IGST Credit on Imported Sample Drugs Not Allowed Under Section 16(1) of CGST Act: AAR

The Maharashtra Authority of Advance Ruling (AAAR) has held that the Integrated Goods and Service Tax (IGST) credit on imported sample drugs is not allowed under section 16(1) of CGST Act.

The bench of D.P. Gojamgunde (Member) and Priya Jadhav (Member) has observed that Section 17 (5) not only overcomes provisions of section 16 (1), but it 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 acquires the colour of free sample 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). Therefore, input tax credit in respect of the tax paid on CHA services or logistic services availed would not be available.

The Applicant is a Company, registered under the Companies Act, 1956 and is engaged in monitoring and managing the clinical trial process undertaken by hospitals / clinics ("Sites") and Doctors ("Investigators") in India. The Applicant has obtained registration under the Central Goods and Services Tax Act, 2017.

The PPD group, of which the Applicant is an affiliate, is a Clinical Research Organization and provides clinical research services to pharmaceutical and biotech companies ("Sponsors") on a global basis. These clinical trial management services comprise of consultancy, project management, data collection and specialist ancillary services. A Sponsor who wishes to conduct clinical trial study for a novel drug approaches the PPD group companies in the US or UK (PPD Global).

These companies would then refer this work to the PPD Group affiliates in respective regions to procure services of hospitals and clinics to undertake the clinical trials and manage / monitor such clinical trials. For such services to be undertaken in India, the Applicant in India is approached by PPD Global, for which it is paid by PPD Global in convertible foreign exchange on a cost-plus basis.

The primary responsibility of the Applicant would be to monitor the clinical trials conducted by the hospitals / clinics for Sponsors under the defined protocol, including provision of administration and support services as per the arrangement between the Sponsor and PPD Global. In addition to the above, the Applicant would also be involved in providing other services to PPD Global such as 'Global Clinical Data Management Services, 'Global Biostatistics and Programming Services' and 'Clinical Shared Service Centre.

The applicant sought the advance ruling on the issue whether the Applicant is entitled to take credit of Integrated Goods and Services Tax (IGST) paid by the Applicant under section 3(7) of the Customs Tariff Act, 1975 r/w section 5(1) of the Integrated Goods and Services Tax Act, 2017 while importing the sample drugs, in terms of section 16(1) of the CGST Act?

Yet another issue raised was whether the Applicant is entitled to take credit of IGST paid by the "logistics service provider" [under DDP (Delivered Duty Paid) model of shipment] under section 3(7) of the Customs Tariff Act, 1975 r/w section 5(1) of the IGST Act while importing the sample drugs, in terms of section 16(1) of the CGST Act, where the Applicant is the Importer on Record.

The AAR held that the applicant is not entitled to take credit of IGST paid by the "logistics service provider" [under DDP (Delivered Duty Paid) model of shipment] under section 3(7) of the Customs Tariff Act, 1975 r/w section 5(1) of the IGST Act while importing the sample drugs, in terms of section 16(1) of the CGST Act, where the Applicant is the Importer on Record.

The AAR ruled that the Applicant is not entitled to take credit of Central Goods and Services Tax (CGST) paid by the Applicant under section 7 r/w section 9 of the CGST Act for the services of Customs House Agent received by the Applicant, in terms of section 16(1) of the CGST Act.

Ruling Details

Applicant’s Name: PPD Pharmaceutical Development India Private Limited

Ruling Date: 30/04/2025

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