Custom, Excise & Service Tax Tribunal
Mylan Laboratories Limited vs Hyderabad- Service Tax on 19 September, 2025
(1)
ST/30379, 30324 to 30326,
30731 & 30732/2017 & ST/30053/2021
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench - Court No.- I
Service Tax Appeal No. 30379 of 2017
(Arising out of Order-in-Original No. HYD-SVTAX-000-COM-143-16-17 dt.13.12.2016
passed by Commissioner of Service Tax, Hyderabad)
M/s Mylan Laboratories Ltd
Plot No.564/A/22, Road No.92, ......Appellant
Jubilee Hills, Hyderabad - 500 034
VERSUS
Commissioner of Central Tax
Hyderabad - GST
GST Bhavan, LB Stadium Road,
......Respondent
Basheerbagh, Hyderabad - 500 004 with Service Tax Appeal No. 30324 of 2017 (Arising out of Order-in-Original No. HYD-SVTAX-000-APP-0211-16-17-ST dt.07.12.2016 passed by Commissioner of Service Tax (Appeals), Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 with Service Tax Appeal No. 30325 of 2017 (Arising out of Order-in-Original No. HYD-SVTAX-000-APP-0210-16-17-ST dt.07.12.2016 passed by Commissioner of Service Tax (Appeals), Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 (2) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 with Service Tax Appeal No. 30326 of 2017 (Arising out of Order-in-Original No. HYD-SVTAX-000-APP-0209-16-17-ST dt.07.12.2016 passed by Commissioner of Service Tax (Appeals), Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 with Service Tax Appeal No. 30731 of 2017 (Arising out of Order-in-AppealNo. HYD-SVTAX-000-APP-0352-16-17-ST dt.03.03.2017 passed by Commissioner of Service Tax (Appeals), Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 with Service Tax Appeal No. 30732 of 2017 (Arising out of Order-in-AppealNo. HYD-SVTAX-000-APP-0353-16-17-ST dt.03.03.2017 passed by Commissioner of Service Tax (Appeals), Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 and Service Tax Appeal No. 30053 of 2021 (3) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 (Arising out of Order-in-AppealNo. HYD-EXCUS-000-COM-19-20-21 dt.08.07.2020 passed by Commissioner of Central Tax, Hyderabad) M/s Mylan Laboratories Ltd Plot No.564/A/22, Road No.92, ......Appellant Jubilee Hills, Hyderabad - 500 034 VERSUS Commissioner of Central Tax Hyderabad - GST GST Bhavan, LB Stadium Road, ......Respondent Basheerbagh, Hyderabad - 500 004 Appearance Shri V. Sridharan, Advocate for the Appellant. Shri ShambooNath (Spl. Counsel), AR for the Respondent.
Coram: HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30378-30384/2025 Date of Hearing: 03.09.2025 Date of Decision: 19.09.2025 [Order per: P.V. SUBBA RAO] These 7 appeals have been filed by M/s Mylan Laboratories Ltd, Hyderabad1 to assail the Order-in-Original (in two cases) and Order-in- Appeals (in five cases). All these appeals involve the same question of law and hence have been heard together and are being disposed of together. The details of the appeals are as follows:
Demand of Service Tax Refund of Service Tax Appeal No. ST/30379/2017 ST/30053/2021 ST/30326/2017 ST/30325/2017 ST/30324/2017 ST/30731/2017 ST/30732/2017 Order in HYD-SVTAX- HYD- HYD- HYD.SVTAX- HYD.SVTA Appeal No NA NA 000-APP- SVTAX-000- SVTAX-000- 000-APP-352 X-000-APP- & Date 0209-16-17 APP-0210-16- APP-0211-16- dated 353 dated dated 17 dated 17 dated 03.03.2017 03.03.2017 07.11.2016 07.11.2016 07.11.2016 Order in HYD- HYD-EXCUS- 28/2016 dated 12/2016 dated 13/2016 dated 40/2016- 41/2016-
Original SVTAX-000- 002-COM-19- 30.09.2015 25.02.2016 25.02.2016 Adjn.ST(R)(A Adjn.ST(R)( No & Date COM-143-16- 20-21 dated C) dated AC) dated 17 dated 08.07.2020 30.08.2016 30.08.2016 1 Appellant (4) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 13.12.2016 Period July 2012 to April 2015 to April 2014 to July 2014 to October 2014 January 2015 April 2015 to March 2015 Nov 2016 June 2014 Sept2014 to Dec2014 to March 2015 June 2015 SCN No & 116/2015 154/2017- IV/16/27/2015 04/2015 dated 05/2015 dated IV/16/84/2015 IV/16/27/201 Date dated Adjn.(ST) dated 30.09.2015 03.12.2015 -ST.Div- 6-ST.Div-
