In re M/s PAREXEL International Clinical Research Pvt. Ltd. (GST AAR Karnataka)
a) Determination of liability to pay tax on the co-ordination services provided by the company to its affiliates outside India?
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.
On the question whether the Project Management Services provided by the applicant to the foreign affiliate is an export of services or not it is clear that the Applicant is providing service to PAREXEL Prime located in the non-taxable territory. The location of the recipient of the service is outside India. The Applicant is supplying service in respect of the goods i.e. new drugs, which are physically made available to the investigator / institution who conducts the clinical trial, on behalf of the applicant, in order to provide the service. The Applicant contends that the services provided by them to the Parexel Prime amounts to export of services. 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.
b) Determination of liability to pay tax on “Pass through “expenses charged by the Company to its affiliates located outside India?
Regarding the “pass though expenses”, the applicant acts as a “pure agent” in receiving amounts from the foreign clients and passing it on to the Local Research Institutions.
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. 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. But this ruling has a caveat that this ruling is not a ruling on the nature of the supply of services by the principal investigator and the institution to the sponsor.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS & SERVICES TAX ACT, 2017 AND UNDER 98(4) OF THE KARNATAKA GOODS & SERVICES TAX ACT, 2017
1. M/s PAREXEL International Clinical Research Private Limited, (called as the ‘applicant’ hereinafter), having GSTIN number 29AADCP9318C1ZD, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules 2017, under Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000-00 each under the CGST Act and the KGST Act.
2. The Applicant is a Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling on the following questions:
a) Determination of liability to pay tax on the co-ordination services provided by the company to its affiliates outside India?
b) Determination of liability to pay tax on “Pass Through” expenses charged by the Company to its affiliates located outside India?
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that PAREXEL International Corporation (USA) (the Parent Company of the applicant) is a leading Contract Research Organisation (CRO), providing a broad range of expertise in clinical research, medical communications, consulting and advance technology products and services to the worldwide pharmaceutical and biotechnology companies alternatively known as “Sponsors”. For coordinating the clinical trial activity conducted in India, PAREXEL Prime (i.e. the entity which has executed the contract with the Sponsor – typically a PAREXEL entity in US, UK, Germany, Japan or Ireland) has entered into an agreement with the applicant.
b. The applicant states that he is engaged in coordinating clinical trial services in India for its affiliates (all the affiliates are hereinafter collectively referred to as PAREXEL Group). The key functions carried out by the applicant while providing the services are: Study initiation (Project Management), Project Monitoring, Compliance and Regulatory affairs.
c. Apart from the above, the applicant also provides Project Management Services to Indian Companies/ Sponsors and has been discharging the GST liability on the consideration received for these services.
4. The applicant states that the PAREXEL Prime typically enters into a contract with the Sponsor (the developer of drug) for undertaking the clinical research services (hereinafter referred to as CRS or “study”) and outsources a part of its activities to the applicant if the CRS are intended to be performed in India. In this connection, the applicant provides the following services:
(a) The applicant co-ordinates and monitors the clinical trial services which includes the following:
i. Assistance in obtaining regulatory approvals for undertaking the clinical trials in India on behalf of the sponsor
ii. Identifying the sites available and suitable for the study based on the “approved site data” maintained by PAREXEL affiliates and other Project Management services
iii. Monitoring the activities of the sites undertaken for the study
iv. Assistance in compliance by way of inspection and audit of sites.
(b) Apart from the above activities, the applicant undertakes the following functions:
i. Enters into contract with the investigators in India on behalf of the sponsors
ii. Receives and settles invoices from the investigators on behalf of the sponsor (these are reimbursed at actuals without any additional consideration by PAREXEL Prime)
For performing the above-mentioned services, the applicant invoices its affiliates on cost plus mark-up basis.
5. The applicant has provided the details of the activities performed by each of the parties involved as under:
