" 1 Appeal No. ST/30177/2016 CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL HYDERABAD REGIONAL BENCH - COURT NO. – I Service Tax Appeal No. 30177 of 2016 (Arising out of Order-in-Original No.HYD-EXCUS-004-COM-048-15-16 dated 24.11.2015 passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad) Commissioner of Central Tax .. APPELLANT Hyderabad - IV GST Commissionerate, Posnett Bhavan, Tilak Road, Ramkoti, Hyderabad, Telangana – 500 001. VERSUS M/s Albany Molecular Research .. RESPONDENT Hyderabad Research Centre (P) Ltd., Phase 1, Sp Biotech Park, Genome Valley, Turkapally, Hyderabad, Telangana – 500 078. APPEARANCE: Shri C. Dhanasekaran (Special Counsel), Authorised Representative for the Appellant. Shri Ch. Sumanth & Shri Narendra Dave, Advocates for the Respondent. CORAM: HON’BLE Mr. A.K. JYOTISHI, MEMBER (TECHNICAL) HON’BLE Mr. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30341/2025 Date of Hearing:09.05.2025 Date of Decision:08.09.2025 [ORDER PER: A.K. JYOTISHI] The Department is in appeal against the Order-in-Original dated 24.11.2015 passed by the Adjudicating Authority, whereby, the Adjudicating Authority has dropped the demand of service tax amounting to Rs. 6,40,93,527/-, which was raised vide show cause notice dated 05.09.2014 (impugned order). The period of dispute is July 2012 to March 2014. 2. The brief fact of the case is that the appellants were engaged in interalia, provision of medicinal chemistry services to M/s Albany Molecular Research Institute, USA (AMRI, USA) for which they were developing certain 2 Appeal No. ST/30177/2016 lead chemicals and analogues. The Respondent M/s Albany Molecular Research Hyderabad Research Centre (P) Ltd., (hereinafter referred to as respondent) has classified the said service under the Scientific & Technical Consultancy (STC) Service, falling under Section 65(105)(za), whereas, the Department felt that it is more amply classifiable under Technical Testing and Analysis (TTA) Service under Section 65(105)(zzh) of the Finance Act 1994. The Department, after going through the activities being performed by the respondent, felt that said service of TTA provided by them during the period July 2012 to March 2014 would not be eligible for exemption as export of service in terms of Rule 4(a) of Place of Provision of Service Rules 2012 (POPS Rules), since the services were provided in India only. It was also alleged that though there is no classification required post 01.07.2012 and all services are taxable unless specifically covered under the negative list or otherwise exempted, however, as the respondent continued to provide the impugned service related to TTA service, it would be covered within the category of service and would also not be eligible as export. 3. On adjudicating, the Commissioner after going through the written submissions, inter alia, held that the activities being performed by the respondent are eligible to be covered under the category of export in terms of POPS Rules and therefore the assesse is not liable to pay service tax. He has also negated the contention of the Department that the materials are being exported has no value but are only to support the analysis report being sent along with the material on the grounds that post negative list regime, when the POPS Rules are operative to decide whether a service is covered as export or otherwise in accordance with the Rule 6A of Service Tax Rules 1994, provision of service has to be decided strictly in terms of POPS Rules. The Department has mainly contested this dropping of demand on the following grounds: 3 Appeal No. ST/30177/2016 a) that the service being provided by the respondent under Technical Testing and Analysis (TTA) service, and that service rendered by the assesse cannot be treated as export in terms of Order-in-Original dated 26.06.2013, as issue of classification would no longer be followed post 01.07.2012. Though, the issue whether this activity would be covered under the ambit of export of service or otherwise has to be decided as there is no dispute that the activity, per se, amounts to “service”. b) that the undisputed fact is that the assesse imported raw materials which were used for providing impugned service and subsequent to such testing, the analysis report in relation to the resultant product were sent to their service receivers abroad. c) that show cause notice dated 05.09.2014 is periodical in nature and therefore has to be read in conjunction with earlier show cause notice and the Order-in-Original dated 26.06.2013. Therefore, when these two show cause notices are read in conjunction, it is clear that the notice alleged supply of raw materials from AMRI, USA for providing the service and that this aspect is ignored in the order. Evidence of supply of material by the service receiver for providing the service was there, however, the Adjudicating Authority’s observation in para 25.2 of the impugned order to the effect that except alleging that the respondents are conducting testing on materials sent by their parent company i.e. AMRI, USA, there is no evidence of the same in the show cause notice, is not sustainable. d) that the core issue that is required to be decided is whether the imported raw materials used by the assesse to provide the services were provided by the service recipient or through agent and the applicability of Rule 4 of POPS Rules 2012. e) that the examination of purchase orders submitted by the respondent, as held at para 14 of the impugned order, clearly reveals that some of the 4 Appeal No. ST/30177/2016 orders related in the order do not pertain to the period under consideration and that some of the orders clearly indicate the requirement of the uses of appropriate materials sent by the clients and therefore the documents submitted by the respondent do not support the case of their having not used the supply of materials by clients that the documents examined by the appellant would indicate that there has been supply of proprietary material for use in testing and analysis. f) that the reliance placed by the Adjudicating Authority on warehousing register to support the contention that the respondent did not receive raw material from Kyowa Hakko Kirin Company Ltd., is erroneous as the said register contains