Case Law Details
Cadila Pharmaceuticals Ltd. Vs C.S.T (CESTAT Ahmedabad)
The Central Excise and Service Tax Appellate Tribunal (CESTAT) Ahmedabad recently issued a significant order concerning the applicability of service tax on fees paid to the U.S. Food and Drug Administration (USFDA) for the approval of pharmaceutical products. This article delves into the details of the case, the CESTAT’s decision, and its implications.
Detailed Analysis:
1. Background: The appeal revolves around an order dated 24.11.2021, where the Learned Commissioner (Appeals) remanded the case to the Adjudicating Authority. The purpose of this remand was to examine the issue on its merits, following the principles of natural justice. The central question in this case is whether the fees paid to the USFDA for the approval of pharmaceutical products can be categorized as a “service” under the Finance Act, 1994, and thus subject to service tax under Section 66A or any other provision.
2. Appellant’s Argument: The appellant, represented by Shri S. J. Vyas, argued that the Adjudicating Authority had previously determined that the fees paid to the USFDA did not relate to any service. The basis for this decision was that the fees constituted statutory payments to the U.S. government. As a result, the service tax liability was dropped. The appellant contended that the Commissioner (Appeals) had no legal grounds to remand the case since the issue of whether the activity qualified as a service was not contested during the original proceedings.
3. Revenue’s Response: Shri Rajesh Nathan, Learned Assistant Commissioner (AR), representing the revenue, reiterated the findings of the impugned order. He asserted that the entire case hinged on the taxability of the activity for which the fees were paid to the USFDA. Therefore, the question of whether the activity constituted a service or not was an integral part of the overall dispute raised by the revenue before the Commissioner (Appeals). Consequently, the Commissioner (Appeals) had rightly remanded the case to the Adjudicating Authority for further examination.
4. CESTAT’s Decision: After carefully considering both sides’ arguments and reviewing the records, the CESTAT observed that the primary issue in the appeal was whether the Commissioner (Appeals) had correctly ordered a remand. The crux of the matter was whether the fees paid by the appellant to the USFDA constituted payment for a service and, therefore, were subject to Service Tax.
4.1 Interpretation of ‘Negative List’: The CESTAT noted that whether the USFDA should be considered as a part of the government, as per the ‘Negative List’ under Section 65B(37), was pivotal to determining whether the activity amounted to a service. Hence, the question of whether the activity was a service or not was consequential to establishing the USFDA’s status as either a government entity or otherwise.
4.2 No Finality in the Original Order: The CESTAT disagreed with the appellant’s assertion that the activity’s classification as a service had attained finality in the original order, which was not challenged by the department before the Commissioner (Appeals). According to the CESTAT, the matter of whether the activity constituted a service was still open for examination.
5. Conclusion: The CESTAT upheld the impugned order, where the matter was remanded to the Commissioner (Appeals) for further review. The CESTAT’s decision indicates that the issue of whether fees paid to the USFDA constitute payment for a service remains unresolved. The appellant retains the opportunity to present its case and raise any relevant issues in its defense before the Adjudicating Authority.
Implications: This decision underscores the complexity of determining whether payments to government agencies like the USFDA should be subject to service tax. The matter requires a careful evaluation of statutory provisions and definitions, and the final outcome may impact various businesses involved in pharmaceuticals and regulatory approvals.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal is directed against impugned order in appeal dated 24.11.2021. Whereby, the Learned Commissioner (Appeals) has remanded the matter to the Adjudicating Authority, to examine the issue on merit following the principles of natural Justice. The issue involved in the present case is that whether the payment of fees paid to USFDA for approval of their medicaments can be treated as service as per Finance Act, 1994 and consequently liable to Service Tax on reverse charge basis under Section 66A or otherwise.
2. Shri S. J. Vyas, Learned Counsel appearing on behalf of the appellant submits that the Adjudicating Authority in his order clearly held that the fees paid to USFDA is not against any service on the ground that it is a statutory fees paid to the Government of U.S.A. therefore no service is involved hence dropped service tax liability. It is a submission that against the Order-in-Original the revenue filed the appeal before commissioner (Appeals). However, whether the activity is service or otherwise was not challenged. Therefore, the remand by the commissioner (Appeals) is not legal and Hence the order needs to be set aside.
3. Shri Rajesh Nathan, Learned Assistant Commissioner (AR) appearing on behalf of the revenue reiterates the findings of the impugned order. He submits that the entire case involved the taxability of the activity for which the fees was paid to USFDA. Therefore, the issue whether the activity is service or otherwise is a part of overall dispute raised by the revenue before the Commissioner (Appeals). Accordingly, the Learned Commissioner (Appeals) has rightly remanded the matter to the Adjudicating Authority.
4. We have carefully considered the submission made by both sides and perused the records. We find that the limited issue in the present appeal is that whether the remand ordered by the commissioner (Appeals) is correct or otherwise. We find that the entire issue involved is whether the fees paid by the appellant to overseas USFDA is against the service and hence the same is liable to Service Tax or otherwise. The Learned Counsel strongly submits that the Adjudicating authority has decided that the fees paid by the appellant to USFDA is not towards any service on the ground that the USFDA is a Government of USA department, therefore, no service is involved.
4.1 We find that the activity is a service or otherwise that depends on the issue that whether the USFDA should be treated as Government in terms of ‘Negative List’ under Section 65B(37). Therefore, the activity is service or otherwise is a consequential to the decision, whether the Service provider to the government or other then the Government. Therefore, we do not agree with the appellant that the decision of the activity as service attained finality as per original order, which was not challenged by the department before the Commissioner (Appeals). Accordingly, we do not find any infirmity in the impugned order in appeal whereby the matter was remanded to the commissioner (Appeals). The appellant is at liberty to raise any of the issue in their defense before the Adjudicating authority. Therefore, the remand is not prejudicial to the interest of the appellant. Hence, we are of the view that the impugned order is clearly sustainable and the appeal has no substance.
5. Therefore, the impugned order is upheld and the appeal filed by the appellant is dismissed.
(Pronounced in the open court on 23.08.2023)
