Reliance Clinical Research vs Commissioner Of Service Tax

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I

Appeal No. ST/75 & 95/2010 ST/CO/94/11

(Arising out of Orders-in-Original No. 13/KLG/Th-II/2009 dated 28.10.2009 and 47/BR-43/ST/Th-I/2009 dated 24.11.2009 passed by Commissioner of Central Excise, Mumbai)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

1. Reliance Clinical Research Services Pvt. Ltd.

2. Siro Clinpharm Pvt. Ltd.

Appellant Vs.

Commissioner of Service Tax, Mumbai II Respondent

Appearance:

Ms. Isha Shah, Advocate Ms. Anisha Mandhania, Advocate Shri Rohit Jain, Advocate Ms. Hara Trivedi, Advocate

for appellants Shri R.K. Das, Deputy Commissioner (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 07.08.2015 Date of Decision:07.08.2015

ORDER NO

Per: M.V. Ravindran

These two appeals are directed against Orders-in-Original No. 13/KLG/Th-II/2009 dated 28.10.2009 and No. 47/BR-43/ST/Th-I/2009 dated 24.11.2009. Revenue has also filed Cross Objection.

2. The Cross Objection filed by the Revenue is disposed of as it is not raising any appeal from the order decided by the adjudicating authority.

3. Heard both sides and perused the records.

4. Brief facts that arise for consideration are that the appellant herein are engaged in providing Clinical Trial/Research Service to various Pharmaceutical companies located in India and abroad in respect of clinical testing of new drugs. Revenue authorities are of the view that the services rendered by the appellants would be covered under Technical Testing and Analysis under Section 65(106) of Finance Act, 1994. The period involved in both the appeals are from 01.07.2003 to 31.03.2006 and show cause notice invoking the extended period was issued by raising a ground that an explanation was added (with effect from 01.05.2006) which would mean that the appellants activities are covered under the service tax liability. The appellants contested the show cause notice on merits as well as on limitation. The adjudicating authority did not agree with the appellants and rejected the contentions and confirmed the demands with interest and also imposed penalties.

5. Learned Counsel appearing for the appellants would draw our attention to the definition of Technical Testing and Analysis and submit that prior to introduction of the explanation i.e from 01.05.2006, the activities of Clinical Trial and Tests of new drugs carried out by the appellants cannot be held to be liable to service tax. It is his submission that an Explanation which is added to Section 65(106) has expanded to the scope of the definition and hence it would not be applicable. She would submit an identical issue was agitated before the Tribunal in the case of B.A. Research India Ltd. V. CST -2010 (18) STR 604 (Tri. Ahd) and Synchron Research Services P. Ltd. V. Commr of S.T. - 2011 (24) STR 654 (Tri.  Ahmd.) and submit that the Tribunal held in favour of the assessee by holding that the explanation will not be applicable prior to 01.05.2006.

6. Learned D.R. reading the very same Explanation, submits that the explanation only sought to clarify what is covered under Technical Testing and Analysis services. He would submit that the Explanation is stating the obvious as to exclusion in the Explanation in respect of pharmaceuticals which was never covered under the main definition as the main definition talks about the services in relation to clinical trial services which would cover under the Technical Testing and Analysis undertaken by the appellant for the development and process, relies on judgement of of Supreme Court in the case of Sulochana Amma vs. Narayan Nair - 1995 (76) ELT 785 (SC) for the proposition that Explanation to a section is not a substantive provision by itself and it is entitled to explain the meaning of the words contained in the section or clarify certain ambiguities or clear them up. He would rely upon the stay order of this Tribunal in the case of Synchron Research Services Pvt. Ltd.  2008 (10) STR 180 (Tri.  Ahmd.) and Quintiles Research (India) Pvt. Ltd.  2009 (14) STR 268 (Tri.  Ahmd.) and submit that it was considered by the Bench that the Explanation is only giving clarification to the main definition.

7. We have considered the submissions made by both the sides and perused the records.

7.1 On perusal of the records we find that the facts are not much in dispute, in as much during the period 01.07.2003 to 31.03.2006 the appellant undisputedly rendered the services of clinical testing of new drugs to the pharmaceutical companies. It is the case of the Revenue that this services would be taxable due to an addition of Explanation in respect of the definition of the Technical Testing and Analysis as per Section 65 (106) of the Finance Act, 1994. We find that the issue is no more res integra and the Tribunal in the case of B.A. Research India Ltd. (supra) have gone into very same dispute and in respect of very same Explanation and held that the Explanation is effective perspectively. We reproduce the relevant paragraphs:-

8.?We have considered the submissions made by both the sides. The Commissioners observation which led to the conclusion that notifications have retrospective effect are reproduced :-

53.?The noticee has submitted that the explanation has the effect of expanding the scope of Technical Testing and Analysis service as it existed prior to 1-5-2006. Their argument is that there are two types of tests conducted on drugs. The first type is testing of the quality, purity, composition, strength etc. of the drugs themselves. The second type of testing is the effect of the drugs on human beings (clinical trials). These two types of tests are covered under different sets of rules in the Drugs and Cosmetics Rules, 1945. According to M/s. Quintiles Spectral (India) Pvt. Limited, Ahmedabad, Technical Testing and Analysis service, as it stood prior to 1-5-2006, covered only the first type of tests and therefore, the introduction of the Explanation had the effect of expanding the scope of Section 65(106). Therefore, this Explanation cannot have retrospective effect.

54.?I do not agree with this contention. As it stood prior to 1-5-2006, Technical Testing and Analysis service means any service in relation to physical, chemical, biological or any other scientific testing or analysis of goods or materials, but does not include any testing or analysis service provided in relation to human beings or animals. What this means is that the material which is tested (i.e. the specimen) should not be a human being or an animal is not included in the definition. However, it would certainly include all types of tests, whether clinical trials or otherwise, conducted on the drugs themselves. This position continues unchanged even after the introduction of the explanation. Therefore, I reject the noticees submission that the amendment introducing the explanation had any expanding effect on Section 65(106). However, I do agree that there is some ambiguity in the interpretation of Section 65(106) as it stood earlier. It is for this very reason that an explanation had to be introduced in this Section. We are unable to agree with the Commissioners observation. The explanation introduced by amendment gives an impression that the purpose is to make it clear that the definition does not include testing and analysis for the purpose of determination of nature of diseased condition, identification of disease, prevention of any disease and disorder in human beings or in animals. However, we find that the original definition clearly excluded all these services from the definition since the expression, any service provided in relation to human beings and animals is very wide and therefore was no need for exclusive definition. On the other hand the definition prior to amendment would give an impression that technical testing and analysis can be definitely said to be in relation to human beings or animals was excluded. To make it includable in the definition, the amendment becomes necessary. Therefore, as contended by the appellants, the amendment in reality expounded the scope of the definition and therefore, it cannot be clarificatory in nature.

9.?We are supported in taking this view from the decisions cited by learned advocate in the case of Skycell Communications Limited. The Tribunal was considering the explanation added to Notification No. 11/97-Customs, dated 1-3-1997 by amending Notification No. 03/98-Customs, dated 11-2-1998. Originally serial No. 173 provided rate of duty for computer software. By Notification No. 03/98-Cus., the explanation was added expanding the meaning of computer software and specifically provided that term does not include software required for operation of any machine performing a specific function, other than data processing and incorporating or working in conjunction with an automatic data processing machine. The Tribunal observed that the explanation imposed restriction prejudicially on importers of computer software and hence cannot be given retrospective effect. In the case of Gothi Thermoforming Inds. the Tribunal observed that insertion of clause (f) in Notification No. 16/97 had the effect of reducing the scope of exemption of intermediate products (inputs) from payment of duty, in this view the clause (f) has to be seen as substantive provision rather than clarificatory of pre-existing provisions of the notification. In the case of Commissioner of Income Tax v. Rajasthan Mercantile I Co. Limited and others reported in ITR, Volume-214 page No. 400, Honble Delhi High Court observed as In the instant case, Explanation 2 in question actually purports to be a Provision defining the concept of entertainment expenditure, by including a few kinds of expenditures within its scope. Only because a provision attached to a section bears the nomenclature Explanation, it cannot always be considered as conveying the true and natural meaning of the words or the provisions of the Act. The meaning attributable to the relevant provisions of the Act without the Explanations shall have to be considered first, to find out whether it created an artificial situation, or created ambiguity, and if so, the Explanation may be considered as having injected the true and real meaning to those provisions from the very inception of the provisions to which the Explanation is added.

10.?In the case of Sedco Fbrex International Drill Inc., the Honble Supreme Court observed in Para 17 as follows :-

As was affirmed by this Court in Goslino Mario a cardinal principle of the tax tax is that the law to be applied Is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Lit. vs. CIT). An Explanation to a statutory Provision may fulfill the purpose of clearing up an ambiguity in the main Provision or an Explanation can add to and widen the scope of the main Section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main Provision came into force. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts. Further, the service tax Commissionerate, Ahmedabad also had clarified that services rendered by the appellant is not liable to service tax, supports the view that there was no doubt to be clarified with retrospective effect.

7.3 This judgement and order of the Tribunal was followed by the Tribunal in the case of Synchron Research Services Pvt. Ltd. (supra) (wherein one of us was a Member) and held in favour of the appellant therein in an identical issue.

7.4 Reliance placed by the learned D.R in the case of Sulochana Amma (supra) in respect of how to read the Explanation to Section will not carry the case any further. That was the case wherein it was in respect of the provisions in Criminal Procedure Code, while in the case in hand there are authoritative pronouncements in the Tribunals decision in the case of B.A. Research India Ltd. (supra) and Synchron Research Services Pvt. Ltd. (supra) and are directly on the very same issue.

7.5 In view of the foregoing, we hold that the impugned orders are unsustainable and liable to be set aside and we do so.

8. Impugned orders are set aside and the appeals are allowed.

(Dictated in Court)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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