only the raw materials which are imported duty free and the raw materials which are imported on payment of duty will not be required to be entered in the register. Therefore, the Warehousing register alone will not reveal the usage of raw material. g) that the conclusion drawn by the Adjudicating Authority that the respondent had not conducted any test or analysis on such raw materials (received from their parent company in USA) and also that said raw materials were not used exclusively for providing a service is without sufficient evidence/data as the same Adjudicating Authority has also admitted that the respondent had sourced some of their raw materials from their parent company in USA. h) that notwithstanding the above, Rule 4 of POPS Rules, does not require supply of all the materials required for, whereas, the Commissioner’s finding that use of proprietary material supply with any other inputs does not fall within the Rule 4 appear to be contrary to the provision of Rule 4 of the POPS Rules 2012. 4. Learned Special Counsel for the Department has reiterated the grounds taken by the Adjudicating Authority. 5 Appeal No. ST/30177/2016 5. Learned Advocate for the Respondent has mainly submitted that raw materials were not provided by the service recipient. Following are the different service recipients: (i) AMR Inc, USA (ii) AMRI UK (iii) AMRI Singapore (iv) Bayer Crop Science, Germany. (v) Syngenta, UK (vi) Kyowa Hakko Kirin Co Ltd./ KHK Japan (vii) Eisai Ltd., Japan (viii) Xi Pharma LLC Russia (ix) Evolva SA and even the Warehousing register shows that respondent had not received any raw materials, other than from AMRI, USA and only precursors from Xi Pharma LLC and as such, no tests were conducted on such imported goods. He also relies on various judgments in support that Rule 4 of the POPS Rules would not applicable and instead Rule 3 of the POPS Rules would be applicable in case of research and development of pharma product: i) CCE, Pune Vs Sai Life Sciences Ltd., [2016 (42) STR 882 (Tri-Mum)] ii) CCE, Pune Vs Advinus Therapeutics Ltd., [2017 (51) STR 298 (Tri-Mum)] iii) M/s Dow Chemical International (P) Ltd., Vs CCE, Mumbai [2020 (33) GSTL 424 (Tri-Mum)] 6. He has also relied on international guidelines including Organization for Economic Co-operation and Development (OECD) etc., in support that some of these materials were in the nature of precursor which was consumed at the molecular level itself. Therefore, it cannot be said that testing was done on said material. 6 Appeal No. ST/30177/2016 7. The respondent is also submitting that the issue is essentially that of interpretation and therefore allegation of suppression with an intent to evade payment of tax would not arise. He is also submitting that the respondent is eligible for cum tax benefit in terms of Section 67(2) of the Finance Act 1994. He is relying on the judgment of Hon’ble Supreme Court in the case of Commissioner Vs Advantage Media Consultants [2009 (14) STR J49 (SC)]. 8. Heard both the sides and perused the records. 9. The issue, which is required to be addressed in the present appeal, is whether the Adjudicating Authority was correct in dropping the demand by treating the service provided to the foreign client/recipient as export of service or otherwise. We find that though in the grounds taken by the Department, a great deal of discussions have gone into the fact that the present appeal is concerned with the show cause notice, which was essentially a periodical one and therefore the earlier show cause notice dated 26.06.2013 has to be read together for better appreciation. We find that while the activities remained the same in respect of the earlier show cause notice dated 26.06.2013 and 05.09.2014, there is a clear distinction in terms of coverage and the laws invoked for demanding the service tax. While in the earlier show cause notice, the period covered was April 2007 to September 2011, wherein, the dispute was between the classification of the activity under STC service, as claimed by the respondent and TTA service as proposed by the Department. The issue of classification has travelled up to this Tribunal for that period and it was ultimately held vide Final Order No. A/30340/2025 dated 08.09.2025 that the activities would be more appropriately covered under the category of TTA service, however, supply of said service to clients abroad would be considered as export of service. The entire gamut of analysis in respect of the said show cause notice and Order- 7 Appeal No. ST/30177/2016 in-Original was keeping view the statutory provisions as it existed prior to 01.07.2012. Moreover, only one client and related agreement which was considered was AMRI, USA and not other clients, who have been included in the show cause notice in respect of which the impugned order has been passed. It is also an admitted fact that the Department themselves have now considered that the classification issue would no longer be relevant post 01.07.2012. However, there is no dispute that the activities performed by the respondent are service. We find that neither side is contesting that it is not a service. Therefore, the only dispute is whether this would be treated as export or otherwise in the given factual matrix. 10. We find that in order to decide whether it is export or otherwise, Government has come out with POPS Rules 2012, vide Notification No. 28/2012-ST dated 20.06.2012. In accordance with the said Rules, the place of provision of service is determined under different situations. While the respondent is essentially saying that Rule 3 would be applicable in their case as their recipients are located abroad and therefore it would be export, however, the Department is relying on Rule 4, which provides for determination of place of provision under broad category of performance based services. For the ease of reference Rule 4 of the POPS Rules is reproduced below: “Rule 4:- Place of provision of performance based services - The place of provision of following services shall be the location where the services are actually performed, namely: (a) Services provided in respect of goods that are required to be made physically available by the recipient of service to the service provider, or to a person acting on behalf of the