The Punjab and Haryana High Court, while allowing the Goods and Services Tax (GST) refund, held that innovation and development services in the pharma provided to a German company amounted to an export of services.
The bench of Justice Ritu Bahri and Justice Manisha Batra has observed that The activities performed by the petitioner are original activities and for doing the same, it has been charging costs from FKDG, the German Company. Therefore, it cannot be stated to be intermediary of FKDG and the services provided by it to FKDG cannot be stated to be intermediary services.
The Petitioner, M/s Fresenius Kabi Oncology Ltd, a leading pharmaceutical company engaged in the manufacture of anti-cancer drugs and the innovation and development of oncology drugs has approached the court to challenge two orders. The orders, dated September 13, 2019, and March 4, 2021, were issued by the respective respondents, rejecting the petitioner’s claims for a GST refund covering the period from July 2017 to March 2019.
The petitioner is known for maintaining global standards in the field of oncology drugs and actively participates in the development and production of Active Pharmaceuticals Ingredients (APIs) and Finished Dosage Forms for chemotherapy. The company’s Innovation and Development Centre has received recognition from the Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology, Government of India, highlighting their commitment to research and development.
The petitioner has made substantial investments in research and development, with a dedicated team of over 200 scientists working on innovative chemistry processes, formulations, and treatment methods for cancer. Their laboratories are equipped with advanced equipment to ensure the highest standards of quality.
The petitioner had entered into agreements for distribution of products as well as innovation & development services with various companies across the world including Fresenius Kabi Deutschland GmbH Germany (FKDG”) which is incorporated in Germany under German Laws.
Another Agreement dated 01.07.2021 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.
Under the Service Tax regime, the Assistant Commissioner had previously determined that the petitioner’s services qualified as exports under Section 6A of the Export of Service Rules in 2016. The bench observed that the same decision of the Asst. Commissioner was binding on the Respondents and it could not be re-considered when no appeal had been preferred against the earlier assessment.
In the GST regime, the petitioner sought a refund for the period of 2017-2019, but certain discrepancies were initially noted, which the petitioner subsequently addressed. However, a show cause notice was later issued, questioning the export status of the services provided. The Deputy Commissioner eventually rejected all 8 refund claims, even for periods where no show cause notices were issued.
The bench observed that the fact of non-issuance of SCN to the remaining 5 claims was not disputed in the reply filed by the respondents. It is not in dispute that issuance of show cause notice and granting of opportunity of hearing before rejecting any refund claim, is a statutory requirement.
The petitioner claimed that they meet all the conditions for export of services as defined in Section 2(6) of the Integrated GST Act, 2017, and that they provide services directly to the German company without any intermediaries.
The Punjab and Haryana High court has ruled in favor of the petitioner, setting aside the orders dated September 13, 2019, and March 4, 2021. The respondents have been directed to release the refund amount of Rs.25,74,16,653 for the specified period within four weeks.
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