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TMI Blog2020 (1) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant amounts to export or not. Whether the applicant acts as a Pure Agent while receiving the amounts from foreign client and passing on the local Reseach Institutions or not? - HELD THAT:- The Applicant 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 responsible person for the said clinical trial, being carried out through the investigator. The total contract value is paid to the Applicant on the basis of progress in the work i.e. clinical trial and the applicant pays the relevant amounts to the investigator / institute on the basis of completed work assessed by the applicant and approved by the AKAP, USA. In the instant case, at clause 3.2 of the Master Service Agreement it is clearly mentioned that in no sense the Applicant shall be considered as an employee or agent of AKPA, USA. Therefore it seems that the first condition only is not fulfilled and hence the applicant is not liable to be considered as a pure agent of the recipient of the service i.e AKPA, USA - A pure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a Pure Agent in receiving amounts from the foreign clients and passing it on to the Local Research Institutions, as provided in the agreements placed before the Authority. - KAR/AAR/80/2019-20 - - - Dated:- 24-9-2019 - SRI. HARISH DHARNIA, AND DR. RAVI PRASAD M.P. MEMBER Represented by: Sri Lakshmikumaran and Sridharan Advocates, ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICE TAX ACT, 2017 AND UNDER SECTION 98(4) OF KARNATAKA GOODS AND SERVICES TAX ACT, 2017 1. M/s. Asiatic Clinical Research Private Limited, (hereinafter referred to as the Applicant ), GSTIN number 29AAFCA0266N1ZE, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of the CGST Rules 2017 and Section 97 of the KGST Act,2017 read with Rule 104 of the KGST Rules 2017, in form GST ARA-01 discharging the fee of each under the CGST Act 2017 and the KGST Act 2017. 2. The Applicant is a private limited company engaged in the activity relating to the management of clinical trials on behalf of Asahi Kasei Pharma America Corporation, USA (hereinafter referred to as AKPA). The applicant has sought advance ruling in respect of the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act. However the applicant has simultaneously, in their opening narration, stated that the question is in respect of taxability on goods or services or both of a transaction under the said Act. In this context we see that the applicant is duly registered under the KGST Act, 2017 and is engaged in the supply of services from within the taxable territory as defined in the said Act. The Authority therefore considers it appropriate to admit the Application under Section 97(2) (e) of the said Act and proceeds to examine the facts of the case. 5. The -applicant furnishes some facts relevant to the stated activity: a. The applicant States that they are engaged in providing global pharmaceutical development services including study management, clinical trial monitoring and other product development services in India. Asahi Kasei Pharma America Corporation, USA (ARPA) has filed an Investigational New Drug application with the United States Food and Drug Administration for the identified drug and has sponsored a Clinical trial in India. b. The applicant has entered into two main agreements with AKPA for the purposes of performing services related to study management and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy Budget: it stipulates the estimated project costs that may be incurred by the applicant in conducting Project ART 123 which is designated as Phase-III Trials in India for a duration of 39 months in 6+2 sites, with a patient strength of 60. The various heads of expenditure that could be incurred in the course of performing the clinical trials have been detailed in this section. c. Study Timeline: Stipulates the different start dates (month/year wise) for undertaking the various -activities that are listed under the scope of work section. d. Payment Schedule: The schedule contains the payment / consideration that AKPA has undertaken to pay the applicant for the various activities outlined in the scope of work and study budget, unless otherwise agreed to in writing by both the parties in the form of a change Order to the project Addendum. In terms of the payment schedule, AKPA has agreed to pay the applicant a sum of $856,758 as Direct Fees , As per the said Work Order, AKPA pays the applicant 11.4% of the total contract 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 rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and progress of the clinical trials, maintain a Clinical Investigator s Study Site Binder with all the required documents and retain organized original patient, laboratory and drug inventory records relating to the clinical trial for not less that fifteen years as per Schedule Y of the Drugs and Cosmetic Rules, 1945 (Clause 4). e. The PI is entrusted with the responsibility of submitting a final report of the trial to the Ethics Committee within one month from the completion of such trial (clause 5.5) iii. The above clauses would show that the actual clinical trial is conducted by the researcher / Principal Investigator and that the applicant does not have any role in the actual clinical trial. iv. Clause 6 of the CTA stipulates that during the course of the Clinical Trial on a regular basis, the PI / Institution will permit the applicant to inspect all records kept or made by the PI and the institution of the clinical trial, including Original patient records and test reports. However, PI / Institution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake any of the functions entrusted to a qualified medical practitioner recognised the investigator and therefore, applicant is not authorised to administer the new drugs to human subjects, monitor their progress, control adverse effects, etc, The applicant can only monitor the functions entrusted to the investigators, encourage them to recruit more patients, upload information about the progress of the clinical trial as per the protocol and report to AKPA, Applicant cannot directly engage with the recruits or verify any document that would reveal their identity. xi. The applicant submits that the applicant s role under the CTA is limited to two aspects - 1. Verification of records maintained by the PI and the institutions, monitoring the performance of such