Custom, Excise & Service Tax Tribunal
Kopran Ltd vs Commissioner Of Central Excise, Raigad on 1 March, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPLICATION No. ST/Extn./1768/10 APPEAL No. ST/158/08 (Arising out of Order-in-Original No. 49/SLM(49)/COMMR/RGD/07-08 dated 31.3.2008 passed by Commissioner of Central Excise, Raigad) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. Sahab Singh, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Kopran Ltd. Appellant Vs. Commissioner of Central Excise, Raigad Respondent Appearance:
Shri Vishal Agarwal, Advocate with Shri Krishna Kumar, Advocate, for appellant Shri A.K. Prasad, Authorised Representative (JCDR), for respondent CORAM:
Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. Sahab Singh, Member (Technical) Dates of Hearing: 3rd & 4th February, 2011 Date of Decision: 1st March, 2011 ORDER NO Per: P.G. Chacko In adjudication of a show-cause notice dated 18.10.2006 issued to the appellant, the Commissioner confirmed demand of service tax of Rs.507.95 lakhs against them under Section 73(1) of the Finance Act, 1994, demanded interest thereon under Section 75 of the Act and imposed penalties on the appellant under Sections 76 to 78 of the Act. The demand of service tax is partly under the head scientific or technical consultancy in terms of Section 65(92) read with Section 65(105)(za) of the Act and partly under the head market research agency in terms of Section 65(69) read with Section 65(105)(y) of the Act. The entire demand is on various fees received by the appellant from M/s. Cadila Healthcare Ltd. (Cadila, for short) as consideration for various benefits granted to the latter under various agreements. The particulars of the agreements entered into between the appellant and Cadila are as follows:-
Sl.No. Name of Agreement Date of Agreement Nature of Agreement
1. Deed of Assignment of trade marks 18.9.2001 Transfer of the brand name ATEN to Cadila Healthcare Ltd. on a permanent basis. The consideration was Rs.70 crores.
2. Agreement for transfer of know-how for bulk drug 18.9.2001 Transfer of know-how for manufacture of the bulk drug ATENOLOL. The consideration was Rs.20 crores.
3. Agreement for transfer of know-how for formulation 18.9.2001 Transfer of technical know-how to make tablets (formulations). The consideration was Rs.5 crores.
4. Formulation supply agreement 18.9.2001 For manufacture and sale of formulations to M/s. Cadila Healthcare Ltd.
5. Marketing assistance agreement 18.9.2001 For assistance in marketing products of brand name ATEN. The consideration was Rs.5 crores.
6. Supplementary agreement of marketing assistance 26.11.2001 Modification in the marketing assistance agreement dated 18.9.2001.
Certain trade marks (ATENOLOL, ATEN etc.) were perpetually assigned to Cadila by the appellant for a consideration of Rs.70 crores under the first agreement. Under the second agreement, technical know-how for manufacturing the bulk drug ATENOLOL was transferred by the appellant to Cadila for a consideration of Rs.20 crores. Under the third agreement, for the more beneficial use and exploitation of the trade marks by Cadila, the appellant provided technical know-how to manufacture the tablets (formulations) on which the trade marks were permitted to be used. For this transfer, the appellant received a consideration of Rs.5 crores. A major part of the demand of service tax is on the total fees received by the appellant from Cadila, amounting to Rs.95 crores (Rs.9,500 lakhs) under these agreements during 2001-02 and 2002-03 and the same is under the head scientific or technical consultancy service.
2. Under the marketing assistance agreement, the appellant agreed to provide marketing and product-related services and assistance to Cadila. The agreement mentioned eight services alphabetically from [A] to [H] including Market Development (Product Growth Achievement) Services [G] and Product Promotion Services [H].
Cadila was liable to pay a sum of Rs.2 crores per annum to the appellant for five years and the appellant was liable to provide marketing assistance and services to them during this period. The supplementary agreement dated 26.11.2001 between the appellant and Cadila amended the definition of services in the Marketing Assistance Agreement and accordingly there were two services to be provided by the appellant to Cadila under the Marketing Assistance Agreement and these were Production Promotion Services and Market Development (Product Growth Achievement) Services. For providing these services, the appellant received a total amount of Rs.5 crores (Rs.500 lakhs) from Cadila during the period from 2001-02 to 2003-04. Part of the demand of tax is on this amount of Rs.500 lakhs and the same is under the head market research agency service. The appellant had also received an amount of Rs.38.99 lakhs from M/s. Global Pharma, Dubai and M/s. Kampala Pharma, Uganda, as consideration for Product Development Service in 2002-03. A small part of the demand of tax is on this amount and the same is also under the head market research agency service. The adjudicating authority also invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994 on the ground that the appellant suppressed material facts.
