TaxTMI 
TaxTMI 
2020 (1) TMI 571
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....to as AKPA). The applicant has sought advance ruling in respect of the following questions: a) Whether the services provided by the applicant to the foreign client amounts to export of services and hence zero-rated under GST law; and b) Whether the applicant acts as a kpure Agent' while receiving amounts from the foreign clients and passing it on to the Local Research Institutions. 3. The applicant states that Section of the KGST Act provides that the question in respect of which Advance Ruling is sought shall be inter-alia in respect of the taxability on goods or services or both of a transaction under the provisions of the GST Act. In the instant application for advance ruling, the applicant is seeking to determine the taxability of its transactions with the foreign sponsor and the local investigators. The applicant seeks clarity on whether it is exporting services in its transactions with AKPA and whether it acts as a pure agent between AKPA and the local investigators for the purposes of passing on their reimbursements. 4. Section 97 of the KGST Act, 2017 is as follows: 97. Application for advance ruling.- (1) An applicant desirous of obtai....
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....plicant has entered into two main agreements with AKPA for the purposes of performing services related to study management and clinical trial monitoring: 1. Master Service Agreement: wherein the applicant is appointed by AKPA to undertake services required for conducting clinical trials for ARPA in India, in accordance with terms and conditions agreed upon in the Work Orders. Pursuant to Section of the Master Services Agreement, the applicant has been entrusted with the responsibility to conduct Clinical trials as the Clinical Research Organisation, on behalf of its principal, AKPA. Each Work Order includes detailed information concerning a given study; including a description of the specific services to be provided, project milestones and estimated time consumed to complete specific tasks. 2. Clinical Trial Agreement: This is a tripartite agreement between AKPA, the applicant and a Principal Investigator or an institution, which is typically a hospital conducting the clinical trial. Under this agreement, Institutions selected by the applicant and approved by AKPA agree to conduct the clinical trials in accordance with the terms and conditions of this agreement. ....
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....ract value as upfront payment, 1.1% of the amount due on execution of Work Order No.1, 5% of the amount as backend payment and the remaining amount on monthly and milestone basis. iii. ln addition to the above, in terms of Clause 6.2 of the Master Services Agreement, AKPA shall reimburse the applicant for the documented travelling and pass through expenses that are necessary and reasonably incurred in the performance of the services recognised under the Agreement. iv. Clause 6.2 of the Agreement is being reproduced here for reference: "AKPA shall in addition reimburse Asiatic for documented travelling and pass through expenses that are necessary and reasonably incurred solely in the performance of the Service and as the direct result of a request from AKPA provided that Asiatic obtains AKPA's written consent prior to incurring any expense in excess of $1000 of this expense was not already listed in the Payment Schedule under pass through costs as described in Section 6.1". v. Accordingly, the 'Direct Fee' includes an estimate for "pass Through" Costs or reimbursable expenses incurred by Asiatic on behalf of AKPA. d. Clinical Trial Agreem....
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....stitution will not be required to disclose any information which would permit identification of a patient enrolled in, or a candidate for, the clinical trial. v. It is also submitted that in terms of clause 8.5 of the CTA all payments to be paid to PI / Institutions from the Sponsor shall be paid through applicant. Further, such payments have been identified as pass-through payments from the Sponsor to applicant to the PI or candidate. The applicant does not have any obligation under the CTA to the Pi until such payments are released from AKPA. The CTA also prohibits the PI / Institution from charging any study subject (i.e patient) or third party payer for any materials or for study procedures for which payment by the Sponsor or applicant will be made under the CTA. vi. Clause 8.5 of the Agreement is being reproduced herein, for the ease of reference: "All payments which are to be paid to investigative site from Sponsor shall be paid through Asiatic Clinical Research Pvt. Ltd. Institution and PI hereby acknowledge and agree that payments due under this agreement are pass-through payments from Sponsor and that Asiatic applicant shall have no payment oblig....
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....ant has tabulated and provided the. details of the works and the same reads as under: Sl. No. Agreement Parties to the Agreement Payment Terms Remarks 1. Master Services Agreement AKPA and Asiatic AKPA pays in pursuance to the 'Payment Schedule' of the Work Order. In addition, it also gives Asiatic 'pass through' expenditure. In this case, Asiatic Receives consideration for the services it provides to AKPA, i.e. for managing the clinical trials undertaken through a PI. 2. Work Order AKPA and Asiatic The agreement specifies a budget including the costs for Study Document Preparation, Enrolment, treatment and close out costs etc, payable by AKPA to Asiatic In this case, Asiatic receives consideration for the services it provides to AKPA. 3. Clinical Trial Agreement Asiatic, AKPA and Institution / Principal Investigators All payments to be paid to Institutions / Principal Investigators shall be paid through Asiatic from AKPA. Asiatic is not liable for any payment obligation towards the Institutions / Principal Investigators In this case, Asiatic is not in receipt of any consideration, whereas it only passes on the cost to the....
