TaxTMI 
TaxTMI 
2024 (7) TMI 1237
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....he applicant by fraud or suppression of material facts or misrepresentation of facts, shall render such ruling to be void ab initio in accordance with Section 104 of the Act. 5. The provisions of both the Central Goods and Services Tax Act and the Tamil Nadu Goods and Services Tax Act (herein referred to as an Act) are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Services Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Services Tax Act. M/s. International Institute of Bio Technology and Toxicology, No. 3/266, BDO Office Road, Padappai, Kancheepuram, Tamilnadu-601301, (hereinafter called as 'the Applicant') is a Society registered under the Tamil Nadu Societies Registration Act, 1975 (Act No. 27 of 1975) bearing Registration No. 313 of 1985. They are registered under the GST Acts with GSTIN: 33AAATF0061E1ZG. They have preferred an application seeking Advance Ruling on the following: "Whether Notification No. 04/2019 - Integrated Tax, issued dated 30th September 2019, shall be applicable on the services supplied by th....
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...., Residue Chemistry, Environmental Fate), Eco-Toxicology, Genetic Toxicology, Bio-Efficacy and Agronomy (Crop protection and Management). Testing of Transport Packaging Materials for chemicals, Pharmaceuticals, Food and Feed additives. Provision of Independent inspections, Quality control and Quality assurance services. 6. In the year 1999, the Applicant had decided to implement the globally accepted standards (i.e.) Good Laboratory Practices (GLP) as per Organization for Economic Co-Operation and Development (OECD) Principles of GLP. The Applicant had engaged various international experts / consultants / scientists to transfer the Good Laboratory Practices (GLP) technology to the Applicant, to train the staff/scientists adequately and upgrade the facilities to the satisfaction and compliance to the OECD GLP standards /principles. 7. Good Laboratory Practice (GLP) is a quality system concerned with the organisational process and the conditions under which non-clinical health and environmental safety studies are planned, performed, monitored, recorded, archived and reported. These studies are undertaken to generate data by which the hazards and risks to users, cons....
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....esearch and development of chemical analysis services including Analytical chemistry, Radioisotopy, Physio chemical testing and Package testing needed for integrated discovery and development and also the registration of molecules, both pharmaceuticals and agrochemicals. These include crop residue studies, Drug metabolism and pharmacokinetics processed fractions, environmental fate, Stability Studies, ecotoxicology, plant/soil metabolism, product chemistry, Bioequivalence studies, Bio-availability studies, Bio analytical studies and exposure studies using state of the art instrumentation. IIBAT specializes in analytical services for studies, equipped with well trained and experienced personnel; and top-end analytical equipment like, high-end LC-MS/MS, GC-MS/MS, ICP-MS, etc. 2. Bio-efficacy IIBAT offers a variety of research and development of scalable integrated and comprehensive evaluations by critical and accurate assessments of pathology endpoints to give accurate, reproducible findings and concise, responsive interpretation and consultation. In agrochemical, bio-efficacy is a measure of the biological efficacy of an active ingredient of agrochemicals such as i....
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....sponsors outside India under tax invoice with 18% GST as the applicant's understanding was that the place of supply for such services falls in India under Section 13 (3) of the IGST Act, 2017. 5.2. However, the Applicant receives the consideration in convertible foreign exchange for providing these services to sponsors outside India. Further, the place of effective use and enjoyment of the above' services is purely in the hands of service recipient who is located outside India. 5.3. The applicant would like to draw reference to Notification No. 04/2019 dated 30 September 2019, issued under Section 13 (13) of the IGST Act, 2017. It states that place of supply for specific list of services related to pharmaceutical sector shall be the location of the recipient of services subject to fulfilment of the following conditions: a. Supply of services from the taxable territory are provided as per a contract between the service provider located in taxable territory and service recipient located in non-taxable territory. b. Such supply of services fulfils all other conditions in the definition of export of services, except sub-clause (iii) provided at clause (6) of Sec....
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....inter se shall be deemed to take place from one such person to another; (b) import of services for a consideration whether or not in the course or furtherance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration; (1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of 6[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as - (a....
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....r permitted by the Reserve Bank of India]2; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8. 6.7. Section 16 of IGST Act, 2017 defines Zero rated supply as follows:- (1) zero-rated supply means any of the following supplies of goods or services or both, namely: - (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. 6.8. Section 13 of the IGST Act describes the provision for place of supply of services where location of supplier or location of recipient is outside India. Section 13 (3) of the IGST Act, 2017 states that "The place of supply of the following services shall be the location where the services are actually performed, namely: - a. services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services: Provided that when su....
