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M/s Steps Therapeutics Limited, Hyderabad Versus Commissioner of Customs, Central Excise and Service Tax, Hyderabad-IV, Hyderabad

Taxability – activity of clinical trials of the drugs of the customers situated outside India on volunteers in India – Rule 3 of the Place of Provision of services (POP) Rules, 2012 - Held that: - It is noticed that applicant’s proposed service of Clinical Pharmacology is study carried out for generic drugs. Further, study is proposed to be undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers etc. provided by applicant’s customers located outsi .....

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hat are required to be made physically available by the service receiver to the service provider (applicant). - Further, Clinical Research service provided in respect of goods that are required to be made physically available by the service receiver to the service provider (applicant) are also taxable under the Act in light of Rule 4 of the Place of Provision of Services (POP) Rules, 2012. - However, where service of Clinical Pharmacology is not provided by the applicant and only servi .....

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irpurkar, Shri S.S.Rana and Shri R.S.Shukla, JJ. For The Appellant : Sh. Tarun Gulati, Sh. Kishore Kunal, Sh. Manish Rastogi For The Department : Shri Ranjan Khanna (AR) Ruling M/s Steps Therapeutics Limited (hereinafter also referred to as applicant) is in the process of setting up its business of Contract Research Organization whereby, the applicant will be establishing, developing and carrying on research in basic and applied sciences in relation to all kinds of drugs, pharmaceuticals and for .....

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ed research services and clinical trials to be conducted by the applicant, provides that the following heads of service will be rendered by the applicant to its customers:- i. Clinical Pharmacology: The Service involves Bio-equivalence and Bio-availability clinical studies (studies carried out for generic drugs) which includes fasting and fed conditions, single and multiple dose in healthy subjects, drug-drug interaction, drug-food interaction, special/patient population studies. The study is pr .....

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r sponsor/project team, undertaking study/site feasibility assessment, updating the sponsor and participation in telecom; b) Regulatory Affairs: Assistance in regulatory submissions at all phases of drug development and obtaining approvals from DCGI, DGFT and ICMR including approvals for conduct of clinical trials in India, for importing test drug and for exporting biological samples; c) Medical Writing: Assistance in preparation of investigator brochure, protocol, case report form, patient info .....

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will be undertaking clinical trials of the drugs of the customers situated outside India on volunteers in India. The said volunteers will be given dosages of the drug as prescribed by the customers and medical professionals and thereafter, the applicant will be conducting screening of such volunteers wherein the volunteers are kept under observation and their blood samples are tested for identification of various parameters as required by the customers. Pursuant to the said clinical trials, the .....

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a definitive ruling on the following questions: Whether the proposed activities of undertaking Clinical Research and Clinical Pharmacology by the Applicant are taxable under the Act in light of Rule 3 of the Place of Provision of services (POP) Rules, 2012 as the applicant renders the said services to its customers and the place of provision is located outside India? 4. Applicant inter-alia submits that since Rules 5 to 12 are not applicable to the applicant s case, the two rules which are to be .....

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re, the said services are not covered under Rule 4. 5. Revenue submits that in terms of Rule 4(a) of POP Rules, the essential ingredient to levy Service Tax on any service is the location, where the service is provided in respect of goods required to be made physically available by the recipient of service to the provider of service. Further, in terms of Rule 6A (1) (d) of the Service Tax Rules, 1994, any service can be termed as export of service where the place of provision of service is outsi .....

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es is the premises of the applicant. Thereafter, only the report is being sent to the service recipient. As the said samples are entirely available in India either provided by the foreign customer or otherwise, the provisions of Rule 4(a) of POP Rules are aptly applicable to the instant case. Further the fact of location of actual performance of service also confirms the applicability of Rule 4 (a) of POP Rules. 6. In short, the issue involved is whether the services i.e. Clinical Pharmacology a .....

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later among the rules that merit equal consideration. Therefore, in the case before us, if proposed services are covered by Rule 4, then Rule 3 shall not be applicable. 7. Relevant portion of Rule 4 of POP Rules is reproduced as under: Rule 4- 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 service .....

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d to fulfilled for the place of provision of services is the place where the services are performed, are as under:- i. Where the services are performed with respect to goods, the said goods should be physically made available to the service provider; ii. Where the services are performed in the ordinary course of business, the said service should require physical presence of the service recipient or his representative; that the activities of the applicant are not with respect to any goods and are .....

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cant s proposed service of Clinical Pharmacology is study carried out for generic drugs. Further, study is proposed to be undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers etc. provided by applicant s customers located outside India, on eligible volunteers in India. Therefore, it is clear that the formulations in various forms (goods) shall be provided by applicant s customers located outside India, who is recipient of service from the appli .....

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class thereof. It is observed that the language of said Rule 4 (a) do not state that services provided be in respect specific goods. Therefore, the contention of the applicant is not correct. 12. Further, applicant placed reliance on paragraph 5.4.1 of the Educational Guide published by TRU, which is one of the Wings under Central Board of Excise & Customs (CBEC). Said paragraph is reproduced as under: 5.4 Rule 4- Performance based services 5.4.1 What are the services that are provided in re .....

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f the service provider, and without this happening, the service cannot be rendered. Thus, the service involves movable objects or things that can be touched, felt or possessed. Examples of such services are repair, reconditioning, or any other work on goods (not amounting to manufacture), storage and warehousing, courier service, cargo handling service (loading, unloading, packaging or unpacking of cargo), technical testing / inspection/certification/analysis of goods, dry cleaning etc.It will n .....

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-to-door surveys. 13. Based on above, applicant submits that Rule 4 only contemplates a situation where the goods are temporarily handed over to service provider for servicing and returned after servicing; that their interpretation is supported by the example of detergent packets distributed and feedback by such prospective customers are not said to be covered by Rule 4. It is to be observed that the Education Guide gives example of some services covered under Rule 4 ibid and technical testing/a .....

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ring of services. Therefore, service relating to Clinical Pharmacology will be covered under Rule 4(a) ibid, even as per Education Guide relied upon by the applicant. It is noticed that paragraph 1.2 of Education Guide clarifies that it is neither a Departmental Circular nor a manual of instructions issued by CBEC. Further, it states that it does not command the required legal backing to be binding on either side in any manner. In any case, contents of Education Guide cannot be substitute for PO .....

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d Clinical Research, would be on stand-alone services, for which separate invoices would be issued and Clinical Research service cannot be considered as service under Rule 4(b) ibid, as same is not provided in the presence of service receiver or a person acting on behalf of service receiver. 15. It is observed from the application submitted by the applicant that he would be charging consideration from the customers on project to project basis. It is apparent that list of such services to be prov .....

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is carried out in respect of formulations that are required to be made physically available to the applicant (i.e. service provider) by the service receiver located outside India, such service shall be covered under Rule 4 (a) ibid. Clinical Research carried out in respect of formulations received from the service receiver, that are consumed in the process or clinical testing, which are necessary for carrying-out other processes of Clinical Research, would also be covered under this category, a .....

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ided in the physical presence of an individual, represented either as the service receiver or a person acting on behalf of the receiver in terms of Rule 4 (b) ibid; that the volunteers which are identified, selected and gathered by the applicant are in India and such volunteers having nothing to do with the Drug Company i.e. the service recipient, and therefore the said volunteers cannot be said to be acting on behalf of the receiver; that the activities of the applicant essentially involves pro .....

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