20.10.2015 Commr. HYD- 12.05.2015 II(Tech) dt. II(Tech) dt.
GST dated 10.02.2016 10.02.2016
28.03.2018
Amount 138,13,99,398 83,22,93,650/- 1,42,27,714/- 12,13,24,232/- 2,30,70,878/- 1,33,90,901/- 89,35,243/-
involved /- along with along with
(inRs.) interest and interest and
penalty penalty
Amount 67,58,83,095/- - N/A N/A N/A N/A
barred by approx
limitation July 2012 to
(inRs.) September
2013
Penalty 138,13,99,398 8,32,29,365/-
imposed /- under under Section NIL
(inRs.) Section 78 of 76 of the Act.
the Act 10,000/- under
10,000/- under Section 77(2)
Section 77(2) of the Act
of the Act
2. We have heard Shri V. Sridharan, learned Counsel for the appellant and Shri Shamboo Nath, learned Special Counsel for the Revenue and perused the records.
3. The appellant is a manufacturer of pharmaceuticals and it also provides various services and is registered with Service Tax department. It entered into an agreement with its sister concern M/s Mylan Pharmaceuticals Inc., USA2 for product development services to develop generic drug products, including generic ante-retroviral drug products in finished dose form for approval and subsequent sale by Mylan, USA. The appellant is paid fee based on the cost plus mark up on monthly basis for the services to Mylan, USA. The inventions made in the process were all owned by Mylan, USA. Based on Mylan Inc.'s Product Review Board (PRB) approval, the R&D centre procures molecules (drug substance or API) locally or through imports along with the brand products (also called 'reference product' or 'innovator product') for validation of new drug. Mylan Inc. does not supply or provide any material or items to the R&D centre to carry out product development services. Following stages are involved in the scientific product development:
2Mylan, USA (5) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021
a) Active Pharmaceutical Ingredient (API) Selection and Characterization: Physical and chemical characterization of the API procured from different suppliers.
b) API - Excipient Compatibility studies: Examine the interaction between the API and the excipients (inactive ingredients).
c) Reference Product Characterization: Product characterization involves physical and chemical characterization of the Innovator's Reference Product.
d) Formulation Development: Involves selection and optimisation of excipients and prototype development. Process involves permutation and combination of different excipients and drug substance to get the desired drug dosage form i.e. tablet or capsule.
e) Selection and Development of dissolution method: Different trials are conducted on development batches and reference product to select appropriate dissolution conditions for routine "Quality Control Testing". The finished products like tablets, capsules etc., will be produced at this stage in miniscule quantities / small scale for testing. No commercial production is carried out at this stage.
f) Execution of Scale up batches: Execution of scale up batches (process evaluation batches) to evaluate and optimize the critical process parameters. Data generated during the process evaluation batches and data from the tests conducted on the finished product (for e.g. in vitro testing) at this stage should meet the predetermined quality attributes.
g) Execution of Exhibit batches: Execution of finished product exhibit batches for performing bioequivalence studies and conducting stability studies for regulatory submissions. Exhibit batches are sent to the clinical research centre for further studies on human participants i.e. in vivo studies.
h) Review and Collation of Data: Collation of data generated continuously takes place over a period of time, with the ultimate aim of providing a bioequivalent generic formulation. Entire process is supervised, approved and validated by personnel of Mylan Inc. (6) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021
i) Compilation of Dossier: For obtaining regulatory approval from various drug authorities, a formal application i.e., Abbreviated New Drug Application (ANDA) for US (known in Europe as Marketing Authorisation (MA)), is prepared. The Appellant compiles information generated during the process of R&D activities, keeps collating them in electronic form and storing them on electronic means for exclusive access to Mylan Inc. Mylan Inc. thereafter prepares remaining sections of the formal application/ANDA/Dossier and submits it to the portal of the requisite regulatory authority.
4. The appellant treated this service as 'Scientific or Technical Consultancy' service and was filing returns accordingly prior to 01.07.2012. From 01.07.2012, significant changes were made in the Finance Act, 19943 with respect to service tax. Before this date, service tax was leviable on taxable services rendered. Taxable services were defined in various clauses of section 65(105). From 01.07.2012, all services were made exigible to service tax except those in the negative list. Where the service involved clients from outside India, the Place of Provision of Service Rules, 20124, provided a method to determine where the service was deemed to have been rendered. If the service was deemed to have been rendered outside India, then no service tax was payable as it would be treated as export of service. On the other hand, if the place of provision of service was deemed to be within India, then the assessee had to pay service tax.
