No Service Tax Payable On Clinical Trial On Drugs Supplied By Foreign Service Recipient: CESTAT

The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has observed that no service tax is payable on the activity of clinical trials on the drugs supplied by the foreign service recipient.

The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed that the activity of clinical trials on the drugs supplied by the foreign service recipient to the appellant amounts to export of service.

During the course of the audit of the appellant's record, it was noticed that the appellant had performed service in India and delivered a clinical study report to their foreign client through e-mail, courier, or website. The clinical study was carried out on the goods supplied by the service recipient. The appellant had not paid service tax on the amount shown under the heading Export of Service.

The department opined that since the performance of service is in India and the clinical study was carried out on the goods supplied by the service recipient, therefore, the service of the appellant does not fall under the category of export of service in terms of Rule 4 of the Place of Provision of Service Rules, 2012. The show cause notice covering the period 01.07.2012 to 2013-2014 was issued.

The appellant contended that the exclusion provided under Rule 4 of the Place of Provision of Service Rules, 2012 is in respect of goods such as machinery and equipment and not the goods. The activity is to analyze the effect of the drugs supplied by the service recipient, and it is not a case of testing the drug; the objective of testing is the analysis of the effect of the drug and submission of the report of the same. Therefore, the goods are not significant. The clinical trial conducted on drugs was approved by the Drug Controller.

The tribunal, while quashing the order, found that the appellant had carried out the clinical study on the drugs supplied by the foreign-based service recipient. After carrying out the clinical study on the goods supplied by the service recipient, the technical report thereof was supplied to the service recipient. The service recipient is located outside India.

Counsel For Appellant: Vipul Khandar

Counsel For Respondent: Rajesh R. Kurup

Case Title: Veeda Clinical Research P Limited Versus Commissioner of Central Excise & ST

Case No.: Service Tax Appeal No. 10589 Of 2016-DB

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