agencies With respect to the progress of the Clinical trials; and 2. Passing the consideration received from AKPA to the investigators for the services rendered by the latter to AKPA. xii. The applicant has tabulated and provided the. details of the works and the same reads as under: Sl. No. Agreement Parties to the Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, on behalf of ARPA. (b) Even though Applicant is a commercial CRO, it is not authorised to undertake any of the functions entrusted to a qualified medical practitioner recognised as the investigator and therefore, the applicant is not authorised to administer the new drugs to human subjects, monitor their progress, control adverse effects etc. (c) Section 7 of CGST Act defines Supply to mean and include all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. (d) The transaction between the applicant and AKPA is a supply of service from the applicant towards AKPA, for which it is in receipt of consideration on terms agreed upon. Therefore, as per Section 7 of the Central Goods and Services Tax Act 2017, the applicant is a supplier of service to AKPA, as it is a transaction of supply of service against a consideration, in the course or furtherance of business. (e) As per the scope of work undertaken by the applicant under the Master Services Agreement / Work Order, the CRO is responsibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of a distinct person. (l) In the instant case, the applicant has submitted that these conditions are satisfied, as educed in the table below: Sl.No. Conditions to be satisfied for export of service Examination of the condition in case of Applicant 1. The supplier of service is located in India; Applicant, the supplier of service is located in India 2. The recipient of service is located outside India; E.1 The recipient, AKPA, is located outside India 3. E.1 The place of supply of service is outside India; E.2 The place of supply of service, as examined above, is outside India 4. E.1 The payment for such service has been received by the supplier of service in convertible foreign exchange; and E.2 The payment terms and the invoices raised indicate that the payment of such service has been received by Applicant in convertible foreign exchange. in this case, US Dollars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r directly to the Institution, the principal investigator or any trial site team members. The Institution and Investigator will be responsible for making any payments in connection with the Study to Pl s employees or agents. 9.4 Rule 33 of the Central Goods Services Tax Rules, 2017 provides for the concept of Pure Agent, wherein it provides that the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply. 9.5 For a service provider to be a pure agent, the following conditions are required to be satisfied in terms of the said Rule 33. i. 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; ii, 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 iii. 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. Explanation . - For the purposes of this rule, pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contractual agreement with AKPA to act as his pure agent to incur expenditure or costs towards the conduct of clinical trials by the investigators 5. 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; Applicant also neither intends to hold nor holds any title to the goods or services or both supplied by the Investigators 6. Does not use for his own interest such goods or services so procured; and Applicant also does not use for his own interest such goods or services so procured; 7. 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 Receives only the actual amount incurred to procure such goods or services of the investigators apart from the amount received for supply he provides on his own account 11. Accordingly, it is submitted by the applicant that this cost incurred by him, and reimbursed by AK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es required in relation to conducting clinical trials in India through the Institutions / Principal Investigators, in accordance with written work orders issued by ARPA from time to time. 14.3 Clinical Trials in India are governed by The Drugs Cosmetics Act 1940 and The Drugs Cosmetics Rules 1945. Rule 122 of The Drugs Cosmetics Rules 1945 read with Schedule Y deal with the requirements and guidelines for obtaining permission to import new drugs and to undertake clinical trial of the same in India. In the instant case the Clinical Trial Permission has been obtained by the Applicant vide permission GCT /02/2013 dated 20408.2013, from the Drugs Controller General (India), Directorate General of Health Services, Government of India, subject to certain conditions, as enumerated at (a) to (k) in the said permission letter. Copy of the said letter has been furnished by the Applicant. The Directorate General of Health Services has accorded permission to the Applicant to conduct the clinical trial, as requested by the Applicant, as per the provisions of Drugs Cosmetics Rules under the supervision of any of the approved investigators. In their Clinical Trial Permission the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India, Also as admitted by the applicant, in terms of Section 2 of the said agreement the Applicant is responsible to conduct clinical trials as the Clinical Research Organisation, on behalf of AKPA, USA, in terms of work order. The Applicant is supposed to conduct the clinical trial as per the provisions of Drugs Cosmetics Rules, under the supervision of the investigator/ s, for which reason the applicant enters into tripartite agreement with Institution/ Investigator, AKPA, even though the Applicant is solely responsible for the conduct of the clinical trial. It is pertinent to mention here that the Applicant obtains all the necessary approvals in India on their name for conducting the said clinical trials. 