2 OIO No. 13/STC/AHD/ADC(JSN)/2013-14
BRIEF FACTS OF THE CASE
1. M/s Intas Biopharmaceuticals Limited, 423/P/A, Sarkhej Bavla Highway,, Moriaya, Tal:-Sanand, Ahmedabad -382213 (hereinafter referred to as M/s IBL) is registered with the Service Tax Commissionerate, Ahmedabad under the category of various categories of taxable services and is holding the Service Tax Registration Number AABCI4722MST001.
2. Audit of the records of M/s IBL for the period from 2007-08 to 2010-11 was carried out and it was observed that
2.1 M/s IBL entered into an agreement titled as “Technology Transfer and Licensing Agreement” with M/s Eugenex Biotechnologies GmbH, Switzerland on 01.12.2006.
2.2 M/s IBL entered into an agreement titled as “Technology Licensing and Supply Agreement” with M/s SunBio, Inc., South Korea on 01.11.2003.
2.3 M/s IBL entered into an agreement titled as “Technical Know-how Transfer Agreement” with M/s Biocam, Ltd., UK on 25.06.2001.
3.1 The scope/relevant terms and conditions of the agreement dated 01.12.2006 entered with M/s Eugenex Biotechnologies GmbH, Switzerland is as under:-
3.1.1 “WHEREAS, INTAS is in the business of developing, manufacturing and marketing various biopharmaceuticals; and
WHEREAS, EUGENEX is in the business of developing and commercializing various technologies related to biopharmaceuticals; and
WHEREAS, INTAS has already developed and is currently marketing recombinant human erythropoietin (EPO) in India and elsewhere, and desires, due to certain limitations of the existing technology, to develop an alternative technology for the same product (EPO) such as will enable it to register the EPO using the alternate technology in international markets including regulated markets such as Europe and Australia; and
WHEREAS, EUGENEX is developing or in possession of such technologies for producing EPO that will satisfy the requirements of INTAS in terms of commercial viability and fulfillment of regulatory requirements; and
WHEREAS, INTAS desires to obtain from EUGENEX rights in technologies developed by EUGENEX relating thereto; and exclusive rights to a high producing cellular clone and know-how related to using the clone and related technologies, for the purpose of developing and commercializing EPO using such technologies; and
WHEREAS, EUGENEX is willing to grant to INTAS such rights under the terms and conditions set for this agreement.
(Recitals of the agreement dated 01.12.2006)
3.1.2 “Patent Rights” shall mean any and all rights and interest in and to patent applications and patents covering inventions relating to the technologies directly related to EPO which are owned, held or otherwise controlled by EUGENEX under which EUGENEX has the right to grant or otherwise transfer a right and license to a third party, any divisional, continuation or contribution-in-part based on any of the above patent applications or patents, any patents that may issue from any of the above patent applications, and any reissues, reexaminations or extensions of any of the above patents.
(Clause 1.7 of the Section 1 (Definitions) of the agreement dated 01.12.2006)
3.1.3 “Technologies Rights” shall mean any and all rights and interest in and to materials, know-how, trade secrets and other similar information relating to the Technologies owned, held or otherwise controlled by EUGENEX, either as of the Effective Date of thereafter during the term of the Development Program, and under which EUGENEX has the right to grant or otherwise transfer a right and license to a third party.
(Clause 1.8 of the Section 1 (Definitions) of the agreement dated 01.12.2006)
3.1.4 General:- The technology transfer comprises the transfer of a cell clone that produces recombinant EPO as outlined in Exhibit A, as well as protocols for cell culture, including media and reagent compositions.
(Clause 2.1 of the Section 2 (Technology Transfer and further Development Program) of the agreement dated 01.12.2006)
3.1.5 Within 30 days of payment by Intas made on the completion of milestone 1 and 2, EUGENEX will provide INTAS with full documentation of the cell line history of the EPO producing clone CHOSI EPOP8 H42 including a detailed final written report. Such report shall include without intimation a summary of data and know-how obtained according to Exhibit A.
(Clause 2.2 of the Section 2 (Technology Transfer and further Development Program) of the agreement dated 01.12.2006)
3.1.6 INTAS shall use the technology provided by EUGENEX and shall establish its EPO process including cell culture and purification, as described in Exhibit A. EUGENEX shall provide necessary technical help to INTAS in order to ensure implementation of the technologies at INTAS facilities, and in troubleshooting any problems.
(Clause 2.3 of the Section 2 (Technology Transfer and further Development Program) of the agreement dated 01.12.2006)
3.1.7 It is understood that the primary objective of the present technology agreement is the development of a product suitable for regulated markets such as Europe and Australia. Thus, all developmental activities and documentation as well as deliverables will be according to the requirements of such regulatory authorities, specifically EMEA.
