The Hon’ble Karnataka High Court in the case of M/s. Iprocess Clinical Marketing Pvt. Ltd. v. Asst. Commissioner of Commercial Taxes & Anr. [WRIT PETITION NO. 10989 OF 2025 (T-RES), order dated December 08, 2025] held that clinical-trial / clinical observation study services rendered to foreign recipients qualify as “export of services” and that Notification No. 04/2019–Integrated Tax dated September 30, 2019, issued under Section 13(13) of the IGST Act to clarify the place of supply for specified pharmaceutical R&D services, is clarificatory and therefore operates retrospectively, thereby vitiating the GST demand raised on the Petitioner for the pre-notification period April 2018 to March 2019.
Facts:
M/s. Iprocess Clinical Marketing Pvt. Ltd. (“the Petitioner”) is a company incorporated under the Companies Act and is engaged in conducting clinical trials and clinical observation studies under a tripartite arrangement with New York School of Medicine, Administrative Unit of the New York University, New York, and its associated company in the USA, for overseas pharmaceutical and research entities.
Asst. Commissioner of Commercial Taxes (Audit)-1.7, DGSTO-1, Bengaluru and the Joint Commissioner of Commercial Taxes (Appeals-1), Bengaluru (“the Respondents”) initiated adjudication under Section 73 of the CGST/SGST Act and passed an adjudication order dated 28.03.2024 and an appellate order dated February 25, 2025, treating the Petitioner’s clinical-trial / R&D services as intra-State taxable supplies on the footing that Notification No. 04/2019–Integrated Tax dated September 30, 2019 was only prospective and, therefore, inapplicable to the assessment period April 2018 to March 2019.
The Petitioner contended that it was involved in the activity of conducting clinical trials, which would amount to export of services, and that in terms of Section 13(2) of the IGST Act, since the place of recipient of the services was situated outside the territory of India and Section 13(3)(a) of the IGST Act was not applicable, the place of supply was outside India; further, relying upon Notification No. 04/2019–Integrated Tax dated September 30, 2019, the Petitioner asserted that clinical-trial services and allied pharma R&D services provided to foreign entities were always intended to be treated as export of services, and that the notification was merely clarificatory, elucidatory and beneficial in nature, thus operating retrospectively.
The Respondent contended that there was no merit in the petition, supported the impugned adjudication and appellate orders, and argued that Notification No. 04/2019–Integrated Tax dated September 30, 2019, issued under Section 13(13) of the IGST Act, was prospective in its nature, application and operation, and therefore did not govern the period April 2018 to March 2019, on the premise that the place of supply for such services was the place of performance in India under Section 13(3)(a) of the IGST Act.
Aggrieved by the adjudication order dated March 28, 2024 under Section 73, and the appellate order dated February 25, 2025 passed under Section 107(11) of the CGST/SGST Act, the Petitioner approached the High Court under Article 226 of the Constitution of India by way of writ petition seeking writ of certiorari to quash the said orders and to declare that, by virtue of Section 13(2) read with