2019 (11) TMI 1146 - AAR - GST

Liability to pay tax - place of supply of services - export of services or not - Pure agent of not - co-ordination services provided by the company to its affiliates outside India - Pass Through expenses charged by the Company to its affiliates located outside India - HELD THAT - The Agreement entered between the applicant and the PAREXEL International Limited (one of the foreign affiliate of the same group) which is produced as a prototype is verified and found that the applicant is subcontracted a part of the work given to the main affiliate and the applicant performs certain services for and on behalf of the main affiliate on the terms set forth therein. Hence it is clear that the applicant is performing services for and on behalf of the affiliate situated abroad - Further, it can be seen from the submissions made by the applicant that he enters into various agreements on behalf of the sponsor with various investigators and payments are made by the applicant to the investigators. There is no privity of contract between the applicant and the sponsor and the power to enter into agreement with the investigators is derived from the agreement between the applicant and its foreign affiliate which in turn derives the power from the agreement entered between the sponsor and the foreign affiliate. - 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. Nature of services - HELD 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. It is seen in the agreement that the payment of fees and expenses would be made by the Sponsor to the Institution solely and through the CRO, i.e. applicant s foreign affiliate, applicant and the subcontractor acting as go-betweens - the applicant is only a pass through for the Sponsor and there is no actual payment by the applicant from his own account to the investigator or institution. The Clinical Testing Services is provided by the investigator and institution to the Sponsors and the CROs (including the applicant) are actually performing the Project Management function and for this the applicant is providing the project management service which is contracted between the CROs and also between the CRO and the sponsor - 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. Whether the Project Management Services provided by the applicant to the foreign affiliate is an export of services or not? - HELD THAT - 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 not empowered to answer whether the activity undertaken by the applicant amounts to export or not.

Summary

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.