AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 1146
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....mination of liability to pay tax on the co-ordination 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). Th....
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....ase) - Yes - - Screening of the sites suitable for study based on parameters set by PAREXEL Group - - Yes - Approval of sites for study Yes Yes - - Concluding a contract with the 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 det....
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....classification of the said services under the GST. The pertinent clauses highlighted are as under: 8.1 "SCOPE OF WORK - 1.1. PISPL (the applicant was named as "PAREXEL International Synchron Pvt Ltd" prior to change in name as PAREXEL Clinical) agrees to carry out the services with respect to arranging for, co-ordination and supervision of conducting 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 ....
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....rvision of resources in preparing, running and completing a project on behalf of the client; ii. project management services, which can involve budgeting, accounting and cost control, procurement, planning of time scales and other operating conditions, coordination of subcontractors' work, inspection and quality control, etc; iii. project management services that include management and office management services, with or without the provision of their own staff; This subclass does not include: - 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 ap....
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............. (b) Services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services." 9.3. The applicant states that from the above the place of supply of a services can be "performance based" only when (a) the services so provided are in respect of goods (b) Such goods are required to be made physically available by the recipient of services to a. the provider of service (or) b. the agent of 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 tria....
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.... 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 not cover services where the supply of goods by the receiver is not material to the rendering of the service e.g. where a consultancy report commissioned by a person is given on a pen drive belonging to the customer. Similarly, a. promotion of a market research service to a manufacturing firm for a consumer product (say, a new detergent) 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 render....
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....acts of the contract are provided below: "Para 2 of the contract - PAREXEL is acting on behalf of the sponsor to arrange and administer a multi-centre study to clinically evaluate the study drug and has entered into an agreement with sponsor concerning the management, funding and administration of the study. Section 4: Ownership rights - "All Study results obtained during the performance of the study shall be the property of "Sponsor". Section 8.2 ; Relationship of Parties: The site shall perform its services under this agreement only as an independent contractor for sponsor, and nothing contained herein shall be construed to be inconsistent with that relationship or status." 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 ....
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.... the applicant appeared and made his submissions which is in line with the application filed. He has also made additional submissions which are as under: 11.1. The applicant is engaged in coordinating and monitoring clinical trial services in India. Typically these services involves activities in the nature of Project Management, regulatory affairs, project monitoring, compliance, etc. 11.2. As the essential character of services being provided are in the nature of co-ordination and monitoring activities, the applicant contends that the said services shall be classified under CPC 83190 which is akin to HSN 998319 and shall qualify as "exports* as the same are provided by the applicant to its affiliates outside India. 11.3 During the provision of the above mentioned services, 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 computa....
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....iates. 12.2. As the essential character of services being provided are in the nature of co-ordination and monitoring activities, the applicant understands that the service provided by him are to be classified under HSN 9983 and accordingly be treated as "export of services" when the same are provided to affiliates outside India. He places reliance on the Advance Ruling given under the Service Tax Law in the case of Steps Therapeutics Ltd wherein it was held that services qualify as "exports" when consumed outside India. 13. FINDINGS & DISCUSSION: 13.1 The documents produced at the time of hearing and later were verified and the drug development process involves the following steps a. Discovery and Development b. Pre-Clinical Research c. Clinical Research d. FDA Review e. FDA Post market Safety Monitoring The non-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 Sponso....
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....s, and (e) do such other things as may be required for conducting the Clinical Trial as per the applicable Laws in India. 13.6. The various clauses of the agreement show clearly that the applicant is acting as a representative of the sponsor in relation to the supply of services by the Investigators and the payments are made by the applicant. 14. Regarding the nature of service it is seen that the sponsor has entered into an agreement with the foreign affiliate of the applicant. The foreign affiliate has in turn entered into an agreement with the applicant. The applicant has further entered into an agreement with the investigator. The foreign affiliate is providing services to the sponsor as a CRO and the applicant is providing services to the foreign affiliate also as a CRO. There are two services which are involved in the above transaction, one the supply of drug testing services by the Investigator to the sponsor and 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.....
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....o the recipient of service; and (iii) The supplier procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation. - For the purposes of this rule, the expression "pure agent" means a person who - (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account." 15.2 The agreement of Clinical Trial Services is verified and since the applicant satisfies all the conditions 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 presc....