Pure agent of recipient of supply | Advance Ruling | Rule 33 | CGST Rules 2017

Advance Ruling

Name of the applicant: Parexal International Clinical Research

Order No and Date : KAR/AAR/122/2019-20 dated 30.09.2019

Authority : AAR (Karnataka)

Questions Sought by the applicant:

a) Determination of liability to pay tax on “Pass Through” expenses charged by the Company to its affiliates located outside India?

Submission of Applicant:

i) 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.

ii) 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.

iii) 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)

iv) Regarding the determination of liability to pay tax on the “pass through” provided by the company to its affiliates outside India, the applicant states he acts on behalf of the sponsor and enters into a contract with the investigators who performs clinical trials in India and settles their invoices on behalf of the sponsor. These charges shall be reimbursed to the applicant at actuals and are named as pass through” expenses. As these expenses are in the nature of reimbursements made by the applicant, the applicant believes that the same cannot be included in the value of supply.

As per the Rule 33 of the CGST Rules 2017, 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 of all the following conditions are satisfied, namely

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;

(i) 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

(ii) 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, 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 or costs in the course of supply of goods or services or both; 

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:

(c) does not use for his own interest such goods or services so procured; and 

(d) 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”                   

The applicant acts on behalf of the sponsor and enters into a contract with the investigators who perform the clinical trial services. These charges are reimbursed to the applicant as actuals. In this connection, as PICRPL is acting as a “pure agent” of sponsor, the applicant contends that the said expenses incurred and recovered by the applicant may not be included in the value of services for computation of taxes / availing the export benefit.

Facts and Findings and Ruling :-

i) It is seen in the agreement that the Institution and Investigator understand and agree that the agreement is being signed by CRO exclusively on behalf of and as an agent of Sponsor and for Sponsor’s benefit and that CRO is not a party to this agreement. Upon request, CRO on behalf of Sponsor can provide a delegation of authority and/or power of attorney letter. Hence it can be presumed that that the applicant is signing the agreement on behalf of the Sponsor and not a party to that agreement and hence the agreement is actually between the Sponsor and the Investigator.

ii) 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.

Rulings

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.

Name of the applicant: M/s Arivu Educational Consultants Pvt. Ltd.,

Advance Ruling No. KAR ADRG 116/2019 Dated: 30th September, 2019

Authority : AAR(Karnataka)

Questions Sought by the applicant:

Does the activity of collecting exam fee (charged by any university or institution) for the students and remitting to that particular university or Institution without any value addition to it, amount to taxable service???

Submission of Applicant:

The applicant reiterated that they provide services as reiterated above and during this process collect certain amount as exam fee from the students and remit the same to the respective institute or college or universities without any profit element. When they collect fee from the students and make the payment to CIMA on authorization from the students then in such cases the applicant acts as a pure agent and this payment is separately indicated in the invoice issued to the respective students. Applicant provides this kind of service to the students in addition to the services of training and coaching institute. The applicant is of the opinion that this kind of activity will not amount to service and is not liable for GST.

Facts and Findings and Ruling :-

In this process applicant also collects certain amount as exam fee from the students and remits the same to the respective institute or college or universities without any additional charges or profit element. The applicant makes the payment in bulk on behalf of all students, alter collecting the same and then issues invoice to the student for the reimbursement of the payment made on behalf of him. This payment is separately indicated in the invoice issued to the respective students.

The applicant is an educational consultant and a professional in the field of education who uses his experience in teaching to help with curriculum development and other issues those schools, organizations, and parents may face. The applicant conducts the training or coaching classes for the students, to guide or train or prepare them to take the exam in the respective institute or college or universities. It does not have any specific curriculum and do not conduct any examination or award any qualification. Hence the applicant does not qualify as educational Institution.

The applicant contends that when they collect fee and make the payment to CIMA on authorization from the student that in such cases the applicant acts as pure agent and applicant collects the exact amount from the student and remit the same to the CIMA without any addition. This payment is separately indicated in the invoice issued to the respective students. The applicant is providing this kind of facility to the student in addition to the services as training and coaching institute.

As per the Rule 33 of the CGST Rules 2017, 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

The applicant is collecting the exact amount payable to institute or college or universities as exam fee from the students (service recipient) and remits the same amount to the respective institute or college or universities (third party) without any profit element or additions, on the authorization of the student. This payment is separately indicated in the invoice issued to the respective students. The applicant providing this kind of services to the student in addition to the services as training and coaching institute. Hence the applicant satisfies all the conditions of the pure agent as narrated in the Rule 33 of the  CGST Rules 2017 . Therefore amount of fee collected by the applicant from the student as exam fee which is remitted to the respective institute or college or universities is excluded from the value of supply.

Ruling

The activity of collecting exam fee charged by any university or institution) from students and remitting the same to that particular university or institution without any value addition to it is a service as a pure agent and hence the value is excluded from the taxable value of the applicant as per Rule 33 of the Central GST Rules / Karnataka GST Rules.