Clinical Trial On Drugs Supplied By Foreign Service Recipient Amounts To "Export Of service": Ahmedabad CESTAT

The Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad ruled that the clinical trial on drugs supplied by foreign service recipient amounts to “Export of Service”.

The bench found that the appellant have carried out the clinical study on the drugs supplied by the foreign based service recipient. After carrying out the clinical study on the goods supplied by the service recipient the technical report thereof was supplied to the service recipient. The service recipient is located outside India.

The tribunal viewed that the activity of clinical trial on the drugs supplied by the foreign service recipient to the appellant amounts to export of service, hence, same is not liable to service tax.

The bench relied in the case of Commissioner Of Central Excise, Pune-I Vs. Sai Life Sciences Ltd in which it was held that service tax was a destination-based consumption tax in the sense that it was on commercial activities and was not a charge on the business but on the consumer. The emphasis is on consumption of service. In the instant case, the services rendered by the appellant were consumed abroad where the appellant’s clients used the service of inspection/test/analysis to decide whether the goods intended to be imported by them from India conformed to the requisite specifications and standards. In other words, the benefit of the service accrued to the foreign clients outside the Indian territory. By no stretch of imagination can it be said that there was no export of service. The services, in question, were exported. Export of service has ever been tax-free as observed by the CBEC. This exemption has never been affected by Notification No. 6/99-S.T. or its rescission. Ultimately, therefore, the bench held that no service tax was leviable from the appellant.

Facts

During the course of the audit of the Appellant’s record, it was noticed that the appellant had performed service in India and delivered the clinical study report to their foreign client through E-mail, Courier or website.

The clinical study was carried out on the goods supplied by the service recipient. The appellant had not paid service tax on the amount shown under the heading Export of Service.

The case of the department is that since the performance of service is in India and the clinical study was carried out on the goods supplied by the service recipient, therefore, the service of the appellant does not fall under the category of Export of Service in terms of Rule 4 of Place of Provision of Service Rules, 2012.

Accordingly, the show cause notice covering the period 01.07.2012 to 2013-2014 was issued.

Submissions

Vipul Khandhar, Chartered Accountant appearing on behalf of the appellant submitted that the exclusion provided under rule 4 of Place of Provision of Service Rules, 2012 is in respect of goods such as machinery, equipment and not the goods which is in the present case.

He submitted that their main activity is to analysis the effect of the drugs supplied by the service recipient and it is not a case of testing of the drug but objective of testing is the analysis the effect of the drug, submission of the report of the same. Therefore, the goods is not significant in the case.

He also submitted that this clinical trial conducted on drugs was approved by the Drug Controller.

Conclusion

The tribunal set aside the order of the PCIT which stated that the amount of Rs. 19,20,18,008/- received by M/s. Veeda Clinical Research Pvt. Ltd., Ahmedabad during the period 2012-13 (from 01.07.2012 onwards) to 2013-14 as detailed in the show-cause- notice is to be considered as taxable value received by them towards provision of “service” as per section 658(44) read with section 67 of the Finance Act, 1994.

Case Details

Case Name: Veeda Clinical Research P Limited V/S Commissioner of Central Excise & ST, Ahmedabad