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....ller General of India, identifying investigators/ monitoring their activities in terms of uploading test results, encouraging them to recruit more patients etc. Thus, the activities of the applicant are in the nature of Project Management and not directly involving the clinical trial activity. (f) Nowhere in the course of facilitating the trials, the applicant has access to the goods i.e. the imported drugs; neither does the applicant handle such goods nor does it perform any activity in relation to such goods. In fact, the regulatory compliance and other related activities as indicated above have to be undertaken prior to the import of the drug into India. (g) In terms of Section 13(3) of the IGST Act, the specific provision pertaining to 'services supplied in respect of goods which are required to be made physically available by the recipient of services' would not be applicable, as the applicant does not itself handle any of the drugs imported. (h) In light of the fact that the transaction does not fall under Section 13(3)(a) of the IGST Act, or any other specific provision of the said Section 13, the default provision i.e. Section 10(2) of the IGST Ac....
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.... export of service under the IGST Act. (n) Therefore, the applicant submits that the services rendered by the applicant to AKPA under the Master Services Agreement / Work Order issued there under constitute export of service. As per Section 16 of IGST Act, this would constitute to be a zero-rated supply and therefore, the applicant would not be liable to pay IGST on the consideration comprising of the Direct Fee & the pass-through fee and seek refund of the unutilised input tax credit pertaining to such supplies. 9. Regarding the argument that the activity of the applicant is that of a pure agent between AKPA and the Investigators / Institutions, the applicant submits as under: 9.1 It is submitted that the consideration for Applicant undertaking monitoring of the trials / coordination with PI and institutions is included in the payment schedule within the work order itself. There is no separate consideration flowing for the aforesaid activity under the second agreement to the Applicant, as is evidenced in the Clause 8.5 of the Clinical Trial Agreement. 9.2 However, AKPA does not directly pay any institutions / investigators and the contractual responsibility rests....
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.... iii. does not use for his own interest such goods or services so procured; and 10. In the instant case, the applicant submits that the conditions prescribed for a pure agent are fulfilled as under: No. Condition in Rule 33 Examination of the condition in case of Applicant 1. The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient; Applicant makes payment to the Investigators on the authorization by ARPA, as is evidenced by Para 8.5 of the Clinical Trial Agreement 2. The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and Applicant also indicate separately the payment made by it to the Investigator, on the invoice it raises to AKPA, who is the recipient of the service. 3. The supplies 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, As can be seen by the nature of the contractual relation of Applicant and AKPA, ....
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...., Advocates, appeared on behalf of the Applicant, on obtaining the authorization from the Applicant. 14. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by their Authorised Representative, during the personal hearing. We have also considered the issues involved on which advance ruling is sought by the applicant and relevant facts of the issue involved. 14.2 The applicant is a contract research organization engaged in providing pharmaceutical development services. In the instant matter the applicant explains that they are providing Clinical trial management services to AKPA based in USA. These services involve representing AKPA before the statutory authorities for various approvals, planning of the trial, coordinating with the Investigators, closing the trial etc. The applicant receives certain predefined charges for performance of these activities. The applicant considers these services as export of services and therefore holds that they are not liable to pay GST. The applicant further emphasizes that the Clinical Trials are conducted by Principal Investigators or Institutions and their own role ....
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.... Clinical Trials has to obtain permission to import the drugs also. The applicant has not clarified anything in this regard. 14.4 The Drugs & Cosmetics Act 1940, vide Section 12, stipulates that a licence is mandatory for import of new drugs and to undertake clinical trial of the same in India. In the instant case, the Applicant has not furnished copy of any such licence to import the drugs and also not furnished copy of any of the Bills of Entry showing the import of the drugs. However since the Clinical Trial Permission was granted under the provisions of the Drugs & Cosmetics Rules by the competent authority to the applicant only the applicant way go obtain licence for the import of the drugs. In this regard we observe that though the applicant has stressed that they neither handle the new drugs nor perform any activity in relation to the same, they have also not submitted any documents like copy of the licence or the Bill of Entry to substantiate their claim of non-handling the import of new drugs. In the absence of documents to the contrary and in accordance with the provisions of the Drugs and Cosmetic Rules we are inclined to observe that the applicant was responsible for....
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.... investigator / institution who conducts the clinical trials on behalf of the applicant, in order to provide the service. The Applicant contended that the services provided by them to the AKAP, USA amounts to export of services. In order to decide whether the said services amount to export or not, place of supply of service need to be determined. Section 97 (2) of the CGST Act, 2017 empowers the Authority to give a Ruling on time and value of Supply. However it does not empower the Authority to examine the place of supply. In the absence of this provision the Authority is constrained to answer whether the activity undertaken by the applicant amounts to export or not. 15. The second issue before us to decide is whether the applicant acts as a Pure Agent while receiving the amounts from foreign client and passing on the local Reseach Institutions or not? 15.1 The Applicant, as discussed supra while discussing the first issue, is the licence holder for conducting clinical trial through any of the approved Investigator of an institution and also mandatorily obtain a licence to import the goods i.e new drugs meant for clinical trial in India, Therefore the applicant is the respons....
