ITC On Free Sample / GST ITC Denied on Free Sample Drug Imports
for Clinical Trials: Maharashtra AAR Rules Against PPD Pharma
Introduction: The
Maharashtra Authority for Advance Ruling (AAR), in a key decision impacting
clinical research organizations, has ruled that Input Tax Credit (ITC)
cannot be availed by M/s PPD Pharmaceutical Development India Pvt. Ltd.
on sample drugs imported for clinical trials, nor on related Customs House
Agent (CHA) services, because the goods are supplied free of cost to
hospitals, thus classified as free samples under Section 17(5)(h)
of the CGST Act, 2017.
Case
Details
- Applicant:
M/s. PPD Pharmaceutical Development India Pvt. Ltd.
- GSTIN:
27AADCP2043E1ZT
- Ruling No.:
GST-ARA-94/2022-23/B-13
- Date of Ruling:
30.04.2025
Background
of the Case
PPD Pharmaceutical is an
Indian arm of a global clinical research organization engaged in monitoring
and managing clinical trials in India for overseas sponsors. These trials
use sample drugs imported from foreign sponsors and shipped to hospitals
across India.
The applicant sought
advance ruling on whether it could claim ITC on IGST paid on imports and
GST on services of CHA and logistic providers, especially when the sample
drugs are provided free of cost to hospitals.
Questions
Raised
1. Whether
the applicant is entitled to ITC of IGST paid on import of sample drugs
under Section 16(1) of the CGST Act?
2. Whether
the applicant can claim ITC of IGST paid under DDP model of import where
the applicant is the importer on record?
3. Whether
ITC of CGST paid on CHA services is allowed?
Applicant's
Arguments
- The sample drugs are essential
for conducting clinical trials and form part of their taxable output
services.
- The import bills of entry are
in the name of the applicant; hence IGST qualifies as “input tax”.
- CHA services are also part of the
procurement and should be treated as used in the course or furtherance
of business.
- Relied on case laws including Kardex
India, Umax Packaging, Cadila Healthcare, and Alkem
Laboratories, which permitted ITC on inputs and input services used in
clinical research or manufacturing trial batches.
Jurisdictional
Officer's Objection
- Cited Section 17(5)(h) which
blocks ITC on goods disposed of by way of gift or free samples.
- Highlighted CBIC Circular No.
92/11/2019-GST (dated 07.03.2019) which clarifies that ITC on free
samples is disallowed.
- Since no consideration is
received from hospitals and no invoice is issued, the distribution
of drugs is treated as non-supply, and hence ITC cannot be
claimed.
Authority’s
Findings and Observations
➤ On IGST Paid by Applicant (Q1)
- Though section 16(1) allows
ITC for goods used in business, section 17(5)(h) prevails due to
its non-obstante clause.
- Sample drugs are imported and delivered
free of cost to clinics; thus, they fall under the category of free
samples.
- Hence, ITC is not available for
such imported goods, even if used in providing taxable services later.
➤ On IGST Paid by Logistics Provider
Under DDP (Q2)
- Even under the Delivered Duty Paid
(DDP) model, the applicant remains the importer on record.
- But since the sample drugs are again
delivered without consideration, the disallowance under Section
17(5)(h) applies.
- Therefore, ITC is not available,
even if customs duty/IGST is paid by the logistics provider.
➤ On CHA and Logistics Services (Q3)
- These services relate to importing
and transporting goods that are ultimately given free of cost.
- Since these are used in connection
with free samples, ITC on these input services is also blocked
under Section 17(5)(h).
- Cited West Bengal AAR in Indian Oil
case and CBIC Circular confirming ineligibility.
Final
Ruling
|
Question
|
AAR
Ruling
|
|
Q1:
ITC on IGST paid on sample drug imports by applicant?
|
Not
allowed – classified as free samples
|
|
Q2:
ITC on IGST under DDP model (logistics pays duty)?
|
Not
allowed – drugs supplied free of cost
|
|
Q3:
ITC on GST paid for CHA/logistics services?
|
Not
allowed – input services tied to ineligible free supplies
|
Legal Basis
of Rejection
- Section 17(5)(h) of CGST Act:
Bars ITC on goods disposed of by way of gift or free samples.
- CBIC Circular No. 92/11/2019:
Reinforces that such distributions are not supplies and hence, do
not qualify for ITC.
- No commercial invoice or
consideration between applicant and hospitals →
violates basic supply condition under Section 7 of the Act.
Conclusion
This ruling sets a
precedent with wide implications for clinical research and
pharmaceutical companies involved in sample imports. It clarifies that:
- Merely using goods for business
purposes is not enough — if goods are disposed of without
consideration, ITC is blocked.
- Input services like CHA and
transport, even though directly linked to the import, also lose ITC
eligibility when tied to free samples.
Businesses must ensure:
- Supplies are not classified as
gifts or free samples, or
- They structure agreements to ensure consideration
and invoicing, where possible, to preserve ITC entitlement.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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