5. Another implication of this difference was that as per Cenvat Credit Rules5, 2004, the manufacturers of excisable goods and providers of taxable services were entitled to take credit of the excise duty paid on inputs and service tax paid on input services used in the manufacture of excisable goods or in provision of taxable services. The credit so taken- known as Cenvat credit- could be utilized to pay excise duty on the manufactured goods or service tax on the taxable service rendered. Normally, there was no provision for getting a cash refund of the Cenvat credit. An exception was under Rule 5 of CCR, which 3 The Act 4 POPS Rules 5 CCR (7) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 provided for cash refund of Cenvat credit of the inputs and input services used in excisable goods which are exported or taxable services which are exported. Of the 7 appeals before us, Appeals No.ST/30379/2017 & ST/30053/2021 assail the demand of service tax on the services rendered by the appellant to Mylan, USA. The remaining 5 appeals assail the rejection of refund claims under Rule 5 of CCR. In all the 7 appeals, the common issue to be decided is whether services rendered by the appellant to Mylan, USA should be treated as export of service or otherwise.
6. As per Rule 3 of the POPS Rules, the place of provision of service shall be the location of the recipient of the service except in case of Online Information Database Access or Retrieval (OIDAR) service where the place of the service provider should be treated as place of provision of service. Rule 3 of POPS Rules reads as follows:
"3. The place of provision of a service shall be the location of the recipient of service.
Provided that in case of services other than online information and database access or retrieval services, where the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service."
7. Rule 9 of POPS Rules determines the place of provision in case of specific services. It reads as follows:
"9. The place of provision of following services shall be the location of the serivce provider:-
a) Services provided by a banking company, or a financial institution or a non-banking financial company, to account holders;
b) Online information and Database Access or Retrieval Services.
c) Intermediary services;
d) Service consisting of hiring of all means of transport other than,-
i. Aircrafts, and ii. Vessels except yachts, upto a period of one month."
8. The term OIDAR is defined in Rule 2(l) of POPS Rules as follows:
(8)ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 "Online Information and database access or retrieval services" are services in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner. Thus, these services are essentialy delivered over the internet or an electronic network which relies on the internet or similar network for their provision. The other important feature of these services is that they are completely automated, and require minimal human intervention.
Submissions on behalf of the Appellant
9. Learned Counsel for the appellant made the following submissions:
9.1 The appellant entered into an agreement with Mylan, USA to develop generic drug products including generic ante-retroviral drug products in finished dose form. The scope of the services as per Article 1 of the Agreement is as follows:
"developing an appropriate, bioequivalent and stable formulation, manufacturing exhibit batches, conducting stability studies, bioequivalence studies, and drafting and compiling, submitting and obtaining approval for the applicable Abbreviated New Drug Application (hereinafter referred as "ANDA"). Dossier, Marketing Authorization, Abbreviated New Drug Submission, or other like regulatory filing for each of the drug products."
9.2 The process of product development involves various stages from physical and chemical characterization of API, formulation development, quality control, testing and review and collation of data and final compilation of dossier. The dossier has to be prepared by the appellant as per the Common Technical Document (CTD) form in terms of requirements of different health authorities such as USFDA and Australia Health Services. This dossier would contain information about the drug substance, drug product and clinical study reports.
9.3 As per the arrangement which the appellant had with Mylan, USA, instead of sending this dossier as hard copy or by email, the dossier was sent electronically by uploading it.
9.4 The C&AG conducted an audit during the period 2014-15 and it took a view that the services rendered by the appellant to Mylan, USA are in the nature of OIDAR and not in the nature of Scientific or Technical Consultancy service. As per proviso to Rule 3 and as per Rule 9 of POPS Rules, OIDAR services are deemed to have been provided at the place of business of service provider, which, in this case, is (9) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 Hyderabad. Therefore, service tax was demanded from the appellant on the services which are rendered to Mylan, USA.
9.5 On the same ground, the appellant's applications for refund of Cenvat credit under Rule 5 of CCR were also rejected.
9.6 The perception of the department that the service rendered by the appellant was OIDAR service is not correct. The nature of the service rendered by the appellant is one of Scientific orTechnical Consultancy service. This service included providing report in the form of dossiers. Merely because the dossiers were not sent in hard copy to the service recipient but were uploaded on server, it cannot be said that the appellant was providing OIDAR services.
9.7 Even if it is considered that submission of dossier is a part of the serivce, it is not the essence of the service because the appellant is not being paid for providing dossier but was being paid for conducting scientific and technical research and consultancy which only culminated the dossier. Reliance is palced on the following case laws:
a) Gland Pharma Ltd Vs CCT [2019 (3) TMI 1437 - CESTAT Hyd]
b) Bayer Bioscience Pvt Ltd Vs CCE & ST [2019-TIOL-1320 (Tri- Hyd)]
c) Midas Care Pharmaceuticals Ltd Vs CCE [2014 (37) STR 346 (T)]
d) CCE Vs Sai Life Sciences Ltd [2016 (42) STR 882 (T)]
e) PCCE Vs Advinus Therapeutics Ltd [2016-TIOL-3138 (Tri-Mum)] 9.8 The fee paid is on cost plus basis and value does represent the value pertaining to OIDAR service.