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....n of the recipient of services subject to fulfillment of the following conditions: - (i) Supply of services from the taxable territory are provided as per a contract between the service provider located in taxable territory and service recipient located in non-taxable territory. (ii) Such supply of services fulfills all other conditions in the definition of export of services, except sub- clause (iii) provided at clause (6) of Section 2 of Integrated Goods and Services Tax Act, 2017 (13 of 2017). Table B SI. No. Nature of Supply General Description of Supply (1) (2) (3) 1 Integrated discovery and development This process involves discovery and development of molecules by pharmaceutical sector for medicinal use. The steps include designing of compound, evaluation of the drug metabolism, biological activity, manufacture of target compounds, stability study and long-term toxicology impact. 2. Integrated Development 3 Evaluation of the efficacy of new chemical/ biological entities in animal models of disease This is in vivo research (i.e., within the animal) and involves development of customized animal model diseases and administratio....
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....rials help in collection of information related to drugs profile in human body such as absorption, distribution, metabolism, excretion and interaction. It allows choice of safe dosage. 10. Bio analytical studies Bio analysis is a sub-discipline of analytical chemistry covering the quantitative measurement of drugs and their metabolites, and biological molecules in unnatural locations or concentrations and macromolecules, proteins, DNA, large molecule drugs and metabolites in biological systems. 6.11. Further, the explanatory notes to the scheme of classification provide for indicators with respect to classification of services. Relevant extracts of the same are reproduced below: "The explanatory notes of the scheme of classification of service indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services. However, it may be noted that where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general de....
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....tory, reference needs to be made to the place of supply provisions detailed under the IGST Act. The provisions for place of supply of services are detailed in section 12 and 13 of the IGST Act. Since the location of the recipient of service, i.e., the sponsors, is outside India, reference shall be made to section 13 of the IGST Act in the present case. 7.5. As stated above, section 13 (3) of the IGST Act prescribes the place of supply where the service relates to goods which have to be made physically available to the supplier of service. In the present case, the samples with respect to which the activities of testing, analytical studies, clinical trials are performed are physically made available by the sponsors in India, i.e., the taxable territory. In such case, place of supply shall be deemed to be the location where the services are actually performed. 7.6. However, reference also needs to be made to section 13 (13) of the IGST Act with regard to the services rendered by the Applicant to the sponsors outside India. The intention of this provision was to avoid double taxation of services in cases where the place of effective use and enjoyment was outside India. The Govern....
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....ervices Brief description of Services Classification as per Notification No. 04/2019 1. Chemistry IIBAT offers a broad spectrum of research and development of chemical analysis services including Analytical chemistry, Radioisotopy, Physio chemical testing and Package testing needed for integrated discovery and development and also the registration of molecules, both pharmaceuticals and agrochemicals. These include crop residue studies, Drug metabolism and pharmacokinetics processed fractions, environmental fate, Stability Studies, ecotoxicology, plant/soil metabolism, product chemistry, Bioequivalence studies, Bio-availability studies, Bio analytical studies and exposure studies using state of the art instrumentation. IIBAT specializes in analytical services for studies, equipped with well trained and experienced personnel; and top-end analytical equipment like, high-end LC-MS/MS, GC-MS/MS, ICP-MS, etc. SI. No. 1-Integrated discovery and development SI. No. 2-Integrated Development SI. No. 5-Drug metabolism and pharmacokinetics of new chemical entities SI. No. 07-Stability studies SI. No. 08-Bioequivalence and Bioavailability studies SI. No. 10 -....
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....chemical/ biological entities in animal models of disease SI. No. 6-Safety Assessment/ Toxicology 7.12. The Applicant is of the view that based on the above table, the nature of activities performed by the applicant are squarely covered under Notification No. 04/2019-Integrated Tax. 7.13. Stating the above, the applicant inferred that the conditions in the notification have been met by the Applicant and the place of supply in respect of research and development services pertaining to agro-chemical sector rendered by the Applicant shall be the location of the recipient (i.e. sponsor), i.e., outside India. 8.0. Recommendations of the Fitment Committee in the 37th GST Council Meeting 8.1. The Applicant submitted that the issue of Notification No. 04/2019 -Integrated Tax stemmed from the proceedings of the 37th GST Council meeting where the request for clarification on GST related to export of services in the pharmaceutical sector was considered. It was brought to notice of the council that the pharma sector in India is made to pay GST of 18% on services given to foreign clients due to lack of clarity on place of supply of pharma R&D Services. Indian pharma companies wer....
