By TIOL News Service

NEW DELHI, MAR 15, 2013: THERE are two companies Jubilant Chemsys Ltd, Noida and Jubilant Biosys Ltd, Bangalore which are subsidiaries of Jubilant Life Sciences, engaged in providing Scientific and Technical Consultancy services. In terms of their agreements with overseas clients, they provide the service of scientific and technology consultancy service. While the appellant unit at Noida develops the process for synthesis of the drug molecules, M/s. Jubilant Biosys Ltd at Bangalore conducts research on biological properties and the information regarding the synthesis of the molecule and its therapeutic value Biological properties is communicated to the offshore clients.

According to the appellant the payment for the services rendered by them i.e. the payment for the services of synthesis of the molecules, from offshore clients is received through M/s. Jubilant Biosys Ltd, Bangalore. The appellant, however, during the period of dispute i.e. during the period from April, 2005 to September, 2009 were not paying any service tax on the amount being received by them for this service from M/s. Jubilant Biosys Ltd. The department being of the view that the appellant have supplied the taxable services of scientific and research technology consultancy to Jubilant Biosys Ltd. in respect of which they have not paid any service tax, issued a Show Cause Notice which has been confirmed by the Commissioner.

Aggrieved by the said order, the appellant are before the CESTAT.

After hearing both sides, the Tribunal held:

The appellant's activity is of service which is scientific and technical consultancy services taxable under Section 65(105)(za). However, this activity of the appellant would be taxable only when this service has been provided to a customer in India and it would be treated as an export of service under Export of Service Rules, 2005 if it has been received by the person aboard and has been used by that person in relation to his business and payment for the same has been received in convertible foreign exchange. It appears that the demand is in respect of the services provided in terms of the Contract with M/s. Lee Lilly and Company, USA. On going through this agreement, it is seen that this agreement of M/s. Eli Lilly and Company, USA is a joint agreement with M/s. Jubilant Biosys Ltd., together with its subsidiaries and affiliate including Jubilant Chemsys Ltd., and Jubilant Organosys Ltd.

The service of developing the process of synthesis of drug molecules provided by the appellant has to be treated as having been provided to their overseas clients and just because the payment by the appellant unit for their portion of service has been received by them through Jubilant Biosys Ltd., they cannot be treated as sub-contracts of M/s. Jubilant Biosys Ltd., and on that basis having provided the taxable service to Jubilant Biosys Ltd. Since the service of scientific and technical consultancy covered by Section 65(105) (za) is service in relation to business and is covered by a Rule 3(1)(iii) of the Export of Service Rules and the same prima facie has been received by the overseas clients for the use in their business, the payment for which has been received in foreign currency, the service provided by the appellant has to be treated as an export of service and hence, in terms of Rule 4 of the Export of Service Rules, no service tax would be chargeable.

Thus, in view of prima facie case in favour of the appellant, the Tribunal waived the pre-deposit till the disposal of the appeal.

(See 2013-TIOL-448-CESTAT-DEL)