3.1. On a perusal of the records and on hearing both sides, we find that, with regard to a major part of the demand of service tax, the question to be considered is whether the appellant can be said to have provided scientific or technical consultancy service to Cadila under the first three agreements dated 18.9.2001. The learned counsel for the appellant analyzed the definition of scientific or technical consultancy [Section 65(92) of the Finance Act, 1994] and submitted that the Revenue should establish the following three ingredients in the transactions between the appellant and Cadila so as to hold the former liable to pay service tax under the above head in terms of Section 65(105)(za) read with Section 65(92) of the Act:-
(i) Advice, consultancy or scientific or technical assistance should be rendered in any manner;
(ii) It should be rendered by a scientist or a technocrat or any science or technology institution or organization to a client;
(iii) It should be rendered in one or more disciplines of science or technology.
The counsel claimed that none of the above was established by the Revenue. No advice, consultancy or scientific/technical assistance was involved in the transfer of brand names/trade marks or of know-how by the appellant to Cadila. The appellant-company was not shown to be a science or technology institution or organization. It was also not shown that any advice/consultancy/assistance was given by the appellant to Cadila in any specific discipline of science or technology. Contextually, the counsel referred to certain clarifications contained in MF(DR) letter F.No. 11/1/2001-TRU dated 9.7.2001, wherein the definition of scientific or technical consultancy was examined and it was clarified that the consultation envisaged under this head should be in the nature of an expert opinion or advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology etc. One point considered in the said circular was whether services rendered by doctors, medical colleges, nursing homes, hospitals, diagnostic and pathological labs etc. would come under the purview of the proposed levy. It was clarified that these categories of service providers were not known as scientists or technocrats or science or technology institutions or organizations and, therefore, they would not be covered under the above head for levy of service tax. The learned counsel pointed out that the above clarification was based on common parlance. The appellant-company was not known as a science or technology institution or organization in common parlance and hence could not be held to have rendered scientific or technical consultancy service to Cadila. Therefore, according to the counsel, nothing contained in the aforesaid agreements could be relied upon to hold that the appellant provided scientific or technical consultancy service to Cadila. The learned counsel, then, submitted that the transactions covered by the aforesaid agreements would squarely fall under intellectual property service which was introduced as a taxable service for the first time on 10.9.2004 vide Section 65(55b). In this connection, the counsel also referred to the definition of intellectual property right given under Section 65(55a). He argued that the subject transactions were, therefore, not liable to be classified under any other pre-existing entry under Section 65. In this connection, the learned counsel relied on the Honble High Courts judgment in Indian National Ship Owners Association vs. UOI 2009 (14) STR 289 (Bom.) (particularly para 38 of the judgment). The counsel also relied on the Tribunals decision in the cases of BPL Telecom Pvt. Ltd. vs. CCE, Cochin 2007 (6) STR 374 (Tri.-Bang.), Amco Batteries Ltd. vs. CCE, Bangalore 2006 (2) STR 346 (Tri.-Bang.), Bajaj Auto Ltd. vs. CCE, Aurangabad 2005 (179) ELT 481 (Tri.-Mumbai), Ispat Industries Ltd. vs. CCE, Raigad 2007 (8) STR 282 (Tri.-Mumbai), Navinon Ltd. vs. CCE, Mumbai 2004 (172) ELT 400 (Tri.-Mumbai) etc. 3.2. Ld. counsel also claimed support from Matrix Laboratories Ltd. vs. CCE, Hyderabad 2008 (9) STR 15 (Tri.-Bang.) wherein it was held by the Tribunal (after examining the terms of the relevant agreement) that scientific or technical consultancy was not involved in the sale of technical know-how for a consideration.
