Case Law Details
MedGenome Labs Ltd. Vs Commissioner Of Central Tax (CESTAT Bangalore)
As per Rule 3 of POPS Rules, the place of provision of service shall be the location of the recipient of service. In the present case, the location of the recipient of service is in abroad. Therefore, the service deemed to have been provided in abroad at the place of service recipient. In exception to the above Rule 3, the place of provision of service on the basis of performance is provided under Rule 4; according to which, if the services are provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service or person acting on behalf of the provider of service in order to provide the service, the place of provision of service shall be the location of the services which are actually performed.
In the present case, it is beyond any doubt that the service recipient has not physically made available any goods to the appellant being a service provider. The service recipient has no connection in any manner with regard to the collection of samples. It is the appellant who on their own procured the samples from the hospitals and conduct the analytical tests.
The appellant have only providing the test reports in electronic or web form to the recipient of service i.e. their foreign client. Therefore, the specific condition under Rule 4 that the service should be provided in respect of goods which must be physically provided by the recipient of service to the provider is not satisfied.
Moreover, we also do not agree with the Revenue that the sample on which the test was conducted is goods. In the present case, the samples are blood and tissue extracted from the human body. The appellant have neither purchased the said goods nor is saleable. The appellant has paid the cost only for the service for extraction of the samples. Therefore, the sample, in our considered view, cannot be treated as saleable goods. For this reason also, the condition of Rule 4 is not satisfied. In view of the above, the place of provision of service is clearly the location of the recipient of service, which in the present case is country of appellant’s clients.
Applying the Rule 6A of Service Tax Rules, 1994 in the fact of the present case, the provider of service i.e. the appellant is located in India which is the taxable territory, recipient of service i.e. client of the appellant is located outside India. The service is not specified in Section 66 of the Finance Act. As per the discussion made hereinabove, the place of provision of service is clearly outside India. There is no dispute that the payment of such services has been received by the appellant as a service provider in convertible foreign exchange. In view of the above, the appellant have clearly satisfied the conditions required for treating the service as export of service. Therefore, the appellant’s service, being export of service, cannot be chargeable to service tax.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The brief facts of the case are that the assessee is engaged in providing clinical genomic solutions. They offer end-to-end genomic services to patient and genomics bio-informatics to certain global pharma research and diagnostic organisations. Clients approach the appellant for analysis and for identification of genetic patterns and linkages of a specific disease or ailment based on scientific data report (data based) generated in respect of such diseases, ailments. The report is delivered to clients in electronic form / web delivery. The report is used by the clients in publishing research articles or manufacture of drugs or formulation after conducting further research and development. Based on the service agreements entered into with the clients of the appellant, the clients issue statements of work (SOW) describing specific services needed from the appellant. Bases on the SOW, the appellant determines the criterion of procuring the samples i.e. age, gender, disease or disorder and the source to procure the samples from i.e. hospitals, research centers, etc. These samples are drawn as per specific requirements of testing or analysis as per the SOW received from the clients. The samples are not provided by the clients of the appellant nor do they belong to the clients nor are they returned to the clients. The appellant procures the said samples for the purpose of tests and analysis from certain hospitals and research centers. These institutes charge certain amount from the appellant towards the cost of testing and drawing of these samples. The amount paid to the institutes is not for purchase of samples but the amount paid is only towards reimbursement of service cost for drawing of samples. After the samples are drawn, the DNA/RNA may also be extracted by the appellant or is done by the institute that supplied the samples and then the appellant performs its tests and analysis to prepare the final report desired by their clients. The final report is sent to clients electronically. The deliverables of the assessee-appellant are used by the clients for further research, manufacture or publication in research journals outside India. The assessee-appellant is paid by the clients in the form of cost plus mark up basis and such consideration is paid to the appellant in foreign exchange. When such services are rendered to Indian clients, service tax is paid by the assessee-appellant whereas, when the client is situated abroad who uses the report outside India in further research or manufacture or publication of studies and makes payment in foreign currency. The assessee-appellant considers the services as export and does not pay service tax. The contention of the Department is that the services provided by the assessee-appellant in the form of supplying testing data in the electronic form does not amount to export of service in terms of Rule 3 of Place of Provision of Service, 2012 (POPS Rules, for short). Accordingly, a show-cause notice was issued and the adjudicating authority has confirmed the demand with interest and penalty. Therefore, the present appeal filed by the appellant against the confirmation of demand. Further while confirming the demand, the adjudicating authority has extended the benefit of cum-tax. The Department challenges the calculation of service tax with reference to cum-tax benefit. Accordingly, Revenue also filed an appeal against the common impugned order.
