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TMI Blog2019 (11) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... rdination 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. The applicant states that he is engaged in coordinating clinical trial services in India for its affiliates (all the affiliates are hereinafter collectively referred to as PAREXEL Group). The key functions carried out by the applicant while providing the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e approved sites for clinical trials on behalf of the Sponsor - - Yes - Post feasibility Study Services - Regulatory Affairs and Compliance Obtaining regulatory approvals for undertaking clinical trials within India - - Yes - Preparation of Investigation Brochure, Protocols and dossiers Yes Yes - - Distribution of brochure and protocols to Investigators regarding the procedures of clinical trials - - Yes - Making the drugs available to the Investigators Yes Yes Yes - Conducting the Clinical Trials - - - Yes Maintaining the Clinical study files along with the Case Report Forms - - - Yes Site visit in India for collection of data - - Yes - Follow up procedure and Monitoring the trials - - Yes - Preliminary Compliance of data - - Yes - Preparation of final trial reports - - Yes Yes 6. Regarding the determination of liability to pay tax on the coordination services provided by the company to its affiliates outside India, the applicant states that these activities done by them are in the nature of Project Management, Regulatory Affairs, Project Monitoring and Compliance activities. 6.1 The Project Management involves planning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting clinical trials phase II - III of the specific types of medicines/ drugs as separately agreed by the parties. In particular, PISPL shall provide the services listed in "Appendix A (the services) to PIC (PAREXEL International Corporation). 2.1. PISPL shall not be an agent or partner of PIC. PISPL shall not enter into or execute any agreements, orders or any other commitments or otherwise obligate PIC in any manner. APPENDIX A The services to be provided by PISPL to PIC would include the following types of Services: 1. To obtain various regulatory approval from DGCA for conducting clinical trial in India and to submit the required data with DGCA time to time regarding the progress of clinical trial. 2. To carry out site inspection and site identification for carrying out clinical trials in India for conducting any new trials. 3. To coordinate with Ethical Committees of various investigators and obtain approval for conducting clinical trials in their organisations and provide all periodic updates with the Ethical Committee; 4. To conclude clinical study contracts with the independent investigators capable to carry out the trials according to the required standards a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude: - construction project management services" 8.4 The applicant states that from the above, it is clear that the services provided by way of co-ordination and supervision of a project on behalf of the client are classifiable as Business Support Services and in the instant case the applicant co-ordinates, monitors the clinical trial services in India on behalf of its affiliates. As the essential character of services being provided are in the nature of co-ordination and monitoring activities, according to the applicant, the services provided by them are to be classified as "business support services". 9. Regarding the taxability of the services provided by the applicant, the applicant states that in the GST regime, in order to determine the taxability of a transaction, it is important to refer to the definition of "Supply" (levy) and the place of supply provisions as applicable to the transaction. It is undisputed fact, according to the applicant, that the above mentioned services provided by the applicant qualify as "Supply" and therefore liable for GST. However, as these services are provided to the recipient outside India, before concluding on the taxability of the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the supplier of service (c) The service provided requires the physical presence of the recipient. 9.4. In the instant case, according to the applicant, the services provided by the applicant are in the nature of coordination services which neither require the physical presence of an individual (recipient) nor in respect of goods. These services are not related to goods and do not require such goods to be made available to the applicant in order to provide the services. 9.5 The applicant admits that it is an undisputed fact the clinical trials are conducted in India which are in respect of goods which are required to be made available by the recipient. However, it is important to note that the service of clinical trials is provided by the investigator to the sponsor and the applicant for the limited purposes, on behalf of the sponsor enters into an agreement with the investigator. A mere fact that the applicant has entered into an agreement with the investigator on behalf of the sponsor will not alter the nature of services provided by the applicant to its affiliates. 9.6. The applicant argues that as per Section 13(3) of IGST Act, the place of supply of services can be perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergent) will not fall in this category, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product by the manufacturer, to carry for door-to-door surveys. 9.8. Based on the above, the applicant argues that rule 4 only contemplates a situation in which the goods are temporarily handed over to service provider for provision of services. The said paragraph of Education Guide also mentions that "it will not cover services where the supply of goods by the receiver is not material to the rendering of the service." In the instant case, the service of coordination do not require the physical presence of goods and therefore Section 13(2) which is akin to the Rule 4 of the Place of Provision of Services is not applicable to the applicant. 