Clinical research services on foreign client-supplied goods, performed in India but reports delivered abroad, qualify as export of service; Rule 4 of POPS Rules inapplicable as goods are altered, not merely serviced.

FINAL ORDER NO. 11772/2024 RAMESH NAIR :

The brief facts of the case is that during the course of audit of appellant’s record, it was noticed that the appellant had performed service in India and delivered clinical study report to their foreign client through E-mail, Courier or website. The clinical study was carried out on the goods supplied by the service recipient. The appellant had not paid service tax on the amount shown under the heading Export of Service. The case of the department is that since the performance of service is in India and the clinical study was carried out on the goods supplied by the service recipient, therefore, the service of the appellant does not fall under the category of Export of Service in terms of Rule 4 of Place of Provision of Service Rules, 2012. Accordingly, the show cause notice dated 13.11.2014 covering the period 01.07.2012 to 2013-2014 was issued. The said show cause notice was adjudicated wherein the Adjudicating Authority i.e. Principal Commissioner of Service Tax, Ahmedabad passed the following order:-

“(i) I order that the amount of Rs. 19,20,18,008/- received by M/s. Veeda Clinical Research Pvt. Ltd., Ahmedabad during the period 2012-13 (from 01.07.2012 onwards) to 2013-14 as detailed in the show-cause- notice No. STC/04-08/O&A/14-15 dated 13.11.2014 is to be considered as taxable value received by them towards provision of "service" as per section 658(44) read with section 67 of the Finance Act, 1994:

(ii) I confirm demand of Service Tax amounting to Rs. 2,37,33.426/- [Rupees Two Crores Thirty Seven Lakhs Thirty Three Thousands Four Hundred Twenty Six only] leviable on the aforesaid taxable value of Rs. 19,20,18,008/- charged and collected by M/s. Veeda Clinical Research Pvt. Ltd.. Ahmedabad from their clients during the period 2012-13 (from 01.07.2012 onwards) to 2013-14 as discussed above. under section 73(2) read with section 68;

(iii) I order that the said assessee should pay Interest as applicable under Section 75 of the Finance Act. 1994 on the above confirmed demand of service tax totaling Rs. 2,37,33,426/-:

(iv) I impose a penalty of Rs. 23.73.343/ [Rupees Twenty Three Lakhs Seventy Three Thousands Three Hundred Forty Three only] under Section 76 of the Finance Act, 1994;

(v) I impose penalty of Rs. 10,000/- [Rupees Ten Thousands only] under Section 77(2) of the Finance Act. 1994 for their failure to self assess service tax liability and to file ST-3 return in the appropriate manner.

(vi) The amount of penalty imposed under Section 76 shall be reduced to twenty-five percent of the penalty imposed under this order as above. provided where such reduced penalty is also paid within a period of thirty days of the date of receipt of this order, along with the service tax and interest amount as above.”

1.2 Being aggrieved by the aforesaid order dated 25.02.2016, the appellant filed the present appeal.

2. Shri Vipul Khandhar, Learned Chartered Accountant appearing on behalf of the appellant submits that the exclusion provided under rule 4 of Place of Provision of Service Rules, 2012 is in respect of goods such as machinery, equipment and not the goods which is in the present case. He submits that their main activity is to analysis the effect of the drugs supplied by the service recipient and it is not a case of testing of the drug but objective of testing is the analysis the effect of the drug, submission of the report of the same. Therefore, the goods is not significant in the present case. He also submits that this clinical trial conducted on drugs wa