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TMI Blog2019 (6) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... vice Tax Rules, 1994. Appellants have relied upon the decisions in their own case to argue that the services provided by them should be considered as export of services. From the facts of the present case we find that appellant have conducted DMPK Studies in respect of the NCE s provided to them by the overseas client. Rule 4 do not put any conditions in respect of alteration or alternation of the goods provided by the service recipient. Reading anything beyond what has been provided in the rules/ statue cannot be proper interpretation put to rules - In the present case we find that the activities under taken by the appellants in terms of DMPK studies squarely fall within the scheme of Rule 4 of POPS Rules, and hence the location of service provider shall be place of provision of service which is in India and hence cannot be treated as export of service in terms of Rule 6A of Service Tax Rules, 1994. Demand of interest and penalties upheld. Appeal dismissed - decided against appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 76 of the Finance Act, 1994. However, the total amount of penalty payable by the assessee shall not exceed fifty percent of the service tax payable (i.e. 50% of ₹ 72,72,046/- which is equal to ₹ 36,36,023/-)." 2.1 Appellants are registered for providing taxable services under the category of "Scientific or Technical Consultancy Services" as defined under Section 65 (105) (za) (till 30th June 2012), and thereafter providing taxable services as defined by 65B(44). 2.2 Acting on the intelligence that the services provided by the appellants to their overseas recipients in respect of Drug Metabolism and Pharmacokinetics standalone services (DMPK) under Contract Research Agreements do not qualify as "Export of Services" in terms of Place of Provision of Services Rules, 2012 read with Rule 6A of Service Tax Rules, 1994, investigations were undertaken and show cause notice dated 01.10.2014 issued to the Appellants, demanding service tax amounting to ₹ 72,72,046/- short/not paid during the period from July 2012 to March 2014. Demand for interest and penalties were also proposed. 2.3 After considering the submissions of the Appellant, Commissioner has in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service recipient is located outside India. Therefore the place of provision of service as per the said rule is outside India. As per rule 6A of the Service Tax Rules, 1994, if the place of provision of service is outside India, then it is treated as Export of Services. d. They are providing advice/ information in relation to DMPK studies. These services are not provided qua the goods and Hence Rule 4(a) of POPS shall not be applicable in the present case. Also as per the para 5.4.1 of Guidance Note dealing with Rule 4, the services provided by them will not fall within the category of services to which said rule is applicable. e. DMPK study of drugs cannot be regarded as a test undertaken on goods sent by the service recipient. The innovator samples of NCE are sent by their clients located outside India. These NCE are administered to rats during study and accordingly, the test reports are prepared and sent to the client. These study services cannot be said that the activity of testing is being performed on the drugs (NCE). f. In the VAT regime such services are treated as performance based services. The principle underlying VAT worldwide require the determination of V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the default Rule 3 of POPS and are covered by Rule 6A of Service Tax Rules, 1994 as Export of Services. c. Rule 4(a) of POPS is not applicable in respect of the services provided by them. The DMPK services are not performed on the goods, they are providing advice/ information to their overseas client in relation to DMPK studies. d. The tests are not performed on the goods but on the subject of study i.e. rats who are given these compounds under various conditions. Rule 4(a) will thus not apply in such cases. e. Issue is squarely covered by the decision in case of Advinus Therapeutics Ltd [2017 (51) STR 298 (T-Mum)] and in case of Fertin Pharma Research and Development India Pvt Ltd, [2018-TIOL-3281- CESTAT-MUM]. f. No penalty should have been levied pursuant to section 80 ibid as Appellants were under bonafide belief and issue is purely an interpretational one. 4.3 Arguing for the revenue, learned Authorized Representative submitted while reiterating the findings in the impugned order- a. The decision of the tribunal in the case of appellants referred to by the appellants is not applicable to the facts of present case. The said decision has been rendered in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch on various effects of the compounds/ new chemical entities (NCEs). The client provides compounds/ new chemical entities (NCEs) to appellant DMPK studies. 2.1 DMPK stands for Drug Metabolism and Pharmacokinetics. DMPK research studies are required to understand the effect of drug compounds in the body over a course of time. DMPK studies are designed based on nature of compounds, therapeutic target, efficacy doses etc. This involves extensive knowledge sharing through emails and telecons from appellants and the study sponsor (customer) to come up with optimized design. The compounds/ new chemical entities (NCE) for DMPK research are provided to the appellants by the customer designated labs. After receiving the compounds DMPK research starts. The research involves four stages: 1. Dosing formulation development 2. Animal studies 3. Bioanalytical method developments and bioanalysis. 4. Pharmacokinetic analysis and reporting. 2.6 Thus, under the Contract research Agreement, the appellants is primarily required to provide scientific consultancy and advice with regard to drug discovery. Under the agreement, the consideration to be paid the appellants is based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemical Entities (NCEs). b. These NCEs in respect of which these studies are to be conducted are provided to them by their overseas client. c. The study undertaken by the Appellants called DMPK standalone studies on NCEs involve research in to formulation of doses in suitable carrier (solvent), administering those doses to identified guinea pigs (rats) and studying the effect of the doses administered and reporting the outcome of studies to the overseas client. d. Appellants admittedly were classifying these services provided by them to overseas clients under the category "Scientific or Technical Consultancy" service. e. From para L and P reproduced above, it is quite evident that the basic submission of the appellants is that the DMPK Studies undertaken by them are not on the NCE supplied by the foreign clients but are on the formulations and chosen guinea pigs, hence Rule 4 of POPS not applicable in their cases. 5.4 Rule 3 and 4 of Place of Provision of Services, Rules, 2012 are reproduced below: 3. Place of provision generally - The place of provision of a service shall be the location of the recipient of service: Provided that in case the location of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification. 5.6 Thus for the services to be treated as export of service post 2012, the service provided needs to be tested in terms of rule 6A of the Service Tax Rules, 1994 read with POPS Rules. As per (d) of Rule 6A(1), for service to be export of service, the place of provision of service should be outside India. Appellants have argued relying on the provisions of the POPS Rules and para 5.4.1 of the Education Guide that place of provision of the service in their case is outside India. However we find that in case of Step Pharmaceuticals, [2017 (049) STR 114 (AAR)], Authority for Advanced Ruling has in similar situation held that the provision of service is within India and hence cannot be said to be export of service. Relevant Excerpts from the said decision are reproduced below: "2. In terms of the sample Agreement, the applicant will be undertaking clinical trials of the drugs of the customers situated outside India on volunteers in India. The said volunteers will be given dosages of the drug as prescribed by the customers and medical professionals and thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service, it should be performed in relation to the goods which are made physically available by the recipient of the service in the non-taxable territory i.e. outside India to the provider of service located in India. In the instant case, the samples are made available to the applicant, the service provider, in India and location of actual performance of services is the premises of the applicant. Thereafter, only the report is being sent to the service recipient. As the said samples are entirely available in India either provided by the foreign customer or otherwise, the provisions of Rule 4(a) of POP Rules are aptly applicable to the instant case. Further the fact of location of actual performance of service also confirms the applicability of Rule 4(a) of POP Rules. 6. In short, the issue involved is whether the services i.e. Clinical Pharmacology and Clinical Research proposed to be provided by the applicant shall be liable to Service Tax, as place of provision of service would be location of the recipient of service in terms of Rule 3 of POP Rules or the location where services are actually performed in terms of Rule 4 of POP Rules. It is noticed that as per Rule 14 of PO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore would fall in the ambit of Rule 4(a) of POP Rules. 11. The contention of the applicant is that as per requirement of Rule 4(a) of POP Rules, it is mandatory that the services are provisioned qua the specific goods and not class thereof. It is observed that the language of said Rule 4(a) does not state that services provided be in respect of specific goods. Therefore, the contention of the applicant is not correct. 12. Further, applicant placed reliance on Paragraph 5.4.1 of the Education Guide published by TRU, which is one of the Wings under Central Board of Excise & Customs (C.B.E. & C.). Said paragraph is reproduced as under : 5.4 Rule 4 - Performance based services 5.4.1 What are the services that are provided "in respect of goods that are made physically available by the receiver to the service provider, in order to provide service"? - sub-rule (1) Services that are related to goods, and which require such goods to be made available to the service provider or a person acting on behalf of the service provider so that the service can be rendered, are covered here. The essential characteristic of a service to be covered under this rule is that the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates that it does not command the required legal backing to be binding on either side in any manner. In any case, contents of Education Guide cannot be substitute for POP Rules. As provisions of Rule 4 of POP Rules are clear, Education Guide cannot take precedence over it. 14. Applicant submits that the other service provided by him to the customers located outside India would be Clinical Research, which involves Project Management, Regulatory Affairs, Medical Writing, Project Monitoring, Bio-Statistics & Programming and Compliance. ……... 15. It is observed from the application submitted by the applicant that he would be charging consideration from the customers on project to project basis. It is apparent that list of such services to be provided by the applicant will not be uniform and will vary as per the requirements of project/customer. In case, said Agreement is examined in light of Rule 4 of POP Rules, there shall be two types of situations; (a) Service provided in respect of goods - Applicant has admitted that all above activities would not be provided in isolation. Therefore, when Clinical Research, i.e., Project Management, Regulatory Affairs, Medic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants in present case are akin to services of Clinical Pharmacology considered by the Authority for Advance Ruling in the decision referred to above. It cannot be disputed that in the present case the studies conducted are in respect of NCE provided