(Clause 2.4 of the Section 2 (Technology Transfer and further Development Program) of the agreement dated 01.12.2006)
3.1.8 INTAS shall develop the manufacturing process, formulation and all necessary analytical procedures, as well as carry out necessary product development including, if necessary, clinical trials, in order to apply for marketing authorization as a pharmaceutical product in a number of countries, in particular Europe, Australia as well as India and others.
(Clause 2.5 of the Section 2 (Technology Transfer and further Development Program) of the agreement dated 01.12.2006)
3.1.9 Fixed Costs:- INTAS shall pay to EUGENEX a total of 300,000 Euro, Such payment amount shall be made in accordance with the following schedule as per the Milestones of the development program. The milestones are as further described in Exhibit A.
- Milestone 1: Signature of contract and hand over of the clone CHOSI EPOP8H42: 20%
Milestone 2: Establishment of process at INTAS to give satisfactory yield and quality: 20%
- Milestone 3: Handover of complete regulatory documentation related to the to INTAS: 20%
- Milestone 4: Establishment and satisfactory characterization of cell bank by INTAS: 20%
- Milestone 5: Acceptance of application for conduct of clinical trial by regulatory authorities in Europe or Australia: 20%
(Clause 3.1 of the Section 3 (Payments) of the agreement dated 01.12.2006)
3.1.10 Variable Costs:- Costs for shipment of materials as well as for other out-contracted services INTAS ask for, like mycoplasma and sterility testing and DNA-sequencing, will be made payable to INTAS with a copy of the original bill and must be paid by INTAS within 20 days after invoicing. Training of Intas personnel, as described in Exhibit A, will be charged Euro 2’500.00 net per week.
(Clause 3.2 of the Section 3 (Payments) of the agreement dated 01.12.2006)
3.1.11 Grant. Subject to the terms and conditions of this agreement, EUGENEX hereby grants to INTAS subject to payment of the sums as per section 3:
- a worldwide, non exclusive, permanent, non-transferable right and license for commercialization of EUGENEX EPO Technology.
- a worldwide exclusive, permanent, non transferrable right and license for commercialization of one specific EUGENEX EPO producing cell clone i.e., EPO producing clone CHOSI EPOP8 H42.
Further, EUGENEX will not transfer to any entity in India, any cell line producing EPO for a period of 3 years from the date of transfer of the clone to INTAS under this agreement.
However, patent rights and technology rights on EUGENEX general technology and EUGENEX’ special EPO technology will remain with EUGENEX.
(Clause 4.1 of the Section 4 (Grant of Rights and INTAS Deliverables) of the agreement dated 01.12.2006)
3.1.12 INTAS shall use the EUGENEX EPO technologies to develop pharmaceutical products or active substances containing EPO for registration and marketing in different countries according to relevant guidelines governing the products.
(Clause 4.4 of the Section 4 (Grant of Rights and INTAS Deliverables) of the agreement dated 01.12.2006)
3.1.13 Royalties. In consideration of the rights granted under Article 4.1, Intas shall pay to EUGENEX within sixty (60) days of the end of the 2nd and 4th quarters of the accounting year (April-March) running royalty of five percent (5%) of Intas’ Net Sales received by Intas and it affiliates for that six month period.
(Clause 5.1 of the Section 5 (Royalty) of the agreement dated 01.12.2006)
3.1.14 Calculation and duration of Royalty. Intas obligations to pay royalties to EUGENEX under Article 5.1 shall continue for a period of seven and a half (7.5) years from the first commercial sale of such EUGENEX Product on a Region-by Region basis. This means that the royalty shall be payable on the Net Sales from a given Region for 7.5 years from the date of first commercialization in that Region. For the purposes of this clause, the Territory is divided into the following Regions: 1) US and Canada 2) EU 3) Japan 4) Australia and New Zealand 5) India 6) Rest of the World. Notwithstanding the above, Intas shall be obligated after expiration of the royalty term to pay any royalty amounts that accrued prior to such expiration.
(Clause 5.4 of the Section 5 (Royalty) of the agreement dated 01.12.2006)
3.1.15 Currency. All payments under this agreement shall be made in Euro (“EUR”) by bank wire transfer in immediately available funds to such German bank account as which occur in currencies other than Euro, Intas shall first calculate the amount due in the currency in which sales occurred and then convert the result into Euro at the monthly average exchange rate as currently applied by Intas according to International Accounting Standards OAS.
(Clause 5.7 of the Section 5 (Royalty) of the agreement dated 01.12.2006)
3.1.16 Royalty Transfer. Notwithstanding any provision in this agreement to the contrary, EUGENEX shall have the right, at any time, to offer, sell and transfer Intas’ royalty obligations to a third party.