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....o carry for door-to-door surveys. 6. The above clarification implies that samples given by foreign clients to Indian pharma companies should be goods and such goods should temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered. 7. As is evident from judicial precedents [Vikas Sales Corporation Vs. Commissioner of Commercial Taxes], in order to be considered "goods", the article under consideration shall be a "marketable commodity", i.e. having the following features - (i) It should have an intrinsic value; (ii) It should be freely transferable. As samples provided by oversea clients are in the nature of chemical or biological molecules which are not marketable commodities. Such samples are consumed in order to develop final product by the foreign clients. Even if we consider such sample molecules as goods, as per the Education Guide of Service Tax, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in the category of Section 13 (3) (a) of IGST Act, even if the market research firm is given say, 1000 nos. of 1....
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....ility. 8.4. Further, drawing reference from the Education Guide of Service Tax, the applicant has pleaded that the place of supply cannot be determined based on section 13 (3) of the IGST Act since 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 and contended that the place of supply of the research and development services pertaining to agro- chemical sector shall be determined based on the place of effective use and enjoyment of the service, and notification no. 04/2019 - Integrated Tax shall be applicable to the services rendered by the Applicant. 9.0. The Applicant has explained the Nexus among agrochemical and pharmaceutical sector as follows: 9.1. "India is an agrarian country, where more than 50% people are dependent on agriculture for their livelihood and is the largest producer of spices, pulses, milk, tea, cashew and jute & the 2nd largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. Currently, India is the world's 4th largest producer of agrochemicals af....
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....milar products, and for the regulation of industrial chemicals" 10.0. The Applicant narrated the similarities with regard to the Research and Development process for Agro-Chemical and Pharma products as follows: 10.1. Starting from the beginning, the early-stage process for discovering new pesticides or new drugs is very similar. Usually, a target or a mechanism of action is identified, and a screening is performed with a library of chemical compounds. 10.2. Applicant submits that the physicochemical parameters used by industry as an initial estimate of the probability of a molecule being a good pharmaceutical or pesticide are very similar. In fact, few of the most common chemical side chains of pharmaceutical molecules are the same as those for pesticides and are found in about the same relative frequency. The molecular weight range of pesticides and pharmaceuticals is also very similar. 10.3. Further, applicant states that with respect to the toxicology testing is quite similar: acute and chronic testing, reproductive and developmental toxicity, mutagenicity, and others specific testing that will depend on the molecule properties. It is to be inferred that most of the....
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....f place of supply. 11.3. The applicant referred the decision pronounced in the case of M/s. Krish Biotech Research Pvt. Ltd. (Advance Ruling No. KAR ADRG 110/2019, dated 30-9-2019), wherein the Karnataka AAR refused to answer the question of whether the transaction qualifies as export of services. 11.4. Further, in certain other rulings, for instance in the case of Bilcare Ltd. (Order No. GST-ARA-117/2018-19/B-45-Mumbai, dated 26-4-2019), the place of supply was determined based on section 13 (3) of the IGST Act. It was inferred that place of supply where the goods are required to be made physically available by the recipient of service to the supplier of service, then the place of supply is the place where such services are actually performed. 11.5. The applicant has stated that the notification relating to place of supply of specified services of research and development rendered in respect of pharmaceutical sector was provided only in September 2019 after a long period of wait and upon witnessing multitude of advance ruling applications and representations from taxpayers. 11.6. The /Applicant is of the view, as the intention was to avoid double taxation in respect of....
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....l for service export and we must not let it lose competitive edge. Please find a way out." 12.3. Stating the above grounds, the applicant pleaded that the activities undertaken by the applicant are exactly the same as listed out in Notification No. 04/2019, where the place of effective use and enjoyment is the location of the sponsors, i.e., outside India. Further, there are similarities between the agrochemical and pharmaceutical sectors and hence, provisions shall also apply to the activities undertaken by the applicant with respect to agrochemical sector. 13. The State jurisdiction Officer viz. the Assistant Commissioner (ST), Oragadam Assessment Circle in his remarks has stated that the Applicant has compared notification 4/2019 dated :30.09.2019 with the business activity done by them in above Point No .B and has requested to provide clarification on whether notification No.4/2019 - Integrated Tax dated 30 September 2019 shall be applicable to the research and development activities undertaken by the applicant with respect to agrochemical sector and submitted that the description of services as per notification and appellants own business actually looks like identical bu....
