2019 (6) TMI 1307 - AAR - GST

Clinical research services to foreign sponsors don't qualify as GST exports when testing occurs in India

The AAR Maharashtra ruled that clinical research services provided by an Indian entity to foreign sponsors do not qualify as export of services under GST ... Levy of CGST AND SGST or IGST - 'Clinical Research' services proposed to be provided by them to entities located outside India - Place of supply of services - Export of services or not - section 2(6) of the Integrated Goods and Services Tax Act, 2017 - HELD 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. Place of Supply of Services - outside India or not? - Section 13 of the IGST Act, 2017 - HELD THAT:- In this case, the applicant supplying the services is in India and the client/sponsor to whom the services are supplied is situated outside 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 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 per the GST Law. Issues Involved:1. Whether the 'Clinical Research' services provided to entities located outside India are liable to Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Integrated Goods and Services Tax (IGST).2. Whether these services are eligible to be treated as an export of service under Section 2(6) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).Detailed Analysis:1. Liability to CGST, SGST, or IGST:The applicant, a Clinical Research Organization (CRO), provides clinical research services to foreign sponsors. The services involve conducting studies on drugs provided by these sponsors, analyzing results, and submitting reports. The applicant raises invoices in foreign currency and receives payment in foreign currency.Applicant's Argument:- The applicant argues that their services qualify as an export of service under Section 2(6) of the IGST Act, as they fulfill all conditions except for the place of supply.- They contend that Section 13(3)(a) of the IGST Act, which determines the place of supply for services involving goods made physically available by the recipient, should not apply to their services. They argue that this section applies to services like repair or testing performed on goods sent by the recipient, not to services where the goods are consumed during the process.Authority's Observations:- The Authority notes that the applicant's services involve conducting studies on drugs provided by the sponsor, which are consumed during the study.- The Authority agrees that the conditions in clauses (i), (ii), (iv), and (v) of Section 2(6) of the IGST Act are satisfied. However, the critical condition is whether the place of supply of services is outside India.2. Eligibility to be Treated as Export of Service:Applicant's Argument:- The applicant argues that the place of supply should be determined under Section 13(2) of the IGST Act, which states that the place of supply shall be the location of the recipient if none of the specific provisions in subsections (3) to (13) apply.- They rely on judicial precedents, including the case of Principal Commissioner of C. Ex. Pune - I v Advinus Therapeutics Ltd., which held that services involving research and drug development using information provided by the recipient qualify as an export of service.Authority's Observations:- The Authority examines Section 13(3)(a) of the IGST Act, which states that the place of supply for services involving goods made physically available by the recipient is the location where the services are performed.- The Authority finds that the applicant's services involve the physical availability of drugs provided by the sponsor in India, and the services are performed in India.- The Authority disagrees with the applicant's contention that Section 13(3)(a) applies only to repair or testing services. The section applies to any service where goods are made physically available by the recipient, including the applicant's clinical research services.Conclusion:The Authority concludes that the place of supply for the applicant's clinical research services is in India, as the services are performed in India using drugs provided by the sponsor. Therefore, the services do not qualify as an export of service under Section 2(6) of the IGST Act. The services are liable to CGST and SGST, as the location of the supplier and the place of supply are in the same state.Order:The Clinical Research services proposed to be provided by the applicant to entities located outside India are not eligible to be treated as an export of service under Section 2(6) of the IGST Act, 2017. The services are liable to CGST and SGST as the location of the supplier of service and the place of supply is in the same State.