Service Fees paid for Promoting Product in Abroad is not FTS

Service fee payable by applicant a pharmaceutical company to its Russian subsidiary under Service Agreement for providing product promotion services was not FTS either under section 9(1)(vii) or under article 12 of India-Russia DTAA

• Whether where applicant a pharmaceutical company paid service fee to its Russian subsidiary (DRL Russia) under Service Agreement for providing product promotion services, such payment was not FTS either under section 9(1)(vii) or under article 12 of India-Russia DTAA. It was found that medical representatives of DRL Russia merely promoted the goods by way of meeting doctors and pharmacies and their activities were executory in nature since such services did not entail the rendering of advice to the applicant. Further there was no evidence to suggest that the reports prepared by medical representatives had been utilized by DRL India in respect of brand promotion or for deciding the strategy for sale of goods in Russia. In order to establish that consultancy services had been provided based on work undertaken by medical representatives it was necessary that these services should be utilized by DRL India for brand promotion. 
Service Fees paid for Promoting Product in Abroad is not FTS

As there was no evidence to suggest that applicant was consulting DRL Russia in pursuance of the agreement for promotion of goods, it could not be considered as providing consultancy services. As regards alternative argument of the department relating to services being managerial in nature was also far-fetched because the job of medical representatives was merely to meet doctors and pharmacies. Such jobs could not be said to be managing the affairs of DRL India in Russia. Therefore, the services rendered pursuant to this agreement could not be classified as managerial services either.
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