M/s Aurobindo Pharma Ltd. v. Commissioner of Central Excise & Service Tax, Hyderabad-II

GST update /2026-27/0090

GST UPDATE

Service tax not chargeable on commission deducted by intermediary foreign banks while realizing export proceeds and the services received from the agencies appointed to compile documents and obtaining approval from agencies for marketing products of the appellant overseas can not be treated as scientific or technical services.

Service Tax Appeal No.: 23665 of 2014

Authority: CESTAT (Hyderabad)

Case Title: M/s Aurobindo Pharma Ltd. v. Commissioner of Central Excise & Service Tax, Hyderabad-II

Outcome: Appeal was allowed.

Judgement Date: 25.08.2026

BRIEF FACTS OF THE CASE:

Department raised demand of service tax on following two payments made by the M/s Aurobindo Pharma Ltd. (hereinafter referred to as Appellant):

1. Charges paid by appellant in form of deduction by the intermediary banks which deduct their charges from the amount remitted by foreign buyers against goods exported by appellant &

2. Payment against services received by the appellant regarding obtaining approval of documentation for marketing of pharmaceutical products in overseas market from concerned authorities.

The demand of service tax along with applicable interest and penalties under Section 76 raised by department on the abovementioned services was confirmed by the adjudicating authority. Aggrieved appellant preferred this appeal before the Hon’ble Tribunal.

QUESTION BEFORE HON’BLE TRIBUNAL:

• Whether the exporter be treated as recipient of services rendered by foreign bank/intermediary banks involved in transmission of export proceeds remitted by foreign buyer? If the answer to this question is affirmative, then in such situation whether service tax is payable by the exporter under reverse charge mechanism on the charges deducted by such foreign banks/intermediaries?

• Whether the services received from foreign entities in connection with preparation/compilation of documents and obtaining regulatory approvals for pharmaceutical products are classifiable as “scientific or technical consultancy services”?

For better understanding and clarity, each of the issue is separately discussed.

Issue – 1 Demand on Foreign Bank Charges

Contentions of the Parties: -

The appellant contended that the charges deducted by foreign/intermediary banks from the export proceeds could not be treated as consideration for any service received by the appellant. The export consideration was remitted by the foreign buyers through their own banking arrangements, and the involvement of correspondent banks was merely part of the inter-bank transfer mechanism.

The appellant had neither engaged these foreign banks nor entered into any contractual arrangement with them for providing any service. Therefore, no service provider–service recipient relationship existed between the foreign banks and the appellant, which was a prerequisite for levy of Service Tax under Reverse Charge Mechanism. The appellant also relied upon its own earlier case, Aurobindo Pharma Ltd. v. Commissioner of Central Excise & Service Tax, Hyderabad-III, Final Order No. 30919/2020 dated 09.09.2020, wherein an identical demand for the earlier period had been set aside. Reliance was also placed on Eastman Exports Global Clothing Pvt Ltd. v. Commissioner of Central Excise and Service tax, Coimbatore [(2025) 26 Centax 71 (Tri.-Mad.)].

However, the Revenue department held that the transmission through banking channels facilitates appellant in the receipt of export proceeds. Furthermore, the charges deducted by foreign banks ultimately reduce the amount received by the appellant. Thus, appellant should be considered as service recipient and service tax should be paid by the appellant on the commission amount deducted under reverse charge mechanism.

Tribunals Finding

• It was observed that, same issue had been decided by the Tribunal vide its final order no. 30919/2020. The said final order was passed in the case of the appellant for the period 2006-07 to 2010-11 in which demand raised for the service tax liability in respect of deductions made by foreign banks was set aside. Thus, the instant matter is not a res integra. The Tribunal found that the factual matrix of the instant case was not materially different from the prior period.

• Further, that there is no evidence available on record which proves that the appellant has engaged the foreign banks and has entered a contractual arrangement with them or is under an obligation to discharge consideration in favour of such banks for any service availed by the appellant.

• It was held that tax cannot be levied automatically merely because the ultimate burden of the deduction is borne by the appellant. For levy under reverse charge, the foremost requirement is that taxable relationship should be established in accordance with Finance Act 1994.

• Along with that, it was observed that foreign buyer remits the export consideration through its banking arrangements. The intermediary banks in transmission of funds is an essential part of the inter-bank arrangement for transfer of money. In the absence of evidence, it cannot be held that appellant engaged intermediary banks just because net amount was remitted to the appellant after deduction of charges.

• Contention of the appellant by placing Reliance upon the judgement in the case of Eastman Exports Global Clothing Pvt Ltd. v. Commissioner of Central Excise& service tax, Coimbatore (supra) was also accepted.

Hence, based on above observations it was held that the service tax liability cannot be imposed on such charges.

Issue – 2: Scientific or Technical Consultancy Services

Contention of the parties

With respect to the tax on scientific or technical consultancy services, the appellant argued that such agencies merely complied data which was readily available and published material and prepared regulatory documents. Further, the agencies did not undertook any independent scientific research, experimentation or technical study on the products of the appellant. Further, there was no advice provided by the agencies in any discipline of science or technology. Reliance was placed upon the decision of the tribunal in the case of IPCA Laboratories Ltd. v. Commissioner of Central Excise & Service Tax, LTU, Mumbai [2019 (21) G.S.T.L. 502 (Tri.-Mumbai)].

On the other hand, the department argued that the services should be classified as “Scientific or Technical Consultancy Services” on the basis that the consultant possessed technical/scientific expertise and its team consisted of professionals from pharma and biomedical fields as the preparation of regulatory documents necessarily involved examination of scientific and technical particulars.

Findings of the Tribunal

• In this regard, it was observed that the instant matter is also covered by the judgment of the Tribunal in the case of appellant vide final order no. 30919/2020 dated 09.09.2020 in which relying upon the judgement IPCA Laboratories Ltd. v. Commissioner of Central Excise & Service Tax, LTU, Mumbai (supra) it was held that services relating to obtaining permission and meeting regulatory requirements for marketing pharmaceutical products abroad cannot be classified as scientific or technical consultancy charges.

• Tribunal held that essential character of the service has to be determined from the nature of the activity actually undertaken and not merely from the professional qualifications of the persons rendering the service. Further, that the possession of scientific or technical expertise by such consultant does not ipso facto makes every activity undertaken by such consultant a “Scientific or Technical Consultancy Service”

• Along with that, there must be advice, consultancy or scientific/technical assistance rendered by a scientist, technocrat or a science or technology institution in a discipline of science or technology. Furthermore, preparation and documentation for regulatory filings from the information already available with the appellant or in published literature cannot be equated with scientific or technical consultancy.

• It was observed that ratio of decision given in the case of the appellant itself squarely applied to the present period. Hence, it was held that preparation of documents for obtaining approvals cannot be classified as scientific or technical consultancy services. Hence, demand is also liable to be set aside.

• It was held that for levying on such service, the most important requirement is presence of an advice, consultancy or scientific/technical assistance rendered by a scientist, technocrat or a science or technology institution/in a discipline of science or technology.

• Furthermore, the contention of the appellant was accepted that service tax in respect of these payments had been discharged under the category of management or business consultant service, and the amount was also appropriated by department by reclassifying the same under Scientific or Technical Consultancy service. Hence, as the classification by the revenue itself is not sustainable, the demand of tax also cannot survive.

• With respect to interest and penalties, it was held that, once the substantive demands of service tax are held to be not sustainable, consequential demands of interest and penalties cannot survive.

Thus, the appeal filed by the appellant was allowed.

CA Pradeep Jain_

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