In re Asiatic Clinical Research Private Limited (GST AAR Karnataka)
a) Whether the services provided by the applicant to the foreign client amounts to export of services and hence zero-rated under GST law;
The first question whether the services provided by the applicant to the foreign client amount to export of service cannot be answered as Section 97 of the CGST Act, 2017 does not empower the Authority to give Ruling on the Place of Supply of Goods or Services.
b) Whether the applicant acts as a ‘Pure Agent’ while receiving amounts from the foreign clients and passing it on to the Local Research Institutions.
In respect of question 2 it is Ruled that the applicant qualifies 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.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,KARNATAKA
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 Rs.5,000/- 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 following questions:
a) Whether the services provided by the applicant to the foreign client amounts to export of services and hence zero-rated under GST law; and
b) Whether the applicant acts as a ‘Pure Agent’ while receiving amounts from the foreign clients and passing it on to the Local Research Institutions.
3. The applicant states that Section 97(2)(b) of the KGST Act provides that the question in respect of which Advance Ruling is sought shall be inter-alia in respect of the taxability on goods or services or both of a transaction under the provisions of the GST Act. In the instant application for advance ruling, the applicant is seeking to determine the taxability of its transactions with the foreign sponsor and the local investigators. The applicant seeks clarity on whether it is exporting services in its transactions with AKPA and whether it acts as a pure agent between AKPA and the local investigators for the purposes of passing on their reimbursements.
4. Section 97 of the KGST Act, 2017 is as follows:
97. Application for advance ruling- (1) An applicant desirous of obtaining on advance ruling under this Chapter may make on application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.
(2) The question on which the advance ruling is sought under this Act, shall be in respect of,
(a) classification of any goods or services or both;
(b)applicability of a notification issued under the provisions of this Act;
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both;
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
The applicant contends that their application merits admissibility under Section 97(2) (b). The said provision relates to applicability of a notification issued under the said Act. The applicants question does not relate to applicability of a notification. Consequently the application does not survive under Section 97(2) (b) of the 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, 2017and 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 (AKPA) 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 clinical trial monitoring:
1. Master Service Agreement: wherein the applicant is appointed by AKPA to undertake services required for conducting clinical trials for AKPA in India, in accordance with terms and conditions agreed upon in the Work Orders. Pursuant to Section 2 of the Master Services Agreement, the applicant has been entrusted with the responsibility to conduct clinical trials as the Clinical Research Organisation, on behalf of its principal, AKPA. Each Work Order includes detailed information concerning a given study, including a description of the specific services to be provided, project milestones and estimated time consumed to complete specific tasks.
2. Clinical Trial Agreement: This is a tripartite agreement between AKPA, the applicant and a Principal Investigator or an institution, which is typically a hospital conducting the clinical trial. Under this agreement, Institutions selected by the applicant and approved by AKPA agree to conduct the clinical trials in accordance with the terms and conditions of this agreement.
c. The applicant has entered into the Master Services Agreement on 23.05.2012 (hereinafter referred to as the ‘Master Services Agreement’ and copy of which is enclosed as Annexure 2) with AKPA wherein the applicant has undertaken to perform certain services required in relation to conducting the above mentioned clinical trials to be conducted in India on behalf of AKPA, in accordance with written work orders issued by AKPA from time to time.
i. The activities of the applicant are illustrated through Work Order No.1 dated 01.07.2012 (hereinafter ‘Work Order’), issued to the applicant by AKPA. In pursuance of Section 2 of the Master Services Agreement, the applicant has been entrusted with the responsibility to conduct clinical trials in India as the Contract / Clinical Research Organisation (hereinafter referred to as the ‘CRO) on behalf of its foreign principal, AKPA, or hereinafter referred to as the “Sponsor”.
ii. The Work Order inter alia specifies the following:
a. Scope of Work: This section of the Work Order details the rote and responsibilities of AKPA and the applicant, with respect to clinical trials. These include study documentation preparation, study startup, Enrollment, Treatment and Close-out, Thal Management, Safety, Regulatory and Quality Assurance.
