Charges for testing & analysis included in Assessable value of medicaments for fixing MRP - Excise duty paid - whether service tax can be levied on the said charges?

PJ/Case Laws/2011-12/1250

Case: - M/s ESPI Industries and Chemicals Pvt. Ltd. versus Commissioner of Customs, Central Excise and Service tax (Appeals)-III, Hyderabad

Citation: - 2011-TIOL-821-CESTAT-BANG

Issue:- Charges for testing & analysis included in Assessable value of medicaments for fixing MRP - Excise duty paid - whether service tax can be levied on the said charges?

Brief facts: - Appellant is engaged in job work of manufacturing P or P medicaments, as a part of the manufacturing activity, the assessee was conducting tests on samples and recovered stability analysis charges and validation charges.

The Original Authority confirmed the demand Service Tax on Technical Analysis and Testing Services, with applicable interest and imposed penalties under Sections 76 and 78 of the Finance Act, 1994. Vide the impugned order, the Commissioner (A) sustained the demand of tax plus interest but vacated penalty imposed under Section 76 of the Act. Appellant filed further appeal before the Tribunal. The present application seeks waiver of pre-deposit and stay of recovery of the above dues confirmed against the appellant.

Appellant’s Contention: - During the material period, as the goods were subject to MRP based assessment, all the relevant elements of cost incurred by the assessee had been taken into account in fixing the MRP relevant for assessment. Therefore, the stability analysis charges and validation charges recovered by assessee from its principal to test whether the goods manufactured satisfied the standard parameters did not attract Service Tax. The amount which had suffered excise duty could not be subjected to Service Tax.

Appellant relied on a decision of this Tribunal in the case of ITW India Ltd. vs. CCE, Hyderabad [2009 (14) STR 826 (Tri.-Bang.)] in support of their claim. ESPIL conduct similar test for several others. This was Research and Development work.

Respondent’s Contention: - The activity undertaken by the assessee described as stability study or validation analysis conformed to Technical Testing or Analysis' service; the same amounted to test of the samples of medicaments covered by the entry at Section 65 (106) of the Act.

Respondent submits that the impugned order was passed in accordance with law. The assessee had recovered charges for the impugned activity by raising debit notes in addition to recovering job charges for manufacturing P or P medicaments for its principal.

Reasoning of the Judgment: - The Tribunal is satisfied that the impugned activity of stability test and validation analysis involve testing and analysis of samples of the goods manufactured by the assessee to ensure that the same satisfied the prescribed parameter. As per Clause 107 of Section 65, "Technical Testing and Analysis Agency means any agency or person engaged in providing service in relation to technical testing and analysis." The Tribunal finds that, the assessee is a 'Technical Testing and Analysis Agency' envisaged in Clause 107 above and the activity involved is eligible to Service Tax as technical testing and analysis figuring at Clause 106 of Section 65.

The Tribunal is also of the prima facie view that inclusion of this element in the assessable value of the medicaments for fixing MRP on which excise duty is paid will not make a difference to its exigibility under the Finance Act.

The Tribunal noted that in the ITW India Ltd case cited, the assessee had not recovered separate charges for packing activity unlike in the case on hand.

Decision:- Pre-deposit ordered.

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PJ/Case Laws/2011-12/1250

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