9.9. The applicant places reliance on the Advance Ruling given under the earlier law in the Steps Therapeutics Ltd 2017 (49) STR 114 (AAR) = 2016 (9) TMI 143 - AUTHORITY FOR ADVANCE RULINGS where the applicant provides "clinical research services" which are similar to those of the services provided by the applicant. In the AAR it was concluded that - "where only service of Clinical Research is provided, then such servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us." 9.13. Based on the above, the applicant submits that he is not performing any clinical trial services and only arranges and administers the trials for which the place of supply shall be "location of recipient'. As the applicant provides services to its affiliates outside India, the transaction shall qualify as "Export" subject to fulfillment of other conditions as specified in the Act. 10. Regarding the determination of liability to pay tax on the "pass through" provided by the company to its affiliates outside India, the applicant states he acts on behalf of the sponsor and enters into a contract with the investigators who performs clinical trials in India and settles their invoices on behalf of the sponsor. These charges shall be reimbursed to the applicant at actuals and are named as "pass through" expenses. As these expenses are in the nature of reimbursements made by the applicant, the applicant believes that the same cannot be included in the value of supply. 10.1. As per the Rule 33 of the CGST Rules 2017, '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 suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, the applicant acts on behalf of the sponsor and enters into a contract with the investigators who perform the clinical trial services. These charges are reimbursed to the applicant as actuals. In this connection, as PICRPL is acting as a "pure agent* of sponsor, the applicant contends that the said expenses incurred and recovered by the applicant may not be included in the value of services for computation of taxes / availing the export benefit. 12. The applicant also states that as mentioned in the application for advance ruling, he is engaged in co-ordinating and monitoring clinical trial services in India and for the provision of this service to its affiliates outside India, the applicant has entered into a contract and has agreed to provide these services at a fee comprising of total operating cost incurred by the company as increased by 15% mark-up which shall be invoice monthly. 12.1. As per the contract, apart from the above services, the applicant is also required to enter into contract on behalf of sponsor with the investigators who perform the clinical trials in India and settle their invoices on behalf of the sponsor. These charges shall be reimbursed to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-Clinical trials and Clinical Trials are conducted to test the efficacy and safety of the drugs tested. 13.2 The Trials involve mainly two persons - (a) a Sponsor - who is usually a pharma company. The sponsor may outsource the activity of trials to CROs (b) CROs - are representatives of the Sponsor and are responsible for clinical trials. (c) The Investigator is a person who conducts the trial and report the findings to the CROs or Sponsors. The applicant company and all its affiliates is a CRO who has the contract of testing the drug and reporting the results to the Sponsor. The part of operations in India is done by the applicant and the agreement between the applicant and its parent affiliates govern the transactions between them. 13.3. The Agreement entered between the applicant and the PAREXEL International Limited (one of the foreign affiliate of the same group) which is produced as a prototype is verified and found that the applicant is subcontracted a part of the work given to the main affiliate and the applicant performs certain services for and on behalf of the main affiliate on the terms set forth therein. Hence it is clear that the applicant is performing ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second the supply of CRO services to the foreign affiliate. It is also seen in the sample document provided by the applicant, that even this CRO services is again sub-contracted to one, M/s Ecron Acunova Limited. 14.1 It is seen in the para 19.4 of the agreement that the Institution and Investigator understand and agree that the agreement is being signed by CRO exclusively on behalf of and as an agent of Sponsor and for Sponsor's benefit and that CRO is not a party to this agreement. Upon request, CRO on behalf of Sponsor can provide a delegation of authority and/or power of attorney letter. Hence it can be presumed that that the applicant is signing the agreement on behalf of the Sponsor and not a party to that agreement and hence the agreement is actually between the Sponsor and the Investigator. 14.2 It is seen in the agreement that the payment of fees and expenses would be made by the Sponsor to the Institution solely and through the CRO, i.e. applicant's foreign affiliate, applicant and the subcontractor acting as go-betweens. The agreement also states in para 16.4 that the Institution and Investigator acknowledge and agree that CRO is the payment agent for Sponsor under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down in the Explanation to Rule 33, the applicant qualifies as a pure agent of the recipient of service, i.e. the Sponsor. He also satisfies all the conditions prescribed in rule 33 of the CGST Rules and hence the value of invoice raised by the applicant on the sponsor for making payment to the principal investigator and the institution would be excluded from the value of supply. But this ruling has a caveat that this ruling is not a ruling on the nature of the supply of services by the principal investigator and the institution to the sponsor. 16. On the question whether the Project Management Services provided by the applicant to the foreign affiliate is an export of services or not it is clear that the Applicant is providing service to PAREXEL Prime located in the non-taxable territory. The location of the recipient of the service is outside India. The Applicant is supplying service in respect of the goods i.e. new drugs, which are physically made available to the investigator / institution who conducts the clinical trial, on behalf of the applicant, in order to provide the service. The Applicant contends that the services provided by them to the Parexel Prime amounts to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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