3.3. It was also submitted that the adjudicating authority ought to have treated the transaction value as cum-tax value and, accordingly, the tax element should have been deducted for the purpose of arriving at the taxable value of the service. In this connection, the counsel relied on CCE, Patna vs. Advantage Media Consultant 2008 (10) STR 449 (Tri.-Kolkata) affirmed by the Supreme Court in CCE vs. Advantage Media Consultant 2009 (14) STR J49 (SC). On the strength of the cited case law, the learned counsel claimed the benefit of Section 67 of the Finance Act, 1994 (read with Explanation 2 thereto) for the period of dispute involved in the present case. The counsel also referred to cases like Robot Detective & Security Agency vs. CCE, Chennai 2009 (14) STR 689 (Tri.-Chennai), Rampur Engg. Co. Ltd. vs. CCE, Jaipur-I 2006 (3) STR 650 (Tri.-Del.), Gem Star Enterprises (P) Ltd. vs. CCE, Calicut 2007 (7) STR 342 (Tri.-Bang.) etc. in this context.
3.4. Yet another contention raised by the counsel was that, as the sale of trade marks and technical know-how were taxable under entry 39 of Schedule C appended to the Maharashtra Value-Added Tax Act, 2002, the same could not be subject to levy of service tax. The argument was that trade mark and technical know-how were goods and sale of such goods could not be service for levy of service tax.
3.5. The learned counsel also argued that, in any case, the extended period of limitation was not invocable for recovery of any amount of service tax from the appellant. In this connection, it was submitted that a demand of service tax raised in an earlier show-cause notice dated 16.4.2003 on an amount of Rs.5 crores paid by Cadila to the appellant as consideration for transfer of technical know-how was dropped by the adjudicating authority. It was submitted that, where the factum of receipt of payment from Cadila by the appellant was within the knowledge of the department, it could not be alleged that the appellant suppressed the same with intent to evade payment of service tax. In this connection, reliance was placed on Nizam Sugar Factory vs. CCE, A.P. 2006 (197) ELT 465 (SC) and ECE Industries Ltd. vs. CCE, New Delhi 2004 (164) ELT 236 (SC). Therefore, according to the counsel, the extended period of limitation was not invocable in this case.
4.1. The learned JCDR, on the other hand, would consider the first three agreements dated 18.9.2001 to be signifying a single transaction between the appellant and Cadila. He pointed out that, under one agreement, the appellant transferred to Cadila certain trade marks to be affixed on the medicaments to be manufactured by the latter. Under another agreement, the technical know-how required for the manufacture of bulk drugs was transferred and, under the third agreement, the know-how for the manufacture of the end products (medicaments) was transferred. Without this transfer of technical know-how, it was practically not possible for the said company to enjoy the benefit of the trade marks. In this scenario, according to the JCDR, the transactions between the appellant and the said company should be treated as a package deal resembling the transactions considered by the apex court in the case of Andhra Petrochemicals vs. CC. Madras 1997 (90) ELT 275 (SC). According to the JCDR, the first four agreements dated 18.9.2001 purported to enable Cadila to manufacture branded formulations (medicaments) under the advice and technical assistance of the appellant and, therefore, the appellant should be held to have provided scientific or technical consultancy service to Cadila. Had Cadila wanted to manufacture ATEN formulations on their own, they would have sought the advice and assistance of a scientific or technical consultant who would have given them the same service which the appellant did in this case. Ld. JCDR also invoked the essential character test (vide Section 65A(2)(b) of the Finance Act, 1994) in his bid to show that what the appellant provided to Cadila was technical advice and consultancy. As the transactions constituted a single package, service tax was leviable under the above head on the total sum of fees collected by the appellant from Cadila. It was also argued, with reference to the definition of scientific or technical consultancy, that the appellant-company came within the meaning of the term organization used in the definition. It was argued that the word science or the word technology was not to be understood as an adjective for organization. In other words, any organization simpliciter could provide the above service to a client in one or more disciplines of science or technology. According to the JCDR, the appellant-company being an organization was capable of rendering such service. In this context, he also referred to the Directors Report (2005-06) of the appellant-company and relied on a part of the report to show that Kopran Research Laboratories Ltd. (KRLL) was a wholly owned subsidiary of the appellant-company carrying out research and development activities, that the appellant-company was incurring all expenses related to such R & D activities, that even the day-to-day expenses of KRLL were supported by the appellant-company and that KRLL agreed to give to the appellant-company the right to exploit the patents, intellectual property and all rights appurtenant thereto in any manner so as to recover the current and future dues. It was also pointed out that the directors of the appellant-company had passed a resolution to initiate the process for merging KRLL with it. Thus the learned JCDR endeavoured to show that the appellant-company was virtually engaged in scientific and technical activities through KRLL during the period of dispute. For this reason also, the appellant should be held to have provided scientific or technical consultancy service to Cadila. Referring to the High Courts decision in Indian National Ship Owners Association case, it was submitted that the appeal filed by the department was disposed of by the Supreme Court without taking any definite view on the question of law raised before it. The JCDR also placed on record a copy of the apex courts order dated 1.12.2010. On this basis, he submitted that the High Courts judgment could not be relied upon.
4.2. Referring to the counsels plea of cum-tax value, the learned JCDR contended that this benefit was not liable to be granted to the appellant as Explanation 2 added to Section 67 of the Finance Act, 1994 with effect from 10.9.2004 could not be applied retrospectively. In this connection, reliance was placed on RPG Enterprises Ltd. vs. CCE, Mumbai-IV 2008 (11) STR 488 (Tri.-Mumbai).
4.3. The learned JCDR pointed out that the definition of intellectual property right service under clause (55b) of Section 65 of the Finance Act, 1994 as it stood on 10.9.2004 covered only temporary transfer of intellectual property right and hence would not apply to the facts of the present case inasmuch as the transfer of trade marks and technical know-how effected under the relevant agreements was perpetual and not temporary. It was only with effect from 16.6.2005 that the word temporarily used in the above definition was replaced by the phrase whether permanently or otherwise. The endeavour of the JCDR was to show that the insertion of clause (55a) (definition of intellectual property right) and clause (55b) (definition of intellectual property service) in the Finance Act, 1994 did not encompass the service rendered by the appellant to Cadila. For this reason also, according to the learned JCDR, the High Courts judgment in Indian National Ship Owners Association case could not be pressed into service by the appellant to avoid tax liability under the head scientific or technical consultancy.
4.4. The learned JCDR also opposed the plea of limitation. Neither by supplying copies of the agreements to the department nor otherwise did the appellant disclose to the department the fact that they provided a taxable service to Cadila and received consideration for the same. This material fact was suppressed with intent to evade payment of service tax. Hence the larger period of limitation was certainly invocable in this case. The earlier show-cause notice dated 16.4.2003 would not alter this position as it was dropped on 28.12.2006 and the present demand did not relate to any period after 28.12.2006, argued the ld. JCDR.
5. After giving careful consideration to the submissions, we have found valid points in the submissions of the counsel. The issue debated before us revolves around the definition of scientific or technical consultancy under Section 65 of the Finance Act, 1994. This definition reads thus:-
'Scientific or technical consultancy means any advice, consultancy or scientific or technical assistance rendered in any manner, either directly or indirectly, by a scientist or a technocrat or any science or technology institution or organization, to a client, in one or more disciplines of science or technology. As rightly pointed out by the learned counsel, three ingredients should be established to bring a service within the ambit of scientific or technical consultancy and these are
(a) advice, consultancy or scientific or technical assistance should be rendered in any manner to a client; (b) it should be rendered by a scientist or technocrat or any science or technology institution or organization; and (c) it should be rendered in one or more disciplines of science or technology. The nature of advice/consultancy/technical assistance was illustrated in M.F.(D.R.) Letter dated 9.7.2001 ibid thus: Such consultation may be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology etc. We have got to examine the facts of this case in this backdrop. The terms of the relevant agreements indicate that these agreements were intended primarily to cover the following transactions, viz., transfer of brand names/trademarks to Cadila against payment of Rs.70 crores, transfer of know-how for manufacture of bulk drug against payment of Rs.20 crores and transfer of technical know-how to make tablets (formulations) against payment of Rs.5 crores. None of these transactions can be conceptually reduced to mere advice, consultancy or scientific/technical assistance. On the other hand, they involve permanent transfer of intellectual property in one form or another and are presently covered by intellectual property service. The ld. JCDRs essential character test is not applicable as the service is classifiable only under one sub-clause of clause (105) of Section 65 of the Act, which is sub-clause (zzr). Each agreement covered the transfer of an intellectual property and, therefore, a combination of the agreements (which was envisaged by JCDR as package deal) would not make any difference. This rules out the applicability of Andhra Petrochemicals (supra). Moreover, the appellant-company cannot be said to be a science or technology institution or organization. Even medical colleges, hospitals or diagnostic/pathological laboratories have not been recognized by the department as science or technology institutions or organizations vide M.F. (D.R.) Letter dated 9.7.2001 ibid. In the show-cause notice itself, the appellant-company was held out to be manufacturer of excisable goods only. It was not even alleged that it was a science or technology institution or organization. Even assuming that M/s. Kopran Research Laboratories Ltd. are a science or technology organization wholly owned by the appellant-company and that their R & D activities are financially supported by the appellant-company, we are not inclined to deem the latter to be a science or technology institution or organization. The two companies are distinct legal entities and, therefore, the functional character of one cannot be claimed by, nor infused into, the other. The submissions made in this context by the learned JCDR seemed to suggest that the doctrine of lifting of corporate veil was being invoked. In our view, this doctrine is not applicable to the facts of this case. As rightly submitted by the learned counsel, the Revenue has not alleged and established that the appellant-company provided advice, consultancy or scientific or technical assistance to Cadila in any specific discipline of science or technology. In the result, the argument of the counsel that the service rendered by the appellant-company to Cadila under the relevant agreements cannot constitute scientific or technical consultancy as defined under Section 65 of the Finance Act, 1994 merits acceptance. This argument also stands fortified by the view taken in Matrix Laboratories case wherein it was held that scientific or technical consultancy was not involved in sale of entire technology for a consideration.