14.6 In view of the above, the applicant is licensed to import new drugs, on obtaining the necessary approval from the competent authority, which are tangible materials and use the same for conducting the clinical trials, through the investigator/institution. The total cost of the clinical trial i.e, Total contract value is paid by ARPA, USA to the Applicant and the applicant pays the required amounts to the investigator/institution, on obtaining the approval from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 33 of CGST Rules 2017. The expression pure agent , for the purpose of the said rule means a person who enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs the course of supply of goods or services or both. In the instant case, at clause 3.2 of the Master Service Agreement it is clearly mentioned that in no sense the Applicant shall be considered as an employee or agent of AKPA, USA. Therefore it seems that the first condition only is not fulfilled and hence the applicant is not liable to be considered as a pure agent of the recipient of the service i.e AKPA, USA. 15.3 A pure agent actually incurs the expenditure under the contractual agreement and then gets the reimbursement of the same. In the instant case the applicant is not incurring any expenditure but disbursing / paying the charges to the investigator / institution on the basis of the work progress assessed by the applicant and approved by the AKPA, USA. 15.4 The Master Services Agreement defines the following terms as under: (a) Materials - all tangible materials made available by or on behalf of AKPA to Asiatic or where the context a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement states that each Party shall be acting as an independent contractor and neither party is granted any right or authority to assume or to create any obligation or responsibility, expressed or implied, on behalf of or in the name of the other party. Further in the same para, it is clearly stated that neither Party shall represent itself as the other Party s agent nor use the name of the other Party or any of its affiliates in any publication without the prior written consent of the other Party. 15.6 As per para 3.6, the applicant is bound to arrange for qualified personnel to support its obligations under the Master Services Agreement and the key elements of the Services shall be performed by qualified and trained personnel as specified in the Work Order. Further it is also made clear that the applicant will delegate responsibilities of the study to Asiatic personnel or AKPA approved subcontracted personnel and take ownership of the performance of their resources. Further, in para 3.7 it is made clear that any regulatory inspection of the applicant, conducted any regulatory authorities should be promptly notified to the AKPA and the applicant will have to consult with and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s approved by AKPA. (c) Enrolment, treatment and Close-out - The applicant is to perform interim monitoring visits and booster visits and report the results to ARPA and has to accompany ARPA personnel whenever they visit the sites. The applicant is also required to perform the close out visits, reconcile all hard copies of the Study files and to complete the drug accountability from site to AKPA and the unused study drug shipment to depot would be the responsibility of the applicant and the applicant would transfer inventory and hard copies of the binders to AKPA. (d) Trial Management - In this the applicant has to work with third parties and provide project communication and status reports to AKPA. They have to review trip reports before its submission to AKPA. The applicant will also be responsible for monitoring drug at the site and escalating any issues or concerns to ARPA. (e) Safety - the applicant is required to review site s SAE submission documents to Sponsor, EC and CDSCO for initial and follow up reports and collate SAE causality assessment and relevant documents, prepare submission dossiers and submit it to CDSCO for initial and follow up r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution where the clinical trial is conducted (c) Principal Investigator - who is conducting the trial (d) The applicant 16.2 In this it is clearly mentioned that the applicant is the local contract research organisation (CRO) of the sponsor in India and working with the institutions and the respective investigators, The applicant would perform services related to the study management and monitoring of the Clinical Trial, Further, it is also mentioned that the institutions are selected by the applicant and are approved by the Sponsor. Further, it is stated that in the agreement that the Sponsor is and shall at all times remain the sole owner of the product. The sponsor would provide the institution with the required quantities of the products at no charge, for the institution to conduct the Clinical Trial. The Institution shall maintain a stock account of the product and return any unused materials. 16.3 It is also clearly stated that the Principal Investigator and the Institution acknowledges that the Sponsor is the owner of the electronic Case Report Forms (eCRFs) and the final report is prepared by the Institution and all information contained therein. The eC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pass-through, after approval of the sponsor. 17.1 Rule 33 of the Central Goods and Services Tax Rules states as under: 33. Value of supply of services in case of pure agent. - Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by -a. supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, (i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient; (ii) 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired amount and the same amount is transferred to the Institutions and/or Principal Investigators. This amount is besides the amount that the applicant receives for the services provided by them. The only infarction is that the pure agent is required to incur the expenditure and recover the same later and in this case the payment is made to the Institutions and/or principal Investigators only after the same is received from the Sponsor, we see that this arrangement does not change the nature of a pure agent as long as the amount received is completely transferred to the Institutions and/ or Principal Investigators for their services. 17.5 The on examination of the agreement of Clinical Trial Services since the applicant satisfies all the conditions laid down in the Explanation to Rule 33, the applicant qualifies as pure agent of the recipient of service, i.e. the Sponsor. He also satisfies all the conditions prescribed in rule 33 of the CGST Rules and hence the value of invoice raised by the applicant on the sponsor for making payment to the principal investigator and the institution would be excluded from the value of supply, However this ruling has a caveat that this ruling ..... X X X X Extracts X X X X X X X X Extracts X X X X
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