By TIOL News Service

NEW DELHI, SEPT 05, 2016: THE applicant is in the process of setting up its business of Contract Research Organization whereby, the applicant will be establishing, developing and carrying on research in basic and applied sciences in relation to all kinds of drugs, pharmaceuticals and formulations, health care and bio-technology and also to provide services to its customers in this regard. In furtherance to its business objects, the applicant proposes to conduct clinical trial of drugs provided by its customers located outside India on eligible volunteers within the applicant's facilities which are proposed to be set up in India. Applicant is in the process of negotiating contracts with various customers located outside India.

They, therefore, seeking ruling on –

Whether the proposed activities of undertaking Clinical Research and Clinical Pharmacology by the Applicant are taxable under the Act in light of Rule 3 of the Place of Provision of services (POP) Rules, 2012 as the applicant renders the said services to its customers and the place of provision is located outside India?

It is their submission that that since the scope of proposed activities to be carried out by the applicant are research based advisory services and are neither related to (a) goods or, (b) requiring physical presence of the customers located outside India and, therefore, Rule 4 is not applicable to the activities proposed by the applicant; that the advisory research activities of the applicant are not executionary or performance based service as envisaged in Rule 4 of POP Rules and, therefore, the said services are not covered under Rule 4.

The Revenue emphasized that the samples are made available to the applicant, the service provider, in India and location of actual performance of services is the premises of the applicant; thereafter, only the report is being sent to the service recipient; that as the said samples are entirely available in India either provided by the foreign customer or otherwise, the provisions of Rule 4(a) of POP Rules are aptly applicable to the instant case.

The Authority inter alia observed –

+ 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. Further, service of Clinical Pharmacology is in respect of said formulation, which is provided to the applicant by its customers from outside India. Therefore, said service of Clinical Pharmacology would fall in the ambit of Rule 4(a) of POP Rules.

In the matter of reliance placed by the applicant on the Education Guide published by TRU, the Authority noted –

+ In the instant case, there is no doubt that receipt of formulation by the applicant for the purpose of clinical trials is crucial to rendering of services. Therefore, service relating to Clinical Pharmacology will be covered under Rule 4(a) ibid, even as per Education Guide relied upon by the applicant. It is noticed that paragraph 1.2 of Education Guide clarifies that it is neither a Departmental Circular nor a manual of instructions issued by CBEC. Further, it states that it does not command the required legal backing to be binding on either side in any manner. In any case, contents of Education Guide cannot be substitute for POP Rules. As provisions of Rule 4 of POP Rules are clear, Education Guide cannot take precedence over it .

It was, therefore, concluded –

++ The proposed activities of undertaking Clinical Pharmacology by the applicant are taxable under the Finance Act, 1994 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.

(See 2016-TIOL-26-ARA-ST)