TMI Blog2019 (6) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... side India - The applicant have themselves submitted that the services of research are rendered by them in respect of the subject Drug/product, which are made available to them in India. Only when these drugs are received then they administer the same to their subject under certain conditions and observed the effect of the drugs on such subject and finally make research reports which are then sent to their sponsors. The Applicant has submitted that they are engaged by the sponsors only for the report and not for merely administering the drug and recording the results alone. This contention is flawed inasmuch as it is natural that in such cases the sponsors would like to know the efficacy of their drugs on subject and for which the testing of the drugs themselves are important. The entire administration of the drugs has to take place under controlled conditions and results have to be meticulously taken down. The report is only a culmination of the entire process. As the applicant receives goods in India and the testing process is also carried out in India. The said goods are physically made available to them by their sponsors and therefore the place of supply of services is in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, the Applicant is registered as a public limited company under the Companies Act , 1956. The Applicant provides Clinical Research services to the sponsors located outside India. (iii) The Clinical Research services provided by Applicant involves conducting Bio equivalence and Bio-availability clinical studies which includes fasting and fed conditions, single and multiple dose in healthy subjects, drug to drug interaction, drug food interaction, special/patient population studies. The study is undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers etc., sent by the foreign entities (sponsors). Applicant performs clinical trials (based on preset criteria) using that Investigational Product/drug on humans, records the results of the trial, makes a detailed study (analyze the result) and submits a report (in digital form) to the sponsors located outside India. The goods/ Investigational Product given by the sponsor will get consumed during the process of the study and is never returned back to the sponsor. In case the Applicant fails to submit a report or submits an erroneous report, the Applicant would be liable to und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange I [or in Indian rupees wherever permitted by the Reserve Bank of India); and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; (iii) A perusal of the above provisions makes it clear that all the conditions must be cumulatively fulfilled for a transaction to qualify as export. In the present facts, it is clear that the conditions mentioned in (i), (ii), (iv) and (v) above are satisfied. That is, Applicant is located in India, the recipient of the service (sponsor) is located outside India, the payment for the said service is receivable in convertible foreign currency and the Applicant and the sponsors are not merely establishments of distinct persons. (iv) The only condition therefore that requires evaluation is whether the place of supply of service is outside India. (v) The rules to determine place of supply of services where location of supplier or location of recipient is outside India is contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on provided by the recipient. Hon ble Tribunal while detailing the applicability of Rule 4 of the Place of Provision of Service Rules, 2012. Has held: It has been noted by the first appellate authority that the applicant for refund is in the business of rendering scientific or technical consultancy services and has earned convertible foreign currency by rendering these services during the relevant periods. Contention of Revenue is that place of provision of service is in India because Rule 4 of Place of Provision of Services, 2012 stipulates that when- the service is provided in respect of goods that are required to be made physically available by the recipient of the service to the provider of service the place of provision of service is the location of the performance of service. It is also contended that this must be read in consonance with Rule 6A of Service Tax Rules, 1994 which, with effect from 1st July, 2012, has been made applicable to Rule 5 of Cenvat Credit Rules, 2004. Reliance is also placed on Guidance Note 5 of the Education Guide dated 20th June, 2012 published by the Central Board of Excise Customs which pertaining to Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice.. rendering the location of performance of service, i.e. India, to be pertinent to the activity of respondent. It is an admitted fact that the respondent had been rendering services that were, in the erstwhile pre-negative list regime, taxable but for the provider being an Export Oriented Unit under the entry in Section of Finance Act, 1994. In the scheme of Export of Service Rules, 2005, the various taxable services had been categorized as object-based performance-based and recipient-based for the purpose of exemption under Section 93 of Finance Act, 1994. Though those Rules are no longer valid for the purposes of Rule 5 of Cenvat Credit Rules, 1994, their guidance value cannot be discountenanced. The negative list regime was not intended to be either detrimental or beneficial to existing assesses except where such intent was specifically sanctioned by legislation. The respondent, prior to 1st July, 2012, was eligible for all benefits as the service