Supreme Court s order in Civil Appeal No.10227 of 2010 (UOI & others vs. Indian National Ship Owners Association & others). The apex court affirmed the High Court s judgment. The learned JCDR argued that the apex court s judgment was not to be considered as affirmation of the view taken by the High Court in para 38 ibid. According to him, the question of law discussed in para 38 ibid. was left open by the Supreme Court. But the text of the apex court s order does not indicate that the question of law left open is the one arising out of para 38 of the High Court s judgment. In fact, it do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18.9.2001 as amended by the Supplementary Agreement dated 26.11.2001. This demand is under the head market research agency service defined under Section 65(105)(y) read with Section 65(69) of the Finance Act, 1994. Section 65(105(y) reads as follows:- taxable service means any service provided or to be provided to a client by a market research agency in relation to market research of any product, service or utility, in any manner . Section 65(69) reads as follows: market research agency means any commercial concern engaged in conducting market research in any manner, in relation to any product, service or utility, including all types of customised and syndicated research services. The learned counsel submitted that the appellant did not conduct any market research in any manner and, therefore, they could not be held to have provided market research agency service to Cadila. On the other hand, the learned JCDR submitted that the services rendered by the appellant to Cadila included product promotion and market development, which could not be accomplished without market research and, therefore, the amount collected by them under the above agreement was taxable under the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was liable to develop prospective customers for Cadila and also to provide an annual growth plan for different dosages of Cadila s product ATEN including new dosage forms and strengths of the product proposed to be introduced during the year. The appellant was also liable to assist Cadila in formulating marketing strategies, formulating customer service and pricing policies to be undertaken for achieving the proposed specific product growth annual plan. These services cannot be provided without market research. There is a wide variety of market research services as rightly noted in M.F. (D.R.) Letter No.11/3/98-TRU dated 7.10.1998 as follows:- Market research, inter alia, includes research based services in respect of consumer markets, industrial marketing, business to business marketing, social and rural marketing etc. and is based on the requirements of the client. Such research services may be carried out by various techniques and may take the form of brand and advertising research. Such market research services include studies such as, strategic research & brand positioning development, new product development research, creative development research, brand name, lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged, for arriving at the taxable value of the service inasmuch as it is not the Revenue s case that they collected service tax separately from Cadila. Though, apparently, the plea was not made before the adjudicating authority, it can be considered, being just a plea for the benefit of a legal provision. 12. As against the demand of service tax on the amount of Rs.38.99 lakhs received from M/s. Global Pharma and M/s. Kampala Pharma, the party had, in their reply to the show-cause notice, denied liability on the strength of order-in-original dated 28.12.2006, but this plea was also not considered by the adjudicating authority. We are of the view that the Commissioner should requantify the demand of service tax on market research agency service in this case after granting the benefit of Section 67(2) of the Finance Act, 1994 to the appellant and considering the above plea on merits. 13. The appellant s plea of limitation is bereft of merits. They never voluntarily disclosed to the department the fact that they provided market research services to Cadila and received consideration for the same, nor is it their case that they submitted copies of balance sheets (which contained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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