Universal Pharmacy vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No.ST/168 & 169/09

(Arising out of Order-in-Appeal No.SN/89 to 90/NGP/2009 dated 25/03/2009 passed by Commissioner of Central Excise & Customs (Appeals), Nagpur)

For approval and signature:

Honble Mr.M.V. Ravindran, Member (Judicial) Honble Mr. P.R. Chandrasekharan, Member (Technical)

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 :Yes 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? ========================================

Universal Pharmacy Universal Ayurvaid Appellant

Vs. Commissioner of Central Excise, Respondent Nagpur

Appearance:

Ms.Puloma Dalal, CA for appellant Shri.B Kumar Iyer, Supdt. (AR), for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.R.Chandrasekharan, Member (Technical)

Date of Hearing : 23/01/2015 Date of Decision : 23/01/2015

ORDER NO

Per: M.V. Ravindran

1. These two appeals are disposed of by a common order as the issue involved is the same.

2. Heard both the sides and perused the records.

3. The brief facts that arise for consideration are the appellants herein entered into an agreement with M/s. Universal Medicaments Private Ltd., for sale of on going concerns along with all the assets and liabilities. The said agreement was entered in 1988-89; consideration for such sale of transfer of business to M/s.Universal Medicaments Pvt. Ltd. was lump sum consideration as well as the amounts to be paid as royalty. Consequent to such transaction, the Revenue authorities were of the view that the said amounts received by the appellants are taxable under scientific or technical consultancy service. Hence, they issued a show-cause notice demanding service tax, interest thereon and sought to impose penalties. The adjudicating authority after following the due process of law confirmed the demands along with interest and imposed penalties. On an appeal, the first appellate authority also upheld the orders-in-original.

4. Learned CA appearing on behalf of the appellant would draw our attention to the agreements entered by the appellants. She would submit that the agreements clearly indicated that the entire production facilities including the product formulaes, technical staff, production and storage facilities, quality control set up, product techniques and process know-how etc. for the manufacture of pharmaceutical goods have been sold to Universal Medicaments Pvt. Ltd. She would also submits that the said agreements indicate transfer of entire technical staff, trade marks, designs, patterns, product formulation, etc. The entire transaction is of the sale and purchase of on going facility. She would submit that similar issue came up before the Tribunal in the case of Modi-Mundipharma Pvt. Ltd. Vs. CCe, Meerut  2009-TIOL-968-CESTAT-DEL wherein the Bench held that the transaction cannot be covered under the scientific and technical consultancy services. She would also submit that in similar situation in the case of CST, Mumbai Vs. Just Textiles Ltd.  2014 (35) STR 395 (Tri-Mumbai) an identical view was taken. She also relied upon the decision of the Tribunal in the case of CCE, Jaipur-I Vs. Brenco Incorporated  2014 (36) STR 1061 (Tri-Del), Kopran Ltd. Vs. CCE , Raigad  2011 (23) STR 627 (Tri-Mumbai) and CCE & ST, Ahmedabad Vs. Hitachi Home and Life Solutions (I) Ltd., - 2014-TIOL-368-CESTAT-AHM for the proposition that once there is a sale of the manufacturing facility or production facility the said consideration received for such sale may not be covered under scientific and technical consultancy service.

5. Learned DR on the other hand draws our attention to the definition of scientific and technical consultancy services and submits that the said definition talks about the services rendered by any scientists or technology institution or organisation. It is his submission that the appellant being an organisation has sold the technical know-how as also the technical staff to the Universal Medicaments Pvt. Ltd. and they are also giving technical assistance it would be covered under the category of Scientific or Technical Consultancy. It is also submited that the royalty amount which has been paid is an amount connected to the manufacturing activity and also for technical assistance given to Universal Medicaments Pvt. Ltd.

6. After hearing both the sides and perusal of the records, we find that the contention of the Revenue that transaction involved in these two appeals would be taxable under the category of scientific or technical consultancy needs to be rejected at the out set. We find that the definition of scientific or technical consultancy under Section 65 (92) of the Finance Act, 1994 as amended reads as follows:

As per Section 65 (92) of the Finance Act, 1994 (as amended), the Scientific or technical consultancy means any advice, consultancy or scientific or technical assistance, rendered in any manner, either directly or indirectly by a scientists or a technocrat, or any science or technology institution or organisation, to any person in one or more disciplines of science or technology.

7. We find that for services to get covered under the said definition, there has to be a scientific or technical institution or organisation and they should have rendered the services for one or more disciplines of science or technology as an institution; or scientists or technocrats. It is on record that the appellants herein are manufacturers of pharmaceutical goods and had there own set up, which they have sold to Universal Medicaments Pvt. Ltd. On this factual matrix, we find that the judgements of the Tribunal in the case of Modi-Mundipharma Pvt. Ltd. (supra) squarely covers the issue in favour of the appellants. We re-produce the paragraph 6:

6. We have carefully considered the submissions from both sides. We also perused the agreement and the show cause notice. In the show cause notice it is alleged that the appellant was granted exclusive right to manufacture, use and sell within the territory, the preparation utilizing the know how and scientific and technical information and the teachings of the patents on payment of royalty. It is also alleged in the show cause notice that the appellant was receiving know-how during the disputed period. However, from the agreement it is noticed that there is no evidence of continuous providing of information, know how in relation to the manufacture. Further, it is not disputed that the appellant was manufacturing and selling products in the brand names, pyricontin, Diacontin, Fecontin, Metocontin, Morcontin, Nitrocontin, and Unicontin which are claimed to be registed brand names of the appellant company. In other words, they are not using the brand name of Mundipharma A.G.Switzerland. Receipt of know-how appears to be a one time affair. There is no evidence that their kbow-how is supplemented by Mundipharma A.G.Switzerland. Therefore, we are in agreement with the submissions on behalf of the appellant that royalty payment in the form of deferred payment for know-how received in 1990. Whether payment for such services rendered is made in one lump sum or made in installments or based on quantum of sales by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. From the available evidences on record, we accept the submission of the learned Sr. Advocate that the services were rendered in 1990 and for the said services payments were being made periodically as provided in the agreement.

8. In another judgement in the case of Just Textiles Ltd. (supra) it was held as under:

2.?The ground urged in the appeal memorandum by the Revenue is that, when scientific or technical services are rendered by public funded institutions or private agencies would come within the purview of taxable service and, therefore, the appellant is liable to pay service tax.

3.?Scientific and Technical Consultancy Services has been defined under Section 65(77) of the Finance Act, 1994 as :

 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 any person, in one or more disciplines of science or technology.

4.?The appellant herein is a manufacturer of textiles and by no stretch of imagination, it can be perceived that the appellant is a science or technology institution or Organisation. Therefore, the Appellate Commissioner is right in holding that the service rendered by the respondent in this case does not fall within the purview of taxable service of Scientific and Technical Consultancy.

9. In view of the foregoing and the judicial pronouncements and factually appellants being manufacturers; not rendering any advice or consultancy, we find that impugned orders are liable to set aside and we do so. The impugned orders are set aside and appeals are allowed with consequential relief, if any.

(Dictated in Court)

(P.R. Chandrasekharan) Member (Technical) (M.V. Ravindran) Member (Judicial)

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