6. As already indicated, the rights permanently transferred by the appellant to Cadila under the aforesaid agreements squarely fall within the ambit of the definition of intellectual property right under Section 65(55a) of the said Act, which reads as under:-
(55a) intellectual property right means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property under any law for the time being in force, but does not include copyright. In fact, nobody has argued that the right transferred by the appellant to Cadila under each of the said agreements is not a right to intangible property coming within the above definition, though it was argued by the learned JCDR that permanent transfer of intellectual property right would not be covered by the definition of intellectual property service under Section 65(55b) of the Act. This argument was made with reference to the definition of intellectual property service as it stood prior to 16.6.2005. This definition reads as follows:-
(55b) intellectual property service means, -
(a) transferring [temporarily]; or
(b) permitting the use or enjoyment of, any intellectual property right. The clause whether permanently or otherwise was substituted for the word temporarily by the Finance Act, 2005 with effect from 16.6.2005. The learned JCDR has not claimed that the permanent transfer of intellectual property rights by the appellant to Cadila under the relevant agreements cannot be brought within the scope of intellectual property service defined under Section 65(55b) with effect from 16.6.2005. On the other hand, the learned counsel has been able to establish classification of the service under Section 65(55b) with effect from 16.6.2005. The question which now arises for our consideration is whether, for any period prior to 16.6.2005, the services rendered by the appellant to Cadila can be classified under any pre-existing entry in Section 65 of the Act. This question has got to be answered in the negative in view of what was held by the Honble High Court in para 38 of its judgment in Indian National Ship Owners Association case (supra), which we quote below:-
38. If the Departments contention is accepted that would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy) and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry. (underlining added) We have also perused the Supreme Courts order in Civil Appeal No.10227 of 2010 (UOI & others vs. Indian National Ship Owners Association & others). The apex court affirmed the High Courts judgment. The learned JCDR argued that the apex courts judgment was not to be considered as affirmation of the view taken by the High Court in para 38 ibid. According to him, the question of law discussed in para 38 ibid. was left open by the Supreme Court. But the text of the apex courts order does not indicate that the question of law left open is the one arising out of para 38 of the High Courts judgment. In fact, it does not refer to para 38 ibid. at all. In this scenario, nothing stands in our way of following the aforesaid view taken by the Honble High Court. The appellant can also legitimately claim support from decisions of this Tribunal in the cases of BPL Telecom Pvt. Ltd. [wherein it was held that the providing of technical assistance under technical know-how agreement was neither consulting engineers service nor scientific or technical consultancy], Amco Batteries Ltd. [wherein it was held that no consultancy or advice was involved in the transfer of the right to use trademark], Bajaj Auto Ltd. [which was followed in Amco Batteries], Ispat Industries Ltd. [wherein it was held that service tax was not payable under the head consulting engineers service in respect of transfer of technical know-how], Navinon Ltd. [wherein it was held that payment of royalty for the use of technology was not any payment for taxable service viz. consulting engineers service] etc. (vide supra).