b. Study 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 remaining amount on monthly and milestone basis.
iii.In addition to the above, in terms of Clause 6.2 of the Master Services Agreement, AKPA shall reimburse the applicant for the documented travelling and pass through expenses that are necessary and reasonably incurred in the performance of the services recognised under the Agreement.
iv.Clause 6.2 of the Agreement is being reproduced here for reference:
“AKPA shall in addition reimburse Asiatic for documented travelling and pass through expenses that are necessary and reasonably incurred solely in the performance of the Service and as the direct result of a request from AKPA provided that Asiatic obtains AKPA’s written consent prior to incurring any expense in excess of $1000 of this expense was not already listed in the Payment Schedule under pass through costs as described in Section 6.1.”
v. Accordingly, the Direct Fee’ includes an estimate for “Pass Through” Costs or reimbursable expenses incurred by Asiatic on behalf of AKPA.
d. Clinical Trial Agreement or the ‘Tripartite Agreement’
i. In addition to particular Work Orders issued to the applicant, for the purpose of conducting clinical trials in India, the Tripartite ‘Clinical Trial Agreement’ (CTA) has been entered into by AKPA, applicant and the identified institution / investigators.
ii. In terms of the CTA,
a.The clinical trial will be conducted by and under the directions of the specified researcher or the ‘Principal Investigator’ (hereinafter referred to a ‘1:111. Further, the sponsor shall have the right to approve the inclusion of any co-investigators or sub-investigators (or ‘other clinical investigators’) recommended by the Principal Investigator, in accordance with the Sponsor’s policy as stipulated elsewhere in the CTA.
b. The PI will use his best efforts to enroll the requisite number of patients in the Clinical Trial. In addition to strictly adhering to the Protocol, the PI is required to exercise his independent medical judgment as to the suitability of each patient for the trial. (clause 3.5)
c. While conducting the clinical trials, it is the responsibility of the PI to comply with all the applicable government laws, rules and regulations, including those under the FDA (clause 3.7)
d. The PI and the Institution will maintain complete and accurate records of the status 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.
iii. 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.
iv. It is also submitted that in terms of clause 8.5 of the CTA, all payments to be paid to PI / Institutions from the Sponsor shall be paid through applicant. Further, such payments have been identified as pass-through payments from the Sponsor to applicant to the P1 or candidate. The applicant does not have any obligation under the CTA to the PI until such payments are released from AKPA. The CTA also prohibits the PI / Institution from charging any study subject (i.e patient) or third party payer for any materials or for study procedures for which payment by the Sponsor or applicant will be made under the CTA.
v. Clause 8.5 of the Agreement is being reproduced herein, for the ease of reference:
“All payments which are to be paid to investigative site from Sponsor shall be paid through Asiatic Clinical Research Pvt. Ltd. Institution and PI hereby acknowledge and agree that payments due under this agreement are pass-through payments from Sponsor and that Asiatic applicant shall have no payment obligations hereunder until such time as said payments are received by the applicant from sponsor. Asiatic shall exercise reasonable efforts to ensure timely receipt of pass through payments from Sponsor. It is expressly agreed between the parties that no payment of any form relating to the performance of the clinical trial, shall be made by sponsor 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 Pi’s employees or agents?
vii The applicant submits that where the institutions / investigators raise the invoices for the services rendered by them, such invoices are directly raised in the name of applicant and the name of AKPA does not appear on the document.
viii. In the factual matrix discussed above, applicant is the organisation to whom the sponsor i.e. AKPA has entrusted the responsibilities of managing the conduct of the clinical trials in India, on behalf of AKPA.
ix. The applicant also submits they obtained the necessary approval from the Drugs Controller General of India to operate as a CRO in India as. evident Pile No. CT/ 143/ 12-DCG(I) dated 20.08.2013 and the Clinical Trial Permission No. GCT/02 /13.
x. The applicant submits that even though it 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, 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 P1 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:
