2016 (9) TMI 143 - AAR - Service Tax

Taxability activity of clinical trials of the drugs of the customers situated outside India on volunteers in India Rule 3 of the Place of Provision of services (POP) Rules, 2012 - Held that - It is noticed that applicant s proposed service of Clinical Pharmacology is study carried out for generic drugs. Further, study is proposed to be undertaken using formulations in the form of tablets, capsules, gels sprinkles, syrups, sprays, inhalers etc. provided by applicant s customers located outside India, on eligible volunteers in India. Therefore, it is clear that the formulations in various forms (goods) shall be provided by applicant s customers located outside India, who is recipient of service from the applicant - provider of service. The proposed activities of undertaking Clinical Pharmacology by the applicant are taxable under the Act in light of Rule 4 of the Place of Provision of Services (POP) Rules, 2012, as the services are proposed to be provided in respect of goods that are required to be made physically available by the service receiver to the service provider (applicant). Further, Clinical Research service provided in respect of goods that are required to be made physically available by the service receiver to the service provider (applicant) are also taxable under the Act in light of Rule 4 of the Place of Provision of Services (POP) Rules, 2012. However, where service of Clinical Pharmacology is not provided by the applicant and only service of Clinical Research is provided, then such service would not be in relation to formulation provided by the service receiver located outside India, to the applicant. Hence, it would be not taxable under the Act in light of Rule 3 of the Place of Provision of Services (POP) Rules, 2012 as the applicant renders said services to its customers and the place of provision is located outside India.

Issues Involved:
1. Taxability of Clinical Pharmacology services under the Place of Provision of Services (POP) Rules, 2012.
2. Taxability of Clinical Research services under the Place of Provision of Services (POP) Rules, 2012.
3. Applicability of Rule 3 versus Rule 4 of the POP Rules, 2012.

Detailed Analysis:

1. Taxability of Clinical Pharmacology Services:
The applicant, M/s Steps Therapeutics Limited, is involved in conducting clinical trials of drugs provided by customers located outside India. These trials are performed on volunteers within the applicant's facilities in India. The applicant argued that their services should fall under Rule 3 of the POP Rules, which would place the provision of services outside India, thus making them non-taxable. However, the Revenue contended that Rule 4(a) of the POP Rules applies, as the services are performed in respect of goods (drugs) physically available in India.

The judgment concluded that the Clinical Pharmacology services involve the study of generic drugs provided by foreign customers. Since these drugs (goods) are physically available to the applicant in India, the services fall under Rule 4(a) of the POP Rules. Therefore, the place of provision of these services is India, making them taxable under the Act.

2. Taxability of Clinical Research Services:
Clinical Research services offered by the applicant include Project Management, Regulatory Affairs, Medical Writing, Project Monitoring, Bio-Statistics & Programming, and Compliance. The applicant argued that these services should not fall under Rule 4(b) of the POP Rules as they do not require the physical presence of the service recipient or their representative in India.

The judgment distinguished between Clinical Research services provided in conjunction with Clinical Pharmacology and those provided independently. When Clinical Research services are provided in respect of formulations (goods) physically available to the applicant, they fall under Rule 4(a) and are taxable. However, if Clinical Research services are provided independently, without the presence of formulations from the service recipient, they do not fall under Rule 4 and are instead governed by Rule 3. Thus, if the place of provision is outside India, these services are not taxable.

3. Applicability of Rule 3 vs. Rule 4 of the POP Rules:
The core issue was whether the services provided by the applicant should be taxed based on Rule 3 or Rule 4 of the POP Rules. Rule 3 generally places the provision of services at the location of the service recipient, while Rule 4 places it where the services are actually performed, especially when goods are physically available to the service provider.

The judgment clarified that Rule 14 of the POP Rules states that if a service can be determined under multiple rules, the rule that occurs later should be applied. Since Rule 4 occurs after Rule 3, it takes precedence when applicable. Therefore, for services involving goods physically available in India, Rule 4 applies, making the services taxable in India.

Conclusion:
The judgment ruled that the proposed activities of Clinical Pharmacology by the applicant are taxable under Rule 4 of the POP Rules, 2012, as these services are provided in respect of goods physically available in India. Similarly, Clinical Research services related to such goods are also taxable under Rule 4. However, if Clinical Research services are provided independently of Clinical Pharmacology and without the physical presence of goods from the service recipient, they fall under Rule 3 and are not taxable, as the place of provision is outside India.

← Previous Next →