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....fically incorporates by reference the terms and conditions of this Agreement. (d) "Service"- the service participation and assistance of Asiatic in respect of ARPA's development projects and all such work undertaken by Asiatic for and at the request of AKPA as delineated in the Work Order under this Agreement and their amendments thereto. (e) "Study" - the clinical trial of the investigational product or compound identified in the Work Order. 15.5 Further, in para 2.1 of the Master Services Agreement, it is mentioned that each Work Order shall constitute a separate agreement, provided that the terms of the said agreement shall be incorporated in each Work Order by reference. Furthermore, in para 2.2, it is mentioned that Each Work Order will include detailed information concerning a given Study, including a description of the specific Services to be provided ("Scope of work"); project milestones, and estimated time consumed to complete specific tasks, either in parallel or sequential (each a "Project Timeline"); a detailed budget ("Project Budget"), wherein the budget will separately address the estimated pass-through costs and professional service fee; and "sc....
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....on which is judged and should be ascertained within a given point of time; AKPA agrees to pay to Asiatic pursuant to the "Payment Schedule" as set out in the Work Order. Further, the AKPA shall Also in addition reimburse the applicant for documented travelling and pass-through expenses that are necessary and reasonably incurred solely in the performance of the Service and as the direct result of a request from AKPA provided that Asiatic obtains ARPA's written consent prior to incurring any expense in excess of $1000 if this expense was not already listed in the Payment Schedule under pass through costs as described in Section 6.1. 15.9 Coming to a sample work order provided by the applicant, it is seen that the work order refers to the Master Services Agreement. There is a separate scope of work, Study Budget, Study Timeline and Payment Schedule for each of the Work Orders thus making it a separate contract. The sample work order has the following tasks under the scope of work: (a) Study Document Preparation - under this the applicant has the role of printing and distributing the documents and Study Reference Manuals and provide certain inputs to the ARPA to develop ....
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....acilitate regulatory inspections, any other correspondence. 15.10 Relating to invoicing and payments, the applicant would issue invoices as milestones are achieved to AKPA and the applicant would administer payments to Investigators on a monthly basis during the course of study and ARPA approval of payments would be required in advance of the applicant's payments issued to investigators, The most important part of the contract is the following, which is reproduced as it is: "AKPA will pay Asiatic Seventy Five Thousand US Dollars ($75, 000) upon receipt of invoice from Asiatic to facilitate prompt and timely payments to investigators. Concurrent with Asiatic's issuance of Investigator's payments, Asiatic will invoice AKPA for the same amount to insure the initial US $ 75,000 payment is replenished. If the balance is not sufficient to make timely payments to Investigators, Asiatic will request additional monies. If the balance is greater than needed, Asiatic Will reduce the advance by requesting a lower replenishment amount. AKPA acknowledges and agrees that payments for Investigator's services are pass-through payments to third parties and are separate from paym....
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....per the agreed amount for each patient and the payment is contingent upon completion of the eCRFs and acceptance by Sponsor. (c) Payment: All Payments which are to be paid to investigative site from Sponsor shall be paid through the applicant. Institution and Principal investigator acknowledges and agrees that payments due under this Agreement are pass-through payments from the sponsor and that the applicant shall not have any payment obligations hereunder until such time as said payments are received by the applicant from the Sponsor. 16.5 On analysis of the above terms of the contract, it is evident that the Principal Investigators and the Institutions are selected by the applicant and they are ratified by the Sponsor. What follows is the agreement between the Sponsor, Principal Investigator, Institution and the applicant and there is a contract for provision of service by the Principal Investigator and Institution to the Sponsor. The payment for the services is made by the Sponsor to the Principal Investigator and the Institution through the applicant. The applicant is only a pass through for the sponsor to make payments to the Principal Investigator and Institution ....
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....tors the agreement provides that the Sponsor shall make the payment to the applicant and the applicant will pass on the payment to the Institutions or Principal Investigators once the Sponsor is satisfied with the work. 17.3 The first condition for a pure agent, as indicated at (a) in Explanation to Rule 33 requires the applicant to incur expenditure or costs in the course of supply of the services. The agreement provides that the applicant will not make any payments to the service providers, i.e. the Institutions and/or Principal Investigators, till the Sponsor is satisfied about the quality of work done by the Institutions and/or Principal Investigators. The applicant receives the money and holds it back till the sponsor gives clearance. Therefore the applicant does not incur any expenditure. The applicant receives the amount and then transfers it to the Institutions and/or Principal Investigators. The other three conditions required for a pure agent at (b), (c) and (d) are complied with by the applicant. 17.4 Taking into consideration the terms of the agreements and the facts of the case it is Clear that when the applicant was engaged by the sponsor it was known to the spo....