provider of service, in order to provide the service: Provided that when such services are provided from a remote location by way of electronic means, the place of provision shall be the location where the goods are situated at the time of provision of service: Provided further that this sub-rule shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs, 8 Appeal No. ST/30177/2016 reconditioning or re-engineering for re- export, subject to conditions as may be specified in this regard. (b) Services provided to an individual, represented either recipient of service or a person acting on behalf of recipient, which requires the physical presence of receiver or the person acting on behalf of the receiver, with the provider for the provision of the service. “ 11. A plain reading of this provision would indicate that the place of provision will be the location where the services are actually performed in certain situations. In the present case, apparently the ground for invoking Rule 4 is that since the materials are being provided from abroad to the recipient by their client and therefore the services have been provided in respect of said goods, which have been made physically available by the respondent to the provider of service in India. The other provisions under Rule 4 are not relevant for the present dispute. The Adjudicating Authority has also examined the said provision, however, based on various submissions and documents, came to the conclusion that no goods in respect of which service was required to be provided have been made available by any of the service recipient to the respondent and therefore holding that Rule 4 of POPS Rules 2012 is not applicable and that the correct rule applicable i.e. Rule 3 of the POPS Rules 2012 and since in all the cases, the location of the service recipient is outside India, it will be treated as export. He has also relied on Rule 6A of Service Tax Rules 1994 in order to support that provision of service by the respondent would be essentially an export under Rule 6A of Service Tax Rules 1994 which is cited below for ease of reference: “Rule 6A.(1) The provision of any service provided or agreed to be provided shall be treated as export of service when, - (a)The provider of service is located in the taxable territory, (b)The recipient of the service is located outside India, (c)The service is not a service specified in the section 66D of the Act, (d)The place of provision of the service is outside India, 9 Appeal No. ST/30177/2016 (e)The payment for such services has been received by the provider of service in convertible foreign exchange, and (f)The provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act. (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such services and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.” 12. We find that Rule 6A clearly provides for treating certain provision of service as export, subject to fulfilment of certain conditions including, inter alia, the place of provision of service is outside India. Therefore, to treat a service as an export, there is a requirement for determining the place of provision of service in terms of POPS Rules. Once, it is decided that the place of provision is outside India, then subject to fulfilment of other conditions, it will be treated as export. In any case, the other conditions have not been disputed. Therefore, essentially it again brings us back to decide, whether in this case, Rule 4 of POPS rules will be applicable or Rule 3 of the POPS Rules will be applicable as discussed supra. In order to invoke Rule 4(a), there is a requirement for providing the goods physically by the recipient of service to the provider of service. Based on various documents etc., the Adjudicating Authority felt that no materials were provided physically to the service provider in this case. However, we find that going by the documents and also the grounds taken by the Department, the issue whether the materials were actually received from the service recipient or otherwise has not been analysed categorically by the Adjudicating Authority. Some of the observations in the grounds like reliance place on warehousing register not considering an admitted position that certain materials were received from 10 Appeal No. ST/30177/2016 their client, has been either overlooked or not has been properly and adequately explained by the Adjudicating Authority. Therefore, we find that this factual matrix is not clear whether any material goods were physically made available by the recipient to the provider or otherwise. If it was provided and in respect of which services were performed, Rule 4(a) would be invokable. 13. Therefore, we find that the matter needs to be remanded back to the Adjudicating Authority to re-examine the evidence to come to a categorical conclusion keeping in view the conflicting grounds taken by the appellant/department that materials were received or otherwise and therefore whether Rule 4 would be applicable or otherwise. The respondent shall also be at liberty to adduce all evidence that no materials have been received in relation to provision of service from different clients situated abroad. In so far as the issue of limitation and cum duty price are concerned, we find that the respondents are not in appeal in the present proceedings on these grounds and they have only countered the grounds and since they were not aggrieved by the order, this counter submission to the Department’s appeal cannot be considered as a cross objection. However, in the interest of justice, we find that apart from examining the factual matrix relevant for deciding whether it will fall under Rule 4 of the POPS Rules or otherwise, the respondent can also adduce these two grounds for the consideration of the Adjudicating Authority, who shall consider the same in case he comes to the conclusion that they are otherwise not eligible under Rule 3 of POPS Rules and they are covered under Rule 4 of POPS Rules and therefore not liable to exemption as export. 11 Appeal No. ST/30177/2016 14. With these directions, the matter is remanded to the original Adjudicating Authority. 15. Appeal allowed by way of remand. (Order pronounced in open court on _08.09.2025__) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) jaya "