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The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service of clinical trials provided on the drugs supplied by the foreign service recipient is an export of service and is not taxable, therefore there is no liability to service tax.
The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed that foreign customers/Sponsors are recipients of service which are located outside India and therefore, the place of supply of service is outside India. Accordingly, the services qualify for export of service. As per the provisions of Rule 6A of the Service Tax Rules, 1994, the Appellant fulfils the conditions and therefore it qualifies the service as export of service read with Rule 3 of Place of Provisioning of Services Rules, 2012 (POPS Rules).
Background
The appellant/assessees challenged the demand of service not paid by the appellant. The department challenged the sanction of refund claim of service tax already paid by the assessee under protest and thereafter claimed as refund. The issue involved is whether the service is export service or otherwise and liable to service tax.
The customers of the Appellant engage them for conducting clinical trial & Bio Analysis (BA)/Bio Equivalence (BE) studies or project management, data management /Biometrics and Bio-statistical analysis services related specifically to the clinical development for various compounds in accordance with the terms and conditions of the Agreements executed between them. These customers may be domestic pharmaceutical companies or foreign based pharmaceutical companies.
In the case of services provided to domestic based Sponsor, applicable service tax is already paid to the Government by appellant which is not under dispute. In the case of foreign based Sponsor, the Sponsor may provide an IP molecule which is administered to volunteers.
In some cases, products which are ancillary to the main IP / molecule are also obtained from the domestic market and administered to the Volunteers along with the IP molecule, and an analysis is conducted on the pharmacokinetic samples (blood, urine) to study the effects of the drugs. This analysis is submitted to the Sponsors in the form of Clinical Study Reports (CSR). In every case, the scenario of obtaining an IP molecule may differ.
Also Read: IMPORTER LIABLE TO PAY ANTI- DUMPING DUTY ON SENSITISED ALUMINIUM PLATES: CESTAT
Issue Raised – Whether Service Tax on clinical trials is exempted?
The issue raised was whether the appellant/assessee is liable to pay service tax on the service of clinical trials on drugs for the foreign service recipient.
Relevant Provisions In Respect of Service Tax On Clinical Trials
Rule 4 of POPS Rules is applicable when the service provider provides service on the goods supplied by the recipient of the service. After performance of the service, the goods on which the service provider provided the services, will have to be returned to the recipient of service. In the present case, the services of the ‘Technical Testing & Analysis Service’ are performed on the blood samples of the Volunteers obtained during the human trials and not on the samples supplied by the recipient of the service (Sponsor).
The IP molecule of the Sponsor which is administered to the Volunteers is sometimes mixed with ancillary products. The test does not take place on the IP molecule sent by the Sponsor but the Appellant studies the effect of this molecule when administered to the humans. This IP molecule is sometimes compared with the locally sourced drugs on the blood sample of the Volunteers and the end result i.e. the test reports are sent to the Sponsors in foreign territory.
It is pertinent to note that the remaining samples are not sent back to the Sponsors. The performance of testing and analysing has no value unless and until it is delivered to its client and the service is completed only when such a report is delivered to the client. Thus, delivery of reports to its client is an essential part of the service which is delivered outside India.
Conclusion
The tribunal hed that services provided by the Appellant does not fall under Rule 4 of POPS Rules nor under any of the rules of POPS Rules except Rule 3 which is general rule. As per Rule 3, the place of supply is the recipient of service.
The tribunal while allowing the appeal of the assessee held that the activity of clinical trial on the drugs supplied by the foreign service recipient to the appellant amounts to export of service, hence, same is not liable to service tax.
FAQs
On which services service tax is not applicable?
Service of clinical trials provided on the drugs supplied by the foreign service recipient is an export of service and is not taxable, therefore there is no liability to service tax.
Is Services Tax on Clinical Trials exempted ?
Service of clinical trials provided on the drugs supplied by the foreign service recipient is an export of service and is not taxable, therefore there is no liability to service tax.
Is Goods And Service Tax on clinical trials applicable?
Service of clinical trials provided on the drugs supplied by the foreign service recipient is an export of service and is not taxable, therefore there is no liability to service tax.
Case Details
Case Title: Veeda Clinical Research Limited Versus Pr. Commissioner, CGST, Ahmedabad
Case No.: Service Tax Appeal No. 10026 Of 2022-DB
Date: 01.10.2024
Counsel For Appellant: Hardik Modh
Counsel For Respondent: Tara Prakash
