TMI Blog2019 (11) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... of contract between the applicant and the sponsor and the power to enter into agreement with the investigators is derived from the agreement between the applicant and its foreign affiliate which in turn derives the power from the agreement entered between the sponsor and the foreign affiliate. - The various clauses of the agreement show clearly that the applicant is acting as a representative of the sponsor in relation to the supply of services by the Investigators and the payments are made by the applicant. Nature of services - HELD THAT:- The sponsor has entered into an agreement with the foreign affiliate of the applicant. The foreign affiliate has in turn entered into an agreement with the applicant. The applicant has further entered into an agreement with the investigator. The foreign affiliate is providing services to the sponsor as a CRO and the applicant is providing services to the foreign affiliate also as a CRO. There are two services which are involved in the above transaction, one the supply of drug testing services by the Investigator to the sponsor and the second the supply of CRO services to the foreign affiliate. It is also seen in the sample document provided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he KGST Act. 2. The Applicant is a Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling on the following questions: a) Determination of liability to pay tax on the co-ordination services provided by the company to its affiliates outside India? b) Determination of liability to pay tax on Pass Through expenses charged by the Company to its affiliates located outside India? 3. The applicant furnishes some facts relevant to the stated activity: a. The applicant states that PAREXEL International Corporation (USA) (the Parent Company of the applicant) is a leading Contract Research Organisation (CRO), providing a broad range of expertise in clinical research, medical communications, consulting and advance technology products and services to the worldwide pharmaceutical and biotechnology companies alternatively known as Sponsors . For coordinating the clinical trial activity conducted in India, PAREXEL Prime (i.e. the entity which has executed the contract with the Sponsor - typically a PAREXEL entity in US, UK, Germany, Japan or Ireland) has entered into an agreement with the applicant. b. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Trials Yes - - - Study Protocol design for Clinical Trials Assistance in site feasibility - Project Management Services Preparation of plan for feasibility study - Yes - - Providing the list of approved sites in India (Site Database) - Yes - - Screening of the sites suitable for study based on parameters set by PAREXEL Group - - Yes - Approval of sites for study Yes Yes - - Concluding a contract with the approved sites for clinical trials on behalf of the Sponsor - - Yes - Post feasibility Study Services - Regulatory Affairs and Compliance Obtaining regulatory approvals for undertaking cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities of investigator sites as per protocol and other regulatory requirements like GCP Compliance review, IRB/EC audits, on-site investigator audits, drug accountability reviews, database audit, study document reviews. For performing the above mentioned services, the applicant invoices its affiliates on a monthly basis, a fee comprising of total operating cost incurred by the company as increased by 15% mark-up. 7. Apart from the above services, the applicant acts on behalf of the sponsor and enters into contract with the investigators who perform the clinical trials in India and settles their invoices on behalf of the sponsor. These charges shall be reimbursed to the applicant at actuals (without any markup) and are named as Pass through Expenses . In other words, pass through expenses are the reimbursements made to the applicant for the costs incurred by the applicant on behalf of the sponsors such as investigators fee, drug charges, laboratory fee, translation costs, etc. The present application is filed to seek a ruling on the taxability of the above mentioned services under the GST provided by the applicant to its affiliates outside India. 8. Regarding the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal elaboration of the outcome of tests 11. To conduct the additional activities of a technical nature necessary to perform the above activities, such as supplying the investigators with the appropriate forms and questionnaires for each phase of the research, ordering translations of the necessary documents and supplying the investigators with the study medication to be used exclusively within the trials. 12. To perform a feasibility study before commencing any new clinical trial activity in India and provide data to PIC based on the output of feasibility study 13. Overall coordination of clinical trials services as well as communication with PIC 14. Any other related activity as specified by PIC from time to time by way of a service order. 8.2 It is clear, according to the applicant, from the foregoing clauses that what is intended by the agreement is only co-ordination, study initiation and monitoring of clinical trials conducted in India and as these services are outsourced support services, these services are classifiable as Business Support Services with HSN 998311. 8.3 The relevant Central Product Classification for the services specified in HSN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied in respect of goods which are required to be made physically available (or) Services supplied requires the physical presence of the recipient Location of performance 13(4) Services in relation to Immovable Property Location of immovable property 13(5) - 13(12) Specified Services - (Not relevant in the instant case) 9.2 The applicant states that the services provided by the applicant are not covered under Section 13(4) to 13(12). In order to conclude as to whether the supplies made by the applicant are Performance based or Recipient based services, the detailed provisions are extracted below: Section 13 of the IGST Act provides that, ............... 13(2) the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. 