By TIOL News Service

MUMBAI, OCT 07, 2015: THE appellants are engaged in providing Clinical Trial/Research Service to various Pharmaceutical companies located in India and abroad in respect of clinical testing of new drugs.

Revenue authorities harbored the view that the services are covered under "Technical Testing and Analysis" and chargeable to Service Tax.

Demand notices for recovery of ST for the period 01.07.2003 to 31.03.2006 came to be issued to the appellants and same were confirmed by the Commissioner in October/November 2009.

The appellants submitted before the CESTAT that prior to introduction of the explanation i.e. from 01.05.2006, the activities of Clinical Trial and Tests of new drugs carried out by the appellants cannot be held to be liable to service tax under the head "Technical Testing and Analysis" service. Inasmuch as since the Explanation added to section 65(106) has expanded the scope of the definition, it would not be applicable for the past period. Reliance is placed on the decisions in B.A. Research India Ltd. - 2010-TIOL-509-CESTAT-AHM and Synchron Research Services P. Ltd. - 2011-TIOL-1907-CESTAT-AHM wherein it is held that the explanation will not be applicable prior to 01.05.2006.

The Explanation inserted w.e.f 01.05.2006 by the Finance Act reads -

Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause, "technical testing and analysis" includes testing and analysis undertaken for the purpose of clinical testing of drugs and formulations; but does not include testing or analysis for the purpose of determination of the nature of diseased condition, identification of a disease, prevention of any disease or disorder in human beings or animals.

Prior to the introduction of explanation, the section read-

"Technical testing and analysis" means any service in relation to physical, chemical, biological or any other scientific testing or analysis of goods or material or any immoveable property, but does not include any testing or analysis service provided in relation to human beings or animals".

The AR while adverting to the same Explanation submitted that the explanation only sought to clarify what is covered under Technical Testing and Analysis services; that the Explanation is stating the obvious. The AR inter alia also placed reliance on the decision in Sulochana Amma vs. Narayan Nair - 2002-TIOL-292-SC-MISC for the proposition that Explanation to a section is not a substantive provision by itself and it is entitled to explain the meaning of the words contained in the section or clarify certain ambiguities or clear them up.

The Bench observed that the issue is no more res integra.

After extracting paragraphs 8 to 10 of the Tribunal decision in B.A. Research India Ltd. (supra) wherein the Bench went into very same dispute and in respect of very same Explanation and held that the Explanation is effective prospectively, the CESTAT set aside the impugned orders and allowed the appeal.

(See 2015-TIOL-2137-CESTAT-MUM)