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.... under Section 10 (21) of the Income Tax Act, 1961. The main object of the society is to carry out research under laboratory and field conditions, non-clinical health and environmental safety studies among others. ' 16.3. When the members enquired as to whether they import any equipment or other materials, chemicals etc., without payment of duties/taxes, the AR replied that they carry out import of goods in relation to research and development under exemption vide Customs Notification No. 51/96 - Customs dated 23.07.1996 and they undertook to provide sample copies of the import documents to the authorities for advance ruling within a weeks' time. 16.4. The members observed that while the R&D activities that were carried out by them is in the nature of goods/materials relating to 'Agro Chemical Sector', how is it that they relate their activities to 'Pharmaceutical Sector'? The AR replied that under the principles of 'Good Laboratory Practice (GLP)', the GLP applies to all non-clinical health and environmental safety studies required by regulations for the purpose of registering or licensing pharmaceuticals, pesticides, food and feed additives, cosmetic products, etc. They fur....
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.... the submissions made during the personal hearing dated 12.01.2024, the additional submissions filed in pursuant to the above mentioned Personal hearing, vide letter dated 30.01.2024 and the submissions made during the personal hearing conducted on 26.03.2024. 17.2. As observed from the facts of the case put forth by the Applicant, the Applicant undertakes testing for the products of their clients (hereinafter referred to as 'sponsors'), and the Applicant provides the test results in the form of a report. Applicant has a standard practice to execute an agreement/document with the sponsor(s). The sponsor makes available a certain quantity of material (hereinafter referred to as the "test item") based on the agreement pursuant to which the research, development, testing and analysis will be carried out and methodologies adopted for the research, development and testing are well documented as per the global guidelines and standards. After completion of the work entrusted, documentation of the report/results explaining the methodology used for research, development and testing carried out and same is submitted to the sponsors. During the process of research, development and technica....
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....ere the service relates to goods which have to be made physically available to the supplier of service. In the present case, the samples with respect to which the activities of testing, analytical studies, clinical trials are performed are physically made available by the sponsors in India, i.e., the taxable territory. In such cases, place of supply shall be deemed to be the location where the services are actually performed. 17.7. The Applicant has also stated that, as per section 13 (13) of the IGST Act, 2017, the Government may notify any description of services or circumstances under wherein the place of supply shall be the place of effective use and enjoyment of a service. Accordingly as per the Notification No. 04/2019 - Integrated lax dated 30 September 2019, place of supply for the Supply of research and development services related to 'Pharmaceutical sector' as specified in Column (2) and (3) from SI. No. 1 to 10 of Table B by a person located in taxable territory to a person located in the non-taxable territory, shall be the location of the recipient of service, subject to certain conditions, viz.,- a. Supply of service should be from taxable territory ....
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....tial taxability should be applied. 17.11. The applicant reiterate their stand by explaining the nexus between the agro-chemical and pharmaceutical sectors, and that both Pharmaceuticals and Agro chemical products undergo a similar research, development and testing process. Indeed, both are chemical compounds that can have adverse effects and if misused, will have detrimental effects on human health and/or the environment. As per the scope of document No. 1 of OECD principles of GLP as revised dated 1997 (ENV/MC/CHEM(98)17), "Principles of Good Laboratory Practice (GLP) should be applied to the non-clinical safety testing of test items contained in pharmaceutical products, pesticide products, cosmetic products, veterinary drugs as well as food additives, feed additives, and industrial chemicals. These test items are frequently synthetic chemicals, but may be of natural or biological origin and in some circumstances, may be living organisms. The purpose of testing these test items is to obtain data on their properties and/or their safety with respect to human health and/or the environment. Unless specifically exempted by national legislation, these Principles of Good Laboratory Pr....
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....ember 2019 shall be applicable on the services supplied by the Applicant, i.e., research and development services provided in relation to agrochemical sector? 17.14. The Applicant also filed copies of agreement entered into with various sponsors available at non-taxable territory as well as taxable territory as follows vide paper book dated 25.03.2024 List of Agreements filed by the Applicant Table-1 SI. No P.No of the Typed Set Service Recipient Country Date of Contract Agreement is for the purpose/ Nature of Service 1 3 Malaria Consortium London, U.K Contract no 16.05.2023 Provision of Laboratory service with regard to alpha-cypermethrin 2 28 UNOPS Cambodia Purchase Order date 24/04/2021 Purchase Order for quality control- testing services of LLIN 3 30 Cinemonics Kenya Work Order date 15.03.2024 Work Order for quality control testing services of LLIN (Long Lasting Insecticidal Nets) 4 33 Fujian Yamei Industry &Trade Co Ltd China Agreement date 20.03.2023 Bio assay-tunnel test services on alpha cyper methrin+ chlorfenapyr 5 37 Indian Council of Social Science Res....