rendered by them were treated as export with the recipient of the service being outside the country. The corresponding provision in Place of Provision of Services Rules, 2012 is Rule 3 which brings the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this context, the legislative intent of incorporating a special and specific provision in Rule 4 may yield further insights. The special provision, which may be seen as an exception to the general Rule 3, deals with services in respect of goods as well as those provided to individuals. Not unnaturally, the services that require the physical presence of the person is taxed where the consumer receives the service and not at his location which as per Rule 2(i)(iv) would be his usual place of residence. In what can be considered as a most telling example of the scope of this portion of Rule 4, we could do a lot worse than refer to a decision of the Hon ble High Court of Delhi that, in the course of dealing with other, more weighty matters in Orient Crafts Ltd v. Union of India (2006-TIOL-271-HC-DEL ST = 2006 (4) S.T.R. 81 (Del.)] = 2006 (9) TMI 2 - DELHI HIGH COURT , took note of and answered, one of the submissions thus - 4. The contention of the learned Counsel for the petitioner, based on the interpretation of Section 66A of the Act, is that any service that is obtained by a person who has a fixed place of business in India is liable to tax for services avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Place of Provision of Services Rules, 2012 would appear, by elimination of possibilities, to relate to goods that require some activity to be performed without altering its form. The exemplification in the Education Guide referred supra renders it pellucid. Certification is an important facet of trade and such certification, if undertaken in India, will not be able to escape tax by reference to location of the entity which entrusted the activity to the service provider in India. This is merely one situation but it should suffice for us to enunciate that Rule 4(1) is intended to resorted when services are rendered on goods without altering its form that in which it was made available to the service provider. This is the harmonious construct that can be placed on the applicability of Rule 4 in the context of tax on services and the general principle that taxes are not exported with services or goods. The goods supplied to the respondent, minor though the proportion may be, are subject to alteration in the course of research. It is not asserted anywhere that these goods, in its altered or unaltered form, are sent back to the service recipient; if it were, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Relevant portion of Rule 4 of the lace of Provision of Services Rules, 2012 is reproduced for easy reference ; Place of provision of performance based services- 4. 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 provider of service, or to a person acting on behalf of the provider of service, in order to provide the service: (xiii) Applying the above judicial precedents to the facts of the present case, as detailed in Exhibit II above, the Applicant is providing service of clinical research which requires the Applicant to record the effects of the drug (provided by the recipient) when administered to human or animal volunteers based on pre-set criteria (protocols), analyze the results and to deliver a report detailing the observations and analysis of the Applicant. (xiv) In the whole chain of activities, administration of the drug to the volunteers is merely the first step in providing the service (providing a detailed test report) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. Reliance in this regard can be placed on the following cases wherein it has been specifically held that even though the test has been conducted in India and the test reports were prepared in India, the service will be treated as export of service as the service is consumed outside India: a. Commissioner v B.A Research India Ltd 2010 (18) S.T.R. 439 = 2009 (11) TMI 213 - CESTAT, AHMEDABAD b. KSH International Pvt. Ltd. v. Commissioner 2010 (18) S.T.R. 404 = 2010 (1) TMI 143 - CESTAT, MUMBAI c. Commissioner of Central Excise Pune - I Vs. Sai Life Sciences 2016 (42) STR 882 (Tri-Mum) = 2016 (2) TMI 724 - CESTAT MUMBAI - Post introduction of Place of Provision of Service Rules 2012 d. Principal Commissioner of C. Ex. Pune - I v Advinus Therapeutics Ltd. 2017 (51) S.T.R. 298 (Tri, - Mumbai) = 2016 (12) TMI 34 - CESTAT MUMBAI - Post introduction of Place of Provision of Services Rules 2012 (iii) Further, we would like to submit our own case of Commissioner v B.A Research India Ltd 2010 (18) S.T.R. 439 = 2009 (11) TMI 213 - CESTAT, AHMEDABAD . In this case, decision was given in favor of the Applicant. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided by the applicant involves conducting bio-equivalence studies, bio-availability studies, drug reactions, drug interactions etc. for newly developed drug formulations or for the existing ones. The applicant enters into agreement with the foreign clients and is needed to submit the product investigation report as per the terms and conditions of the agreement. The clinical trials and investigation studies are performed by the applicant on the individuals in India at their facilities. The products under investigation i.e. drug in capsule, tablet etc. forms are supplied by the foreign based clients as per the terms of agreement. The output of this business activity is a product investigation report that is sent to the clients based outside India in digital format. For these services the applicant raises invoices to their foreign clients in foreign currency and receives the consideration in foreign currency. The applicant has raised following query: Sr. No. Questions raised by the applicant Submission as per ACT RULE 1. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of supply of services: Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs and are exported after repairs without being put to any other use in India, than that which is required for such repairs. (Refer Annexure Il) Comment : In case of the applicant the place of supply service is determinable as per Section 13 (3) (a) which clarifies that the place of supply of service in cases where the material used or consumed in the performance of service is supplied by the recipient of the service. In case of the applicant the materials consumed or used in the clinical trials is supplied (in physical form) by the recipients of the service moreover the applicant provides only service i. e. product investigation report in digital form electronically to the recipient. Section 13(3)(a) mentions that in such cases the place supply of the services shall be the location where service is actually performed. 04. HEARING Preliminary Hearing in the matter was held on 27.02.2019. Sh. Shivrajan C.A, of Price Waterhouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Metformin HCI) Extended Release Tablets 1000 mg in healthy, adult, human subjects underfed conditions We find that the Applicant will be providing Clinical Research (as mentioned in their application), in the form of comprehensive range of clinical research and support services to their clients (sponsors), by performing technical testing and analysis on the Drug/lnvestigational Product, provided by sponsors located outside India and submits final analyses report to such foreign sponsors. The Research (study) will be conducted on human subjects. Thus we find that the Research is for conducting a study of the effect of such Investigational Product/drug. It has also been submitted that the goods/ Investigational Product given by the sponsor will get consumed during the process of the study and is not returned back to the sponsor. After the completion of study, the applicant will supply the Sponsor with a copy of a detailed report containing the analysis of the study conducted by them. We agree with the applicants submission that their transaction satisfies the conditions mentioned in clauses (i), (ii), (iv) and (v) of Section 2(6) of the Integrated Goods and Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Applicant does not provide any of the services listed in the Section 13(5) (5) The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, .. The Applicant does not provide any of the services listed in the Section 13(6) (6) Where any services referred to in sub-section (3) or subsection (4) or sub-section (5) This Section is not applicable on the Applicant as he does not provide services listed in sub-section (3), (4),(5) explained above. 13(7) (7) Where the services referred to in sub-section (3) or sub-section (4) or sub-section 5 are supplied in more than one State This Section is not applicable on the Applicant as he does not provide services listed in subsection (3), (4),(5) explained above. 13(8) 8) The place of supply of the following services shall be the location of the supplier of services, namely:--- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lthy adult male subjects under fed conditions . Thus the prime importance in this case is their product itself, which is supplied to them in India by their sponsors. Without this product to be tested the Research study cannot take off and therefore we find that the said supply of research services is in respect of subject products/goods and the same are required to be made physically available by the recipient of services to the supplier of services i.e. the applicant. We do not agree with the applicant s contention that Section 13(3)(a) of the IGST Act will be applicable only in those cases where a service in the nature of repair, testing etc. is performed on the goods sent by the recipient to the supplier of service. The said section does not give any exemption to goods that are consumed in the process of research. The applicant have themselves submitted that the services of research are rendered by them in respect of the subject Drug/product, which are made available to them in India. Only when these drugs are received then they administer the same to their subject under certain conditions and observed the effect of the drugs on such subject and finally make research reports whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e place of supply of service is outside India; No. The place of supply is in India as per discussions made above (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; Yes. Consideration received in convertible foreign exchange (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; The Supplier and Recipient are distinct Persons. In view of the above, as the applicant receives goods in India and the testing process is also carried out in India. The said goods are physically made available to them by their sponsors and therefore the place of supply of services is in India as per Section 13(3)(a) of the IGST Act. Since the place of supply is in taxable territory it is clear that the provisions of Section 2(6) of the IGST Act are not fulfilled in this case and therefore their supply cannot be considered as Export of Services as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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