2.1. Shri Prasad Paranjape, learned counsel appearing on behalf of the appellant-assessee, reiterates the submissions made in the grounds of appeal. He further submits that the services provided by the appellant-assessee fulfil all the conditions mentioned under Rule 6A of the Service Tax Rules, 1994 and therefore it qualifies as export of service read with Rule 3 of the POPS Rules. He submits that the reliance placed by the Department on Rule 4(a) of the POPS Rules is misplaced inasmuch as the services of the assessee are not provided in respect of the goods. This is because the services of appellant-assessee are carried out on the blood samples for the purpose of arriving at the report or analysis on the factual parameters. He submits that in the process, the said samples get substantially consumed or extinguished and thus, the services are not in respect of goods. Remains of samples are destroyed by the appellant-assessee as bio-medical waste. The samples collected for the purpose of analysis is not goods. Under Section 2(50) of the Finance Act, 1994, the term ‘goods’ has the meaning assigned to it in clause (7) of Section 2 of the Sale of Goods Act, 1930. The said section defines ‘goods’ to mean every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. He submits that by no stretch of imagination, the samples of blood or tissues can be called as moveable property or satisfying any other description in the definition of the term goods as mentioned above. The samples are not marketable or saleable and in fact not marketed or bought or sold and therefore they don’t satisfy the test of qualifying to be ‘goods’. He further submits that in the present case, the samples are not made available by the recipient of the services to the appellant and are procured by the appellant at its own discretion and cost. He submits that the allegation in the show-cause notice as well as the finding in the impugned order to the effect that the samples are made available by the clients is factually incorrect as evidenced from the documents placed on record. In this regards, he refers to the invoice issued by Narayana Nethralaya which proves that samples are procured by the appellant and not being provided by its clients. He submits that in the present case, the services are not in respect of goods; no improvement or alteration is intended to take place on the alleged goods i.e. the samples. He also submits that as regards the expression ‘in respect of goods’, which means on the goods and he places reliance on the Hon’ble Supreme Court’s judgment in the case of State of Madras Vs. Swastik Tobacco Factory [AIR 1966 SC 1000]. He also referred to the CBEC’s Education Guide under TRU Circular dt. 20/06/2012. He submits that in view of the above facts, the services of the assessee-appellant will be covered by Rule 3 and not Rule 4 of the POPS Rules. He placed reliance on the following case laws:-
i. Advinus Therapeutics [2017(51) STR 298 (T)]
ii. Sai Life Sciencies Ltd. [2016(42) STR 882 (T)]
iii. Dow Chemical International [2019 SCC Online CESTAT 6008]
iv. Fertin Pharma [2020(38) GSTL 33 (T)]
v. Fertin Pharma [2018 SCC OnLine CESTAT 10452]
vi. Ferting Pharma [2017(6) GSTL 475 (T)]
vii. Indeus Life Sciences [2019 SCC OnLine CESTAT 8233]
2.2. He further submits that in the assessee’s own case for the period January, 2016 and March 2016, while examining the refund claim filed by the assessee-appellant, the assessee-appellant was granted refund considering its services qualify as export. Since the Department has accepted the above order for the same service under another proceedings, the Revenue cannot be allowed to take contrary view. He places reliance on the ratio of the Hon’ble Supreme Court in the case of Radhasoami Satsang Vs. CIT [(1992) 1 SCC 659] and also in Birla Corporation Vs. CCE [2005(186) ELT 266 (SC)].
2.3. He alternatively submits that the services of the assessee-appellant were in the knowledge of the Department and in fact once they granted the refund, thereby the appellant established a case of arguable and the allegation of suppression cannot be invoked and extended period is not sustainable. He further submits that the assessee-appellant has been filing service tax returns disclosing export turnover which is presently in dispute; in fact the appellant had also filed refund claim for the period October, 2014 to December 2014 on 16/10/2015, in which the disputed transactions were declared as export, which was later on withdrawn. Thus, the Department was aware of the export claim of the assessee-appellant since beginning. In view of these facts, demand of extended period and imposition of 100% penalty is not sustainable. Learned counsel prays for allowing the appeal filed by the assessee-appellant.
3. On the other hand, Smt. D.S. Sangeetha, learned Additional Commissioner(AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. She submits that since the testing was carried on the samples viz. blood, tissues etc., it cannot be said that the service was not provided in respect of goods; therefore, the assessee’s service cannot fall under the category of ‘export of service’ and hence the same is taxable.
4.1. We have carefully considered the submissions and perused the records. The issue to be decided in the present case is that whether the service provided by the assessee-appellant qualifies as export of service or otherwise in the facts of the present case. As the facts narrated above, the appellant-assessee M/s. MedGenome Labs Limited is a service provider and the MedGenome Inc., USA is the service recipient. The foreign client approaches the appellant for analysis and for identification of genetic patterns and linkages of the specific diseases or ailments based on scientific data, report generated in respect of such diseases/ailments. Report is delivered to foreign client in electronic or web delivery. The report is used by the clients for publishing research articles or manufacture of drugs or formulation after conducting further research and development. As per this fact, the service which is provided by the appellant to their foreign client is analysis report of the samples and not any goods. The collection of samples, analysis thereon is conducted by the appellant in India. It is undisputed fact that the appellant are not receiving any goods from their foreign client but conducting the tests. The entire emphasis of the Revenue to hold that the appellant’s activity does not fall under the export of service viz. that the appellant are providing the services in respect of the goods i.e. samples. In this regard, it is necessary to go through the relevant provision Rule 3 and Rule 4 of POPS Rules, 2012, which are reproduced below:-
Place of provision generally.-
3. The place of provision of a service shall be the location of the recipient of service:
Provided that in case “of services other than online information and database access or retrieval services”(Inserted vide Notification 46/2012- Service Tax) where the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.
Place of provision of performance based services.-
4.The place of provision of following services shall be the location where the services are actually performed, namely:-
(a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service:
Provided that when such services are provided from a remote location by way of electronic means the place of provision shall be the location where goods are situated at the time of provision of service:
Provided further that this clause shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than that which is required for such repair.
(b) services provided to an individual, represented either as the recipient of service or a person acting on behalf of the recipient, which require the physical presence of the receiver or the person acting on behalf of the receiver, with the provider for the provision of the service.
As per Rule 3 of POPS Rules, the place of provision of service shall be the location of the recipient of service. In the present case, the location of the recipient of service is in abroad. Therefore, the service deemed to have been provided in abroad at the place of service recipient. In exception to the above Rule 3, the place of provision of service on the basis of performance is provided under Rule 4; according to which, if the services are provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service or person acting on behalf of the provider of service in order to provide the service, the place of provision of service shall be the location of the services which are actually performed. In the present case, it is beyond any doubt that the service recipient has not physically made available any goods to the appellant being a service provider. The service recipient has no connection in any manner with regard to the collection of samples. It is the appellant who on their own procured the samples from the hospitals and conduct the analytical tests. The appellant have only providing the test reports in electronic or web form to the recipient of service i.e. their foreign client. Therefore, the specific condition under Rule 4 that the service should be provided in respect of goods which must be physically provided by the recipient of service to the provider is not satisfied. Moreover, we also do not agree with the Revenue that the sample on which the test was conducted is goods. In the present case, the samples are blood and tissue extracted from the human body. The appellant have neither purchased the said goods nor is saleable. The appellant has paid the cost only for the service for extraction of the samples. Therefore, the sample, in our considered view, cannot be treated as saleable goods. For this reason also, the condition of Rule 4 is not satisfied. In view of the above, the place of provision of service is clearly the location of the recipient of service, which in the present case is country of appellant’s clients. To qualify export of services, Rule 6A of Service Tax Rules, 1994 has provided certain conditions. The said Rule 6A is reproduced below:-
RULE 6A. Export of services.-
(1) The provision of any service provided or agreed to be provided shall be treated as export of service when,-
(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and
(2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.”
Applying the above Rule in the fact of the present case, the provider of service i.e. the appellant is located in India which is the taxable territory, recipient of service i.e. client of the appellant is located outside India. The service is not specified in Section 66 of the Finance Act. As per the discussion made hereinabove, the place of provision of service is clearly outside India. There is no dispute that the payment of such services has been received by the appellant as a service provider in convertible foreign exchange. In view of the above, the appellant have clearly satisfied the conditions required for treating the service as export of service. Therefore, the appellant’s service, being export of service, cannot be chargeable to service tax.
4.2. Since we have made out our opinion on the basis of clear facts of the present case and strictly interpreting the statutory provisions, we do not feel to discuss the judgements cited by the rival sides. Since the appeal is decided on its merits itself, we need not go into the issue of calculation of demand for which the Revenue has filed the appeal.
5. As a result, the appeal filed by the assessee M/s. MedGenome Labs Ltd. (ST/20326/2021) is allowed with consequential relief, if any, as per law. The appeal filed by the Revenue (ST/20358/2021) is dismissed.
(Order pronounced in open court on 01/04/2022)