by the overseas client to the Appellant. Commissioner has dealt various issues raised by the appellant to argue that the DMPK studies undertaken by them are not qua the goods provided by the overseas suppliers in para 23 of the impugned order. In para 23.1.3 and 23.1.4 Commissioner has recorded his findings stating as follows: "23.1.3 In this regard, I find that the activities of the assessee primarily relates to drug discovery services which involves medicinal chemistry, DMPK & pre-clinical services. Further, I find that Shri B.V.N.B.S. Sarma, Vice President of the assessee company in his statement dated 26-08- 2014, has, interalia, deposed that DMPK services are performed in two ways: In-Vitro & In-Vivo; that In-vitro studies involve use of enzymes, proteins, plasma etc. in solution, whereas, In-vivo studies involve use of smaller animals, like mice & rats; that their role involves understanding the solubility, distribution, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of 'technical testing/ inspection/ certification/ analysis of goods' is very much covered within the ambit of Rule 4 of the PPS Rules. In fact, I find that the services provided by the assessee are in the nature of research and analysis of compounds supplied by the clients with reference to the drug distribution metabolism and pharmaco kinetic study (DMPK), and thereafter transferring the outcome of the research effort to the foreign based client(s). Further, I find that it cannot be disputed that DMPK services are conducted with reference to these goods/ compounds supplied by the client(s) and therefore these goods/compound are the essence for provision of these services and without which, no research / study can be performed and the intended services rendered and delivered. Further, I find that, Shri B.V.N.B.S. Sarma, Vice President, in his statement dated 28-06-2014, has categorically confirmed the fact that in cases of standalone DMPK services, the compounds are exclusively made by the clients based upon the activity as a part of drug discovery process, for which the clients have exclusive rights and these will not be available in the market for sourcing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions in their own case to argue that the services provided by them should be considered as export of services. We find the said decision has been passed without considering the provisions of Place of Provision of Service Rules, 2012. Further the decision of tribunal does not lay down any where that the said decision is in respect of DMPK Standalone services being provided by the appellant. The said decision is clearly distinguishable on this account. Further as the said decision has not even considered the Place of Provision of Service Rules, 2012 which are soul of the scheme for determination of place of provision of service, for determining whether the same is provided in taxable territory (India) or outside the taxable territory, the said decision is per in curiam and cannot have any precedence value. 5.10 Appellants have also relied upon the decision in case of Advinus Therapeutics Ltd. in their support. They have specifically referred to para 16 & 17 of the decision reproduced below: "16.Not intended to tax the activity of altering goods supplied by the recipient of service or for repairs on goods, Rule 4(1) of Place of Provision of Services Rules, 2012 would ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as this cannot restrict or expand the scope of taxing statue. In case something falls within the scheme of taxation the same cannot be exempted till specifically exempted by a proper notification. In the present case we find that the activities under taken by the appellants in terms of DMPK studies squarely fall within the scheme of Rule 4 of POPS Rules, and hence the location of service provider shall be place of provision of service which is in India and hence cannot be treated as export of service in terms of Rule 6A of Service Tax Rules, 1994. 5.11 We do not find any relevance of the ruling from Australia in respect of VAT relied upon by the appellant's relevant in present facts and circumstances. A constitutional bench of Supreme Court has in case of Dilip Kumar & Company [2018 (361) ELT 577 9SC)] laid down the law with regards to interpretation of taxing statue as follows: "25. We are not suggesting that literal rule de hors the strict interpretation nor one should ignore to ascertain the interplay between 'strict interpretation' and 'literal interpretation'. We may reiterate at the cost of repetition that strict interpretation of a statute certainly involves literal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is clearly said. This is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." It was further observed : "In all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as there is no equity in matters of taxation...." Yet again, it was observed : "It may thus be taken as a maxim of tax law, which although not to be overstressed ought not to be forgotten that, "the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax on him", [Russel v. Scott, (1948) 2 All ER 1]. The proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imposed without words clearly showing an intention to lay the burden and that equitable construction of the words is not permissible [Ormond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute : "(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed : it cannot imply anything which is not expressed : it cannot import provisions in the statute so as to supply any deficiency : (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature's failure to express itself clearly". 5.12 Thus the demand of service tax has to be upheld on merits. It is settled principle in law that in case that when certain taxes have been short paid or not paid by the due date then they are to be paid along with the interest. In case of P V Vikhe Patil SSK [2007 (215) ELT 23 (Bom)] Hon'ble Bombay High Court has stated as follows: "10.So far as interest u/s. 11AB is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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