Maharashtra AAR: No ITC on IGST Paid for Imported Sample Drugs, Logistics and CHA Services
Pranav B Prem
The Maharashtra Authority for Advance Ruling (AAR) has held that a company engaged in monitoring clinical trials is not entitled to claim Integrated Goods and Services Tax (IGST) credit on imported sample drugs under Section 16(1) of the Central Goods and Services Tax (CGST) Act, 2017. The Authority also denied credit of GST paid on logistics and Customs House Agent (CHA) services used for such imports.
The ruling was delivered on an application filed by PPD Pharmaceutical Development India Pvt. Ltd., an affiliate of the PPD Group, a global clinical research organization. The applicant manages and monitors clinical trials conducted by hospitals and clinics in India for sponsors abroad, providing services including consultancy, project management, clinical data management, biostatistics, and support services. The applicant, registered under the CGST Act, approached the Authority to clarify whether it could avail ITC of IGST paid on the import of sample drugs supplied free of cost to trial sites in India.
The company explained that pharmaceutical sponsors outside India engage PPD Global in the US or UK to conduct clinical trials, who in turn engage the applicant in India to procure services of hospitals and clinics. For these purposes, sample drugs are imported into India. The applicant sought ruling on whether it was eligible to claim ITC of IGST paid at the time of import of these drugs, as well as ITC on IGST paid by logistics service providers under the Delivered Duty Paid (DDP) model of shipment, and on GST paid for CHA services.
The AAR rejected the applicant’s claim. It observed that although Section 16(1) of the CGST Act allows every registered person to take credit of input tax charged on supplies used in the course or furtherance of business, Section 17(5) places restrictions on ITC. Specifically, Section 17(5)(h) bars ITC on goods disposed of by way of gift or free samples. The Authority noted that the imported drugs were supplied to hospitals and clinics without consideration as part of clinical trials, and therefore acquired the character of free samples. Consequently, ITC on such drugs was not available.
The bench of D.P. Gojamgunde and Priya Jadhav further held that since the drugs themselves were ineligible for ITC, any related input services such as CHA services or logistics services also fell within the restriction under Section 17(5)(h). The ruling stated: “Section 17(5) not only overrides Section 16(1), but also provides that ITC shall not be available in respect of goods disposed of by way of gift or free samples. Since the drugs supplied to hospitals are without consideration and acquire the colour of free samples or gift, any input services provided in respect of such disposal of goods would also be covered by the provisions of Section 17(5)(h).” Accordingly, the Authority ruled that the applicant was not entitled to claim ITC of IGST paid on import of drugs, IGST paid by logistics service providers under the DDP model where the applicant was importer on record, or GST paid on CHA services.
The Maharashtra AAR held that imported sample drugs supplied free of cost to hospitals and clinics for clinical trials are treated as free samples under Section 17(5)(h) of the CGST Act. As a result, ITC of IGST paid on such imports, as well as ITC on logistics and CHA services connected with them, is not admissible to the applicant.
Applicant’s Name: PPD Pharmaceutical Development India Private Limited