(Clause 5.12 of the Section 5 (Royalty) of the agreement dated 01.12.2006)
3.1.17 Rights and Title. EUGENEX warrants that it has the title to the technologies being transferred to INTAS, and the right to make such transfer.
(Clause 6.1 of the Section 6 (EUGENEX warranties and continuing support) of the agreement dated 01.12.2006)
3.1.18 Patents. EUGENEX warrants that the construct, expression, cassette and the host cell line, are proprietary or patented property of EUGENEX, and that they do not infringe any existing patents in Europe to the best of their knowledge. Specific patents that EUGENEX owns, and specific legal opinion that EUGENEX has in relation to their freedom to operate are listed in Exhibit B.
(Clause 6.2 of the Section 6 (EUGENEX warranties and continuing support) of the agreement dated 01.12.2006)
3.2 From the relevant terms and conditions (as mentioned above), it is observed that:-
3.2.1 M/s IBL was desirous of obtaining the exclusive rights in technologies developed by EUGENEX for purpose of developing and commercializing recombinant human erythropoietin(EPO) and for the said purpose the aforesaid agreement dated 01.12.2006 was executed.
3.2.2 The activities to be performed by EUGENEX included:-
a) Transfer of a cell clone that produces recombinant EPO.
b) Provide the technology, know-how, trade secrets and other similar information.
3.2.3 These technologies were patented / possessed / owned by M/s EUGENEX.
3.2.4 By executing the said agreement, M/s EUGENEX temporarily transferred or permitted use of the said technologies to M/s IBL.
3.2.5 In lieu of such temporary transfer or permission for use of technology M/s EUGENEX was paid consideration by M/s IBL.
3.2.6 Such consideration included:-
(a) a fixed amount of Euro 3,00,000.00 which was to be paid in installments as agreed in the said agreement.
(b) a royalty which was to be paid at the end of 2nd and 4th quarters of the accounting year (April-March) at the rate of 5% of the “Net Sales received by Intas and its affiliates for that six months period.”
3.3 Further, it is observed that M/s IBL was paying the amounts as was agreed upon vide the said agreement in foreign currency to M/s Eugenex Biotechnologies GmbH, Switzerland.
It was also observed that M/s IBL was not discharging the service tax liability on the payments made towards royalty for the period 2007-08 to 2010-11 as per details mentioned in Table-1 of Annexure-A.
4.1 The scope/relevant terms and conditions of the agreement dated 01.11.2003 entered with M/s SunBio, Inc., South Korea is as under:-
4.1.1 “A. SUNBIO and INTAS PHARMA shall enter into a joint development project following the responsibilities and timelines a given in Appendix 1.
B. SUNBIO shall be responsible for “supply of SUNBIO PEG products’ to INTAS PHARMA upon receiving official purchase order from INTAS PHARMA.
C. SUNBIO shall be responsible for “transfer of technology” related to Peg products and pegylation technology applicable to development of PEG-GCSF.
D. INTAS PHARMA shall be responsible for limiting the use of SUNBIO PEG products and pegylation technology within “the field of application” as specified in clause 3.”
(Recitals of the agreement dated 01.11.2003)
4.1.2 The term “Technology Transfer” shall mean, and be limited to the transfer from SUNBIO to INTAS PHARMA of technology related to the PEG products and pegylation that are selected and used in final product development of PEG-GCSF at INTAS PHARMA. The scope of the technology to be transferred shall comprise
(1) pegylation technology to produce PEG-GCSF starting from INTAS PHARMA GCSF and SUNBIO PEG products.
(2) Process to obtain substantially pure PEG-GCSF by removal of other species obtained from the pegylation reaction.
(3) analysis of PEG-GCSF to verify correct structure, purity and activity including development of necessary analytical methods.
(4) specifications and methods of analysis for testing the SUNBIO PEG products as raw materials for routine manufacture of PEG-GCSF.
(5) validation of analytical methods referred ion (3) and (4) above.
(6) GMP compliance and documentation for manufacturing of the PEG products.
(Clause 1.4 of the Section 1 (Certain Conditions) of the agreement dated 01.11.2003)
4.1.3 Upon signing hereof, INTAS PHARMA shall make payment to SUNBIO of one-time up-front fee equal to US $150,000. The said payment is gross and is subject to taxes in accordance with the prevalent tax laws and Double Taxation Avoidance Agreements between the countries. INTAS PHARMA shall deduct / withhold tax as may be required and provide the certificate and/or proof of payment to Government of India of such withheld taxes to SUNBIO. Payment (net of tax) shall be made by wire transfer into the specified bank account of SUNBIO. This agreement shall become effective immediately after the fee payment by INTAS PHARMA to SUNBIO.