9.9 Extended period of limitation was wrongly invoked in this case. Thus, appellant is entitled to refund of service tax paid on input services as per Rule 5 of CCR.
Submissions on behalf of the Revenue:-
10. Shri Shamboo Nath, learned Special Counsel for the Revenue vehemently supported the impugned orders and submitted as follows:
(10)ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 10.1 As per Rule 9 of POPS Rules, OIDAR services are deemed to have been provided at the location of service provider. This clause was omitted only from 01.12.2016.
10.2 The classification of services under section 65 was done away w.e.f. 01.07.2012 but Rule 2(l) of POPS Rules defined the OIDAR services as follows:
"online information and database access or retrieval services" means providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network.
10.3 Thus, the scope of definition of OIDAR includes (a) providing data or information, (b) retrieval or otherwise, (c) to any person and (d) in electronic form through a computer network. All these ingredients were fulfilled in the existing case of the appellant.
10.4 As per Rule 6A of the Export of Services Rules, any service provided or agreed to be provided shall be treated as export of service and the place of provision of service is outside India. In this case, it was not outside India as per Rule 9 of the POPS Rules.
10.5 It is an admitted fact that the appellant's clients abroad had access to data, in a specified format, for specified purposes through computer network. The dossier is a document which contains the technical data of the tests conducted on humans, manufacture of Active Pharmaceutical Ingredients and Pharmaceutical Formulations.
10.6 In view of the above, the appellant's submission that it had not provided OIDAR services is not correct. The service rendered by the appellant can only be considered as OIDAR service and not as Scientific or Technical Consultancy Service.
10.7 The impugned orders may be upheld and the appeals may be dismissed.
11. We have considered the submissions on both sides and perused the records.
12. We find that as per the agreement, the appellant had to develop pharmaceutical products and conduct various tests and provide (11) ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021 complete data in the form of dossier to its client Mylan, USA for which, it was getting paid on cost plus basis. There is no doubt that appellant had rendered service to Mylan, USA. There is no doubt that it got paid for it in foreign exchange. The only question is about the nature of service. Section 66F of the Act reads as follows:
"66F. Principal of interpretation of specified descriptions of services of bundled services. - (1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service.
(2)Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description.
(3)Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely: -
(a)if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character;
(b)if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax."
13. In this case, there is no doubt that the appellant had to not only develop the products, conduct all the tests, but also had to prepare dossier in the required form and supply it to Mylan, USA. This supply was done through an online mechanism, wherein the appellant uploaded the dossier and Mylan, USA could download it. In our considered view, the essence of the service is not one of uploading the document to the server although it is part of the total service. The essence of the agreement is one of developing API and pharmaceutical products, testing them and providing the information. These activities, in our considered view, would fall under the category of 'Scientific or Technical Consultancy service' before 01.07.2012 and service after 01.07.2012. Neither before 01.07.2012 nor after 01.07.2012 can these services be called as OIDAR services. There is no dispute that providing the dossier with all the information is part of the service to be performed by the appellant and this was done through an online mode but uploading of the documents is not the essence of the service, although the service concludes with the uploading.
(12)ST/30379, 30324 to 30326, 30731 & 30732/2017 & ST/30053/2021
14. An example would make the distinction clear. Most diagnostic labs will conduct tests of patients nowadays and give reports to the patients by email or by uploading on their websites which can be accessed by the patients. That report is what the patient is looking forward to. The total service rendered to the patient starts from drawing samples of blood, etc., and ends with providing the report. But the essence of service in this case are the diagnostic tests for which the patient is paying. It is these diagnostic tests which form the essence of the service, even though they culminate in the reports. This service, therefore, cannot be called OIDAR service.
15. Similarly, in these appeals, the essence of the service rendered by the appellant is developing drugs and testing them. Merely because the report is ultimately supplied by uploading online, the nature of service will not change and it will not fall under OIDAR service.
16. Consequently, the place of provision of service rendered by the appellant is the place of the recipient of service viz., Mylan, USA and it is not the place of service provider. Therefore, it amounts to export of service. Consequently, the appellant is not liable to pay any service tax on the services so rendered and is also entitled to refund of Cenvat credit under Rule 5 of CCR, as applicable.
17. All appeals are allowed and the impugned orders are set aside with consequential relief to the appellant.
(Pronounced in the Open Court on 19.09.2025) (P.V. SUBBA RAO) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda