Clinical Trial/Testing Services Conducted Outside India but Reports Delivered to Indian Recipient Liable to Service Tax: CESTAT [Read Order]
CESTAT ruled that clinical trial and testing services conducted abroad but with reports delivered to India are taxable under Technical Testing and Analysis Services.
The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that clinical trial and testing services conducted outside India but whose reports were delivered to an Indian recipient are liable to service tax under Technical Testing and Analysis Services.
Biocon Limited, a Bengaluru-based biopharmaceutical company, had engaged foreign laboratories to conduct clinical trials and analysis of its drug formulations. The entire testing was performed abroad, and Biocon paid the service providers in foreign currency.
During an audit, the department observed that Biocon had not paid service tax under the reverse charge mechanism and issued a demand for the period May 2006 to March 2011.
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The appellant’s counsel argued that all activities were performed outside India and that the delivery of the reports in India did not amount to service performance within the country.
The counsel further argued that clinical trials are excluded from Technical Testing and Analysis as per Section 65(106) of the Finance Act, 1994, and that even if tax was due, the company could have claimed CENVAT credit, making it revenue neutral.
The revenue counsel argued that the service was not complete until the testing reports were delivered to Biocon in India. The counsel relied on B.A. Research India Ltd., arguing that delivery of the report formed an essential part of the service, and since the benefit accrued in India, the service was taxable under the Import of Services Rules, 2006.
The two-member bench of P.A. Augustian (Judicial) and R. Bhagya Devi (Technical) observed that although the clinical trials were performed abroad, the reports were received and used in India, completing the service within the taxable territory. The tribunal explained that delivery of the report is an integral part of the service, making Biocon liable to pay service tax for the normal period.
The tribunal pointed out that there was no suppression or intent to evade tax, as the appellant acted under a bona fide belief that such services were not taxable. It also explained that the situation was revenue-neutral since CENVAT credit was available. The tribunal upheld the tax and interest for the normal period but set aside the extended limitation and penalties under Section 80 of the Finance Act, 1994. The appeals were partly allowed.
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