The Bangalore bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service recipient has not physically made available any goods to the service provider and holds service, being export of service, cannot be chargeable to service tax.
The appellant 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. 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.The appellant considers the services as export and does not pay service tax.
Department is of the view that the services provided by the 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). Accordingly, a show-cause notice was issued and the adjudicating authority has confirmed the demand with interest and penalty. Aggrieved by the order the appeal filed before Tribunal.
The Tribunal observed that 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. An 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 has only provided 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.
Further observed by the Tribunal that 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.
The Coram ofHonorable Mr. Ramesh Nair, Judicial Member and Honorable Mr. P. Anjani Kumar, Technical Member,while allowing the appeal has held that “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”.
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