Aurobindo Pharma Ltd. Vs Commissioner of Central Excise (CESTAT Hyderabad)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Hyderabad considered an appeal by M/s Aurobindo Pharma Ltd. against an Order-in-Original dated 28.08.2014 confirming Service Tax demands, interest and penalties principally under “Banking and Other Financial Services” and “Scientific or Technical Consultancy Services” for 2011-12 and 2012-13 up to June 2012.
The first dispute concerned charges deducted by foreign/intermediary banks while export proceeds were transmitted from foreign buyers through banking channels. The appellant, a manufacture-exporter of pharmaceutical products, contended that the foreign buyers remitted consideration through their banking arrangements and that the foreign/intermediary banks deducted charges before the balance reached the appellant’s Indian bank. The Department proceeded on the basis that, because the deductions economically reduced the amount received by the appellant, the appellant was the recipient of banking services and was liable to Service Tax under Reverse Charge Mechanism. The Tribunal rejected that approach. It found no evidence that the appellant had engaged the foreign banks, entered into contractual arrangements with them, or was otherwise obliged to pay consideration to them for services rendered to it. Merely bearing the economic impact of deductions did not establish a service provider-service recipient relationship. The Tribunal also relied on the appellant’s own earlier decision, Final Order No. 30919/2020 dated 09.09.2020, where the same issue for the earlier period had been decided in the appellant’s favour, and on Eastman Exports Global Clothing Pvt Ltd. The demand under Banking and Other Financial Services was accordingly held unsustainable.
The second dispute concerned payments made to M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban for preparation and compilation of clinical and non-clinical overviews and regulatory documentation required for obtaining overseas pharmaceutical product approvals. Revenue classified the activities as “Scientific or Technical Consultancy Services” because the consultants possessed scientific and technical expertise and the documentation involved scientific and technical product particulars. The appellant submitted that the agencies merely compiled already available data and published material and prepared regulatory dossiers/forms; they did not undertake independent scientific research, experimentation or technical studies, nor did they provide advice in a discipline of science or technology.
The Tribunal followed the appellant’s earlier decision and the decision in IPCA Laboratories Ltd., holding that regulatory services connected with obtaining permissions/registrations and meeting overseas regulatory requirements cannot merely on that account be classified as Scientific or Technical Consultancy Services. It emphasised that the essential character of a service must be determined from the activity actually undertaken, rather than merely from the professional qualifications of the persons rendering it. Preparation and compilation of regulatory documentation from information already available with the appellant or in published literature did not, without anything further, amount to scientific or technical consultancy.
The Tribunal also noted that Service Tax had been discharged by the appellant on these payments under Management or Business Consultant Service and that the amount had been appropriated in the impugned order while the same activity was simultaneously reclassified by Revenue under Scientific or Technical Consultancy Service. Once that classification was found unsustainable, the consequential demand could not survive. The Tribunal further found that the appellant’s earlier decision squarely applied because no demonstrated change in the nature of the services or material facts was shown.
Since the substantive Service Tax demands were set aside, the consequential demands of interest and penalties also could not survive. The Tribunal observed that the dispute concerning the consultancy services was essentially one of classification and interpretation, particularly because the appellant had been discharging Service Tax under another taxable category. The appellant’s specific contention regarding computation of penalty under Section 76 of the Finance Act, 1994, in view of the amendment effective from 08.04.2011, was not examined independently because the substantive demands themselves were being set aside.
Accordingly, the Tribunal held that the appellant could not be treated as recipient of services rendered by foreign/intermediary banks merely because charges were deducted while transmitting export proceeds; the regulatory documentation and approval-assistance services did not fall within Scientific or Technical Consultancy Services; and the consequential interest and penalties were also set aside. The impugned order was set aside and the appeal was allowed with consequential relief, if any, in accordance with law.
Cases Discussed
- Aurobindo Pharma Ltd., Vs Commissioner of Central Excise and Service Tax, Hyderabad – III, Final Order No. 30919/2020 dated 09.09.2020
- Eastman Exports Global Clothing Pvt Ltd., Vs Commissioner of Central Excise & Service Tax, Coimbatore (2025) 26 Centax 71 (Tri.-Mad)
- IPCA Laboratories Ltd., Vs Commissioner of Central Excise & Service Tax, LTU, Mumbai, 2019 (21) G.S.T.L. 502 (Tri.-Mumbai)
FULL TEXT OF THE ORDER OF CESTAT HYDERABAD
This appeal is directed against Order-in-Original No. HYD-EXCUS-002-COM-025-14-15 dated 28.08.2014, whereby, the Adjudicating Authority conformed the demands of Service Tax, along with interest and penalties, principally under the categories of “Banking and Other Financial Services” and “Scientific or Technical Consultancy Services”, in respect of the period 2011-12 and 2012-13 (up to June, 2012).
2. Heard the Learned Counsel for the appellant and the Learned Authorized Representative for the Revenue and perused the records with submissions.
3. The dispute essentially involves the following two issues;
i) Whether the appellant, being an exporter of goods, can be regarded as recipient of services rendered by foreign banks/intermediary banks involved in transmission of export proceeds remitted by foreign buyer and, consequently, whether Service Tax is payable by the appellant under Reverse Charge Mechanism on the charges deducted by such foreign banks /intermediaries; and
ii) Whether the services received from foreign entities, namely M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban, in connection with preparation/compilation of documents and obtaining regulatory approvals for Pharmaceutical products are classifiable as “Scientific or Technical Consultancy Services”.
4. Demand on Foreign Bank Charges
The appellant is a manufacture-exporter of Pharmaceutical products. The foreign buyers remit the consideration for exported goods through banking channels. In the course of transmission of such remittance, one or more foreign / intermediary banks may be involved. These banks deduct their charges and remit the balance amount, which ultimately reaches the appellant’s bank in India.
5. Revenue proceeded on the premise that, since the charges of such foreign banks ultimately reduce the amount received by the appellant and since transmission through banking channels facilities receipt of export proceeds by the appellant, the appellant must be treated as the recipient of the services rendered by such foreign banks. On that basis, Service Tax has been demanded under Reverse Charge Mechanism.
6. We find that the very same issue had arisen in the appellant’s own case for the earlier period 2006-07 to 2010-11 and was decided by this Tribunal in Aurobindo Pharma Ltd., Vs Commissioner of Central Excise and Service Tax, Hyderabad – III, Final Order No. 30919/2020 dated 09.09.2020. In that case, this Tribunal examined the liability in respect of deductions made by foreign banks while transmitting export proceeds and set aside the demand.
7. The factual matrix for the present period is not shown to be materially different. No material has been produced by Revenue to demonstrate that the appellant had engaged the foreign banks, entered into any contractual arrangement with them, or was otherwise under an obligation to pay consideration to such foreign banks for any service rendered to it.
8. Merely because the appeal ultimately bears the economic impact of deduction of certain charges in the chain of remittance, it cannot automatically we concluded that there exists a service provider-service recipient relationship between the foreign intermediary bank and the appellant. For levy under Reverse Charge, the taxable relationship contemplated under the Finance Act, 1994 must first be established.
9. The foreign buyer remits the export consideration through its banking arrangements. The intervention of corresponding/intermediary banks in transmission of funds is essentially part of the inter-bank arrangement for transfer of money. In the absence of evidence showing that such foreign banks were engaged by the appellant for rendering services to it, the appellant cannot be fastened with Service Tax merely because the amount ultimately credited to its account is net of certain bank charges.
10. We also find support for this proposition from the subsequent decision relied upon by the appellant, including Eastman Exports Global Clothing Pvt Ltd., Vs Commissioner of Central Excise & Service Tax, Coimbatore (2025) 26 Centax 71 (Tri.-Mad), wherein, the Tribunal hold that amounts with held/deducted in the course of receipt of export proceeds would not attract Service Tax in the absence of the requisite service provider-recipient relationship.
11. In view of the above and, more importantly, in view of the decision in the appellant’s own case for the immediately presiding period, which has not been shown to have been reversed or stayed by any higher judicial forum, we find no justification to take a different view for subsequent period involved herein.
12. Accordingly, the demand of Service Tax under Banking and Other Financial Services on charges deducted by foreign/intermediary banks is not sustainable and is liable to be set aside.
13. Scientific or Technical Consultancy Services
The second issue relates to payments made by the appellant to M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban.
14. The appellant manufacturers and exports Pharmaceutical products. For marketing such products in overseas jurisdictions, approvals of the concerned regulatory authorities are required. For obtaining such approvals, applications containing dossiers relating to product composition, specifications, analytical results and other particulars to be filed with the regulatory authorities.
15. For the purpose, the appellant engaged the aforesaid foreign entities for compilation and preparation of clinical and non-clinical overviews and other documentation necessary for filing applications before the regulatory authorities.
16. The Revenue has classified these activities as “Scientific or Technical Consultancy Services”, mainly on the reasoning that the consultant possessed technical/scientific expertise, their team consisted of professionals from Pharmaceutical and Biomedical fields, and preparation of regulatory documents necessarily involved examination of scientific and technical particulars relating to the products.
17. The appellant, on the other hand, submits that these agencies merely complied already available data and published material and prepared regulatory dossiers/forms. They did not undertake any independent scientific research, experimentation or technical study on the appellant’s products nor did they render advice in any discipline of science or technology.
18. We find that this issue also stands covered by the decision of this Tribunal in the appellant’s own case in Final Order No. 30919/2020 dated 09.09.2020. While dealing with the very same foreign service providers and substantially identical activities, the Tribunal followed the decision in IPCA Laboratories Ltd., Vs Commissioner of Central Excise & Service Tax, LTU, Mumbai, 2019 (21) G.S.T.L. 502 (Tri.-Mumbai), and held that services relating to obtaining permissions/registrations and meeting regulatory requirements for marketing Pharmaceutical products abroad cannot, merely on that account, be classified as Scientific or Technical Consultancy Services.
19. The essential character of the service has to be determined from the nature of the activity actually undertaken and not merely from the professional qualifications of the persons rendering the service. Possession of scientific or technical expertise by such consultant does not ipso facto make every activity undertaken by such consultant a “Scientific or Technical Consultancy Service”.
20. For the taxable service in question, there must be advice, consultancy or scientific/technical assistance rendered by a scientist, technocrat or a science or technology institution/organization in a discipline of science or technology. Preparation and compilation of documentation for regulatory filings from information already available with the appellant or in published literature cannot, without anything further, be equated with Scientific or Technical Consultancy.
21. It is also significant that, as submitted by the appellant, Service Tax in respect of these payments had been discharged under the category of Management or Business Consultant Service, and the amount so paid was appropriated in the impugned order while simultaneously confirming the demand by reclassifying the very activity under Scientific or Technical Consultancy Service. Once the classification adopted by Revenue itself is found not sustainable, the consequential demand cannot survive.
22. The ratio of the appellant’s own earlier decision squarely applies to the present period, there being no demonstrated change either in the nature of the services or in the material in the facts. We, therefore, hold that the services rendered by M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban for preparation/compilation of regulatory dossiers and assistance in obtaining approvals cannot be classified under Scientific or Technical Consultancy Service. Consequently, the demand under this end is also liable to be set aside.
23. Once the substantive demands of Service Tax under the aforesaid heads are held to be not sustainable, the consequential demands of interest and penalties cannot survive. Even otherwise, in so far as the allegation regarding Scientific or Technical Consultancy Services is concerned, the record indicates that the appellant had been discharging Service Tax treating the activity under another taxable category. The dispute was thus essentially one of classification and interpretation. Such circumstances also do not warrant imposition of penalty for alleged short payment arising merely on account of a different classification adopted by Revenue.
24. The appellant has further raised a specific contention regarding computation of penalty under Section 76 of the Finance Act, 1994 in view of the amendment effective from 08.04.2011. However, since the substantive demands themselves are being set aside, it is unnecessary to examine this issue independently.
25. In view of the forgoing discussion, we hold that;
(a) The appellant cannot be treated as recipient of the services rendered by foreign/intermediary banks merely because such banks deducted charges while transmitting export proceeds from foreign buyers; consequently, the demand under Banking and Other Financial Services on reverse charge basis is set aside;
(b) The services rendered by M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban in relation to preparation/compilation of regulatory documentation and assistance for obtaining overseas regulatory approvals do not fall within the ambit of Scientific or Technical Consultancy Services; Consequently, the demand under the said category is also set aside; and
(c) The consequential demands of interest and penalties are also set aside.
26. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief, if any, in accordance with law.
(Pronounced in the open court on 25.08.2026)
