AAR Karnataka rules applicant qualifies as pure agent under Rule 33 but lacks jurisdiction on export determination

The AAR, Karnataka held that the applicant, providing coordination services to foreign affiliates, qualified as a pure agent of the sponsor under Rule 33 explanation. The applicant performed project management services for foreign affiliates in clinical trial arrangements, acting as a pass-through entity for payments to investigators without actual payment from its own account. However, the AAR determined it lacked jurisdiction under Section 97(2) of CGST Act, 2017 to rule on place of supply, and therefore could not determine whether the services constituted export of services.

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Issues Involved:
1. Determination of liability to pay tax on the coordination services provided by the company to its affiliates outside India.
2. Determination of liability to pay tax on "Pass Through" expenses charged by the company to its affiliates located outside India.

Detailed Analysis:

1. Coordination Services Provided to Affiliates Outside India:
The applicant, a private limited company registered under the GST Act, 2017, provides coordination services related to clinical trials in India for its affiliates. These services include project management, regulatory affairs, project monitoring, and compliance activities. The applicant invoices its affiliates on a cost-plus markup basis.

The applicant argues that these services should be classified under "Business Support Services" with HSN 998311, as they involve coordination and supervision of clinical trials on behalf of its affiliates. The services are not related to goods and do not require the physical presence of the recipient.

The applicant contends that the place of supply for these services should be the "location of the recipient" as per Section 13(2) of the IGST Act, since the services do not fall under the performance-based criteria of Section 13(3). Consequently, the services provided to affiliates outside India should qualify as "export of services," subject to the fulfillment of other conditions specified in Section 2(6) of the IGST Act.

However, the Authority for Advance Ruling (AAR) states that it is not empowered to determine the place of supply under Section 97 of the CGST Act, 2017. Therefore, the question of whether these services amount to export cannot be answered.

2. "Pass Through" Expenses:
The applicant also acts on behalf of the sponsor by entering into contracts with investigators and settling their invoices. These expenses are reimbursed to the applicant at actuals and are termed "pass through" expenses.

The applicant argues that these expenses should not be included in the value of supply as per Rule 33 of the CGST Rules, 2017. Rule 33 allows exclusion of costs incurred by a supplier as a pure agent of the recipient of supply, provided certain conditions are met, such as acting on behalf of the recipient and not holding any title to the goods or services procured.

The AAR verifies that the applicant satisfies all conditions laid down in Rule 33 and qualifies as a pure agent of the sponsor. Therefore, the value of invoices raised by the applicant for making payments to investigators and institutions would be excluded from the value of supply.

Ruling:
1. The first question on whether the services provided by the applicant to the foreign client amount to export of service cannot be answered due to the lack of authority to determine the place of supply under Section 97 of the CGST Act, 2017.
2. Regarding "pass through expenses," the applicant acts as a "pure agent" in receiving amounts from foreign clients and passing them on to local research institutions, and these expenses are excluded from the value of supply.

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