7. The rights permanently transferred by the appellant to Cadila under the first three agreements dated 18.9.2001 were only intellectual property rights. Intellectual property service was not a taxable service during the period of dispute. Moreover, the service provided by the appellant to Cadila did not meet the requirements of scientific or technical consultancy defined under Section 65(92) of the Finance Act, 1994. Therefore, we hold that the demand of service tax raised on the appellant under the head scientific or technical consultancy is not sustainable. Other issues like limitation, therefore, do not fall for consideration in relation to such demand of tax.
8. Before proceeding further, we would also like to go on record that we have not accepted the ld. counsels argument based on certain provisions of the Maharashtra VAT Act. The argument is opposed to clauses (55a) and (55b) read with clause (105)(zzr) of Section 65 of the Finance Act, 1994. Nothing contained in a different taxing statute like the VAT Act can be permitted to be used to defeat the service tax charging provisions of the Finance Act, 1994. Ld. counsel has not cited any binding judicial authority in support of the above argument.
9.1. A part of the impugned demand of service tax is on the amount of Rs.5 crores received by the appellant from Cadila during 2001-02 to 2003-04 under the Marketing Assistance Agreement dated 18.9.2001 as amended by the Supplementary Agreement dated 26.11.2001. This demand is under the head market research agency service defined under Section 65(105)(y) read with Section 65(69) of the Finance Act, 1994. Section 65(105(y) reads as follows:-
taxable service means any service provided or to be provided to a client by a market research agency in relation to market research of any product, service or utility, in any manner.
Section 65(69) reads as follows:
market research agency means any commercial concern engaged in conducting market research in any manner, in relation to any product, service or utility, including all types of customised and syndicated research services. The learned counsel submitted that the appellant did not conduct any market research in any manner and, therefore, they could not be held to have provided market research agency service to Cadila. On the other hand, the learned JCDR submitted that the services rendered by the appellant to Cadila included product promotion and market development, which could not be accomplished without market research and, therefore, the amount collected by them under the above agreement was taxable under the above head.
9.2. In this case also, the learned counsel submitted that the amount collected by the appellant from Cadila should be treated as inclusive of tax. The learned JCDR opposed. Both sides reiterated their respective earlier submissions made in a similar context.
9.3. Again, the issue of time-bar was also agitated before us.
10. We have considered the submissions. The following services were rendered by the appellant to Cadila under the Marketing Assistance Agreement dated 18.9.2001 as amended by the Supplementary Agreement dated 26.11.2001:-
a) Product Promotion Services;
b) Market Development (Product Growth Achievement) Services.
Product Promotion Service was explained in para 5.1.1 of the supplementary agreement, as follows:-
5.1.1 KOPRAN shall provide to CADILA, Product Promotion Service, i.e. promotion and detailing in the market of Product ATEN by deputing KOPRANs field staff for such period as KOPRAN and CADILA may agree, launch customer education programmes, provide information to customers, providing operational field assistance in marketing, developing prospective customers, etc. and it is agreed that for providing such services KOPRAN shall not be entitled to any reimbursement of any expenses that may be incurred by KOPRANs field staff. Market Development Services were explained in para 5.2 of the same agreement, as follows:-
5.2 Market Development Services 5.2.1 KOPRAN shall provide following services to CADILA as market development services:
a) Thirty days prior to the beginning of each financial/calendar year (as may be decided by CADILA), KOPRAN shall provide CADILA with Annual Growth Plan for different dosages of CADILAs product ATEN including for new dosage forms and strengths of the product ATEN proposed to be introduced during the year.
b) KOPRAN shall assist CADILA in formulating marketing strategies, formulating customer service and pricing policies to be undertaken for achieving the proposed specific annual growth plan. The exclusivity of the above service was laid down in para (6.1) of the agreement as follows:-
Marketing Assistance Services to be provided by KOPRAN to CADILA shall be exclusive in relation to product and KOPRAN shall not directly or indirectly provide similar services for the same product to any other party in India or abroad. The above provisions of the agreement indicate that the appellant was liable to develop prospective customers for Cadila and also to provide an annual growth plan for different dosages of Cadilas product ATEN including new dosage forms and strengths of the product proposed to be introduced during the year. The appellant was also liable to assist Cadila in formulating marketing strategies, formulating customer service and pricing policies to be undertaken for achieving the proposed specific product growth annual plan. These services cannot be provided without market research. There is a wide variety of market research services as rightly noted in M.F. (D.R.) Letter No.11/3/98-TRU dated 7.10.1998 as follows:-
Market research, inter alia, includes research based services in respect of consumer markets, industrial marketing, business to business marketing, social and rural marketing etc. and is based on the requirements of the client. Such research services may be carried out by various techniques and may take the form of brand and advertising research. Such market research services include studies such as, strategic research & brand positioning development, new product development research, creative development research, brand name, logo, pack label research, corporate image, diagnostic market research, customer research etc. Thus, it is apparent that the market research services are of a very diverse nature and of a very wide variety. The services mentioned in para (5.1.1) and para (5.2) of the aforesaid agreement can appropriately be classified as market research agencys services. Hence the services provided by the appellant to Cadila under the agreement would fall within the scope of market research agencys service defined under Section 65(105(y) read with Section 65(69) of the Finance Act, 1994. Therefore, the appellant has liability to pay service tax under this head on the amount collected by them from Cadila under the said agreement.
11. We have also considered the claim of the appellant under Section 67 of the Finance Act, 1994. This Tribunal, in the case of Advantage Media Consultant (supra), held that the total amount received by the service provider for the provision of service could be treated as inclusive of service tax due to be paid by the ultimate customer unless the service tax was also paid by the customer separately. It was held that, when no such tax was collected separately, the gross amount had to be adopted to quantify the tax liability treating it as value of service tax plus service tax payable. The Tribunal noted that this principle had been embodied in Section 67(2) of the Finance Act, 1994, which was enacted with effect from 18.4.2006. The period of dispute in the above case was from April 2000 to March 2005. Thus the benefit of Section 67(2) was granted to the assessee with retrospective effect. This decision of the Tribunal came to be affirmed by the apex court when the Civil Appeal filed by the department was dismissed vide 2009 (14) STR J49 (SC). Therefore the contra view taken in RPG Enterprises case does not reflect the law correctly. We note that what was laid down in the erstwhile Explanation 2 to Section 67 was re-enacted as sub-section (2) of Section 67 of the Act. We further note that, in the case of RPG Enterprises (supra), the Bench did not have occasion to consider Advantage Media Consultant (supra). In any case, the view taken by the Tribunal in Advantage Media Consultant case (supra) as affirmed by the Supreme Court has to be followed as a binding precedent. The appellant, therefore, is entitled to deduct service tax from the gross amount charged, for arriving at the taxable value of the service inasmuch as it is not the Revenues case that they collected service tax separately from Cadila. Though, apparently, the plea was not made before the adjudicating authority, it can be considered, being just a plea for the benefit of a legal provision.
12. As against the demand of service tax on the amount of Rs.38.99 lakhs received from M/s. Global Pharma and M/s. Kampala Pharma, the party had, in their reply to the show-cause notice, denied liability on the strength of order-in-original dated 28.12.2006, but this plea was also not considered by the adjudicating authority. We are of the view that the Commissioner should requantify the demand of service tax on market research agency service in this case after granting the benefit of Section 67(2) of the Finance Act, 1994 to the appellant and considering the above plea on merits.
13. The appellants plea of limitation is bereft of merits. They never voluntarily disclosed to the department the fact that they provided market research services to Cadila and received consideration for the same, nor is it their case that they submitted copies of balance sheets (which contained the relevant information) on their own to the department from time to time. The Revenues allegation that the appellant suppressed the relevant facts with intent to evade tax has not been successfully rebutted. However, as against the demand of service tax on Rs.38.99 lakhs, their defence based on show-cause notice dated 16.4.2003 has to be considered in de novo proceedings.
14. The impugned order contains no findings in support of the penalties imposed on the appellant.
15. In the result, the appellant is not liable to pay service tax under the head scientific or technical consultancy on any amount collected from Cadila under the relevant agreements, and not liable to be penalized on account of these transactions. The Commissioners decision to the contra is set aside. But the appellant is liable to pay service tax under the head market research agencys service on the taxable value of the services provided to Cadila under the Marketing Assistance Agreement. The adjudicating authority shall requantify this demand in terms of this order. The Commissioner shall also examine afresh the question whether any penalty is imposable on the assessee and, if so, to what extent. Needless to say that the appellant should be given a reasonable opportunity of being heard.
16. The appeal is disposed of in the above terms. The application for extension of stay is dismissed.
(Pronounced in Court on 1.3.2011) (Sahab Singh) Member (Technical) (P.G. Chacko) Member (Judicial) tvu 1 28