13(3) the place of supply of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or or to the applicant who in turn provides the same to the investigator. In this case, it is pertinent to note that the applicant is not an agent of the service provider being the investigator and therefore the conditions specified in Section 13(3) are not fulfilled. 9.7. The applicant also states that in most of the cases, the drugs required to conduct the clinical trials are directly provided to the investigator by the sponsor. The fact that the drugs are not received by the applicant proves that the applicant do not perform any services in relation to the goods. In this connection, the applicant refers to the Paragraph 5.4.1 of the Education Guide published by TRU, CBEC which reads as under (as the erstwhile law also had similar provisions): 5.4. Rule 4 - Performance based services 5.4.1. What are the services that are provided in respect of goods that are made physically available by the receiver to the service provider, in order to provide service? - sub-rule (1) Services that are related to goods, and which require such goods to be made available to the service provider or a person acting on behalf of the service provider so that the service can be rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Place of Provision of Services (POP) Rules, 2012 as the applicant renders said services to its customers and the place of provision is located outside India . 9.10. Based on the above inferences the applicant submits that the place of supply provided by the applicant to its affiliates shall not be Performance based and therefore as per the general rule of Place of Supply provision, the place of supply for the said services shall be the Location of Recipient . As the applicant provides services to its affiliates outside India, the place of supply shall be outside India and the transactions qualifies as Export subject to fulfillment of other conditions as specified in Section 2(6) of the IGST Act. 9.11. The applicant also clarifies that as mentioned above, though the company acts as on behalf of the sponsor and enters into contract with the investigators, it is important to note that this relationship is only for the limited purposes of entering into the contract with the investigator and payment thereof and no consideration is received by the company for acting as an agent of the sponsor except for the reimbursements of costs incurred by the company for acting as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the supply, when he makes the payment to the third party on authorization by such recipient; (ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation : For the purposes of this rule, the expression pure agent means a person who - (a) Enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) Neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. The applicant states since he has fulfilled all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses are the reimbursements made to the applicant for the costs incurred by the applicant on behalf of the sponsors such as investigators fee, drug charges, laboratory fee, translation costs, etc. In this connection, the applicant submits that the services provided by the applicant are classifiable under HSN 9983 - Other professional, technical and business services (except research, development, legal and accounting services) which reads as under: *998319 - Other information technology services n.e.c. This subclass includes i. coordination and supervision of resources in preparing, running and completing a project on behalf of the client; ii. project management services, which can involve budgeting, accounting and cost control, procurement, planning of time scales and other operating conditions, coordination of subcontractors work, inspection and quality control, etc; iii. project management services that include management and office management services, with or without the provision of their own staff; This sub-class does not include: - construction project management services Based on the above, the applicant contends that it is clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad. 13.4 Further, it can be seen from the submissions made by the applicant that he enters into various agreements on behalf of the sponsor with various investigators and payments are made by the applicant to the investigators. There is no privity of contract between the applicant and the sponsor and the power to enter into agreement with the investigators is derived from the agreement between the applicant and its foreign affiliate which in turn derives the power from the agreement entered between the sponsor and the foreign affiliate. 13.5. It is also seen that the applicant has entered into an agreement for Clinical Trial with the Investigators and it is clearly stated in the agreement that the applicant is entering the agreement on behalf of the Sponsor. It is clearly stated in the agreement that the Sponsor has requested the CRO to manage the Clinical Trial on its behalf in accordance with the Protocol for the Clinical Trial and had engaged the applicant as its representative in India and had authorized the applicant to (a) liaise with the Indian regulatory authorities to obtain all approvals / permissions / licenses required for the performance of the Clinical Trial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall neither have any payment obligations nor be liable, in the event adequate funds are not made available by the Sponsor for payment. Hence the applicant is only a pass through for the Sponsor and there is no actual payment by the applicant from his own account to the investigator or institution. 14.3 From the above, it can be concluded that the Clinical Testing Services is provided by the investigator and institution to the Sponsors and the CROs (including the applicant) are actually performing the Project Management function and for this the applicant is providing the project management service which is contracted between the CROs and also between the CRO and the sponsor. 15. Rule 33 of the Central Goods and Services Tax Rules states as under: 33. Value of supply of services in case of pure agent. - Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, - (i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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