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....ce description and scope of work, the service provider shall receive and store one thousand (1000) samples of BPO nets (30 cm x 30cm each) cut out from two hundred (200) nets according to standard protocols. 18.3. The service provider shall determine the alpha-cypermethrin active ingredient content of pooled samples of each net in grams per kilogram and mg/M2 of net according to the test method CIPAC 454/LN/M/3.2 (Hand Book M, p41) and the service provider shall determine the BPO active ingredient content of pooled samples of each net in g/kg and mg/M2 of net according to the test method CIPAC extension of 33/LN/M/3 (HandBook N, p112). 18.4. As observed from the description and scope of work as stated above, it is inferred that the Applicant has to analyse the test sample, i.e., in this case, the Mosquito net, received from the service recipient and determine the weight in grams of the alpha-cypermethrin active ingredient content in one kilogram of the Mosquito net (test sample) and weight in milligram of the same in cm square meter of the Mosquito net (test sample) and similarly, has to determine the weight in grams of the BPO active ingredient content of pooled samples pres....
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....e services are actually performed, relating to services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services. 18.10. it is also pertinent to notice that, earlier the Applicant themselves were of the opinion that the place of supply of service rendered by them falls under Section 13 (3) of the Act, i.e., where services are actually performed and discharged the tax liability accordingly. Post the issue of the Notification 4/2019, by the Central Government, the applicant has claimed that the activities undertaken by the applicant are exactly the same as listed out in Notification No. 04/2019 - Integrated Tax, where the place of effective use and enjoyment is the location of the sponsors, i.e., outside India. 18.11. However, a plain reading of the Notification No. 04/2019-Integrated Tax dated 30.09.2019, reveals that the said Notification is applicable to research and development services related to 'Pharmaceutical sector' only, as specified in Column (2) of Table-A (Description of services or circumstanc....
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....effective drug development. 7 Stability Studies Stability studies are conducted to support formulation, development, safety and efficacy of a new drug. It is also done to ascertain the quality and shelf life of the drug in their intended packaging configuration. 8 Bio-equivalence and Bio-availability Studies Bio-equivalence is a term in pharmacokinetics used to assess the expected in vivo biological equivalence of two proprietary preparations of a drug. If two products are said to be bioequivalent it means that they would be expected to be, for all intents and purposes, the same. Bio-availability is a measurement of the rate and extent to which a therapeutically active chemical is absorbed from a drug product into the systemic circulation and becomes available at the site of action. 9 Clinical trials The drugs that are developed for human consumption would undergo human testing to confirm its utility and safety before being registered for marketing. The clinical trials help in collection of information related to drugs profile in human body such as absorption, distribution, metabolism, excretion and interaction. It allows choice of safe dosage. 10 B....
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....Integrated Tax, the Applicant has stated that the intention of the law was to tax such services at the place of effective use and enjoyment of the service and pleaded that it would not be incorrect to conclude that the same set of research and development services provided in respect of agro chemical sector should also be eligible for consideration for the purpose of determining place of supply and consequent taxability. With regard to the above, we are of the view that the Central Government is categorical, in notifying the services in relation to the Pharmaceutical Sector only, vide Notification 4/2019. Such, power of issue of Notification to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service, lies with the Government, in terms of Section 13 (13) of the IGST Act, which is reproduced below for ease of reference: (13) In order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effec....
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....ant should be recognized by the National Good Laboratory Practice (GLP) Compliance Monitoring Authority (NGCMA). Further, in our view, in order to ensure accuracy of the test results, a Good Laboratory shall maintain the standardization of chemical solutions involved, Calibration of instruments with standardized solutions and the personnel concerned shall be trained and expertise for the analytical techniques as well as in operating the sophisticated instruments and equipment. The Government of India by recognizing the need' to have Good Laboratory Practice (GLP) system and implemented the GLP, by following principles evolved by Organization for Economic Co-operation and Development (OECD) and the purpose of the GLP Certification is for "Capacity Building, Infrastructure development as per the Government of India, Department of Science and technology". Hence, the Applicants claim that "as they are recognized by the National Good Laboratory Practice (GLP) ; Compliance Monitoring Authority (NGCMA) and they also fall within the Scop; of the Notification No. 04/2019-Integrated Tax is untenable, as the NGCMA is a quality system, of management controls for research laboratories and organ....