Fresenius Kabi Oncology Ltd. Vs Union of India and others (Punjab and Haryana HC)
Introduction: The Punjab and Haryana High Court recently issued a significant judgment in the case of Fresenius Kabi Oncology Ltd. vs. Union of India and others. The court addressed the claim for a refund filed by Fresenius Kabi Oncology Ltd. (FKOL) for the period July 2017 to March 2019. The crux of the matter was whether the innovation and development services provided by FKOL to a German company, Fresenius Kabi Deutschland GmbH Germany (FKDG), could be considered an export of service.
Detailed Analysis:
1. Background of Fresenius Kabi Oncology Ltd. (FKOL): FKOL is a prominent pharmaceutical company specializing in the production of anti-cancer drugs and innovation in the field of oncology drugs. They maintain global standards and operate with a strong focus on research and development (R&D). FKOL has a state-of-the-art Innovation and Development Centre in Gurugram, Haryana, recognized by the Department of Scientific and Industrial Research (DSIR).
2. Services Provided by FKOL: FKOL is engaged in the development, manufacture, and production of specialty pharmaceutical products in the field of oncology. They also produce Active Pharmaceuticals Ingredients (APIs) and Finished Dosage Forms for chemotherapy. FKOL’s services include clinical research, medical services, intellectual property management, and project management. They invest significantly in R&D and have intellectual property rights in various drugs and manufacturing processes.
3. Agreements with FKDG: FKOL entered into several agreements with Fresenius Kabi Deutschland GmbH Germany (FKDG) for providing specific services. These agreements detailed the services to be provided by FKOL to FKDG, including safety document preparation, pharmacovigilance support, and more.
4. Export of Services under GST Regime: Under the Service Tax regime, it was determined that FKOL’s services qualified as an export of service, fulfilling the conditions outlined in Section 6A of the Export of Service Rules. This assessment was binding on the respondents.
5. Refund Claims Under GST: After the introduction of the GST Act, FKOL applied for refunds under the GST regime for various periods. While some refund claims were processed, a show cause notice was issued for others, alleging that the exported services did not meet the criteria under Section 2(b)(v) of the IGST Act.
6. Discrepancies and Refund Rejection: The authorities identified discrepancies and issued deficiency memos for certain refund claims. Subsequently, a show cause notice was issued, leading to the rejection of all refund claims by the Deputy Commissioner. FKOL challenged this decision in an appeal, which was dismissed.
Conclusion: The Punjab and Haryana High Court, in its judgment, emphasized that FKOL fulfilled all the conditions under Section 2(6) of the IGST Act to qualify as an exporter of services. It noted that no show cause notice had been issued for some of the refund claims, which was a statutory requirement. The court also emphasized that consistency in the revenue’s stand across assessments was crucial. Therefore, the court set aside the orders rejecting the refund claims and directed the release of the refund amount to FKOL.
This judgment has significant implications for companies engaged in the export of services and highlights the importance of adhering to statutory requirements and ensuring consistency in assessments.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
1. The petitioner has approached this Court seeking quashing of order dated 13.09.2019 (Annexure P-10) and order dated 04.03.2021 (Annexure P- 12) passed by Respondent Nos. 3 and 2 respectively, whereby the claim of the petitioner for refund for the period July 2017 to March 2019 for which separate applications for refund in Form RFD-01 have been filed, was rejected.
2. The petitioner is one of the leading pharmaceuticals companies engaged in manufacture of anti- cancer drugs as well as innovation and development in the field of oncology drugs, maintaining global standards. The petitioner is an entity constantly striving to grow to the Global level on the strength of its deep-rooted values and key strategic Investments in the field of Innovation and Development related to oncology drugs.
3. The petitioner develops, manufactures and makes specialty pharmaceutical products in the area of oncology and has also emerged as a competing Centre for development and production of Active Pharmaceuticals Ingredients (APIs) and) Finished Dosage Forms that are used in chemotherapy. Petitioner has its API manufacturing Plant at Kalyani, West Bengal and Finished Dosage manufacturing plant at Baddi, Himachal Pradesh. Petitioner’s Innovation and Development Centre at Gurugram, Haryana, has also been recognized by Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology, Government of India. A true copy of the recognition certificate dated 27.04.2015 Issued by the DSIR is annexed as Annexure P-1. The petitioner is continuously enhancing the 1&D scale through investments in equipment capabilities and people. Scientists are engaged in developing innovative chemistry processes as well as formulations and discharge forms for treatment of cancer. The laboratories of the petitioners are equipped with modern equipment such as NMR Mass spectrometry, RD, DSC, EGA, GCS, HPLCS etc. to name a few thereby ensuring uncompromising standards of quality.
4. The petitioner had invested about 250 Crore on I&D alone in the past few years. Many of the products which are manufactured in Petitioner’s plants were also scientifically researched and developed by the Innovation and Development Centreof the petitioner company.. The petitioner employs more than 200 scientists in various fields of research and development who are continuously working to find out Innovative products by way of 1&D for captive as well as export markets. In order to develop the business of Innovation and development, the petitioner has invested huge capital and resources, by way of skilled scientists, experts, buildings and machinery for the innovation and development centre of the company. Innovation and development are not a static process and it depends on amount of capital investment and R&D, which is made for the manufacturing of various products by the company. The petitioner is providing services for and sells oncology products to number of entities throughout the world. The petitioner is having intellectual property rights in various drugs and their manufacturing processes which are manufactured in the country and are being exported also.
5. The petitioner had entered into agreements distribution of products as well as innovation & development services with various companies across the world including Fresenius Kabi Deutschland GmbH Germany (“hereinafter called FKDG”) which is incorporated in Germany under German Laws. The petitioner had entered into various agreements with the FKDG, Germany for providing services. The copy of the Service Agreement dated 23.12.2011 is annexed as Annexure P-2. In the said Agreement, FKDG has appointed the petitioner for providing specific services specified in Appendix-A annexed with the said Agreement for an agreed compensation. As per said Agreement, the petitioner would be providing the following services:-
(i) Preparation, coordination and completion of safety documents;
(ii) Providing supports to Global Competence Centre of Pharmacovigilance for Oncology Products
(iii) Providing support to Global Business Centre, (GBC),Generics; and
(iv) Any other services as mutually agreed between petitioner and FKDG.
6. Another Agreement dated 01.07.2021 Annexure P-3 was entered into between the petitioner and FKDG, which is called Research and Development Service Contract. The Petitioner had also entered into Service Agreements with FKDG on 04.01.2013 and 01.01.2018. As per the said agreement, the Petitioner had to provide services only to FKDG and not to any other entity. The scope of the services as per the Agreement -reads as under:
“The support services to be rendered by the contractor includes:-
1) Clinical research and medical services includes but not limited to-
1. Bioequivalence studies –
Conduct and management of bioequivalence studies to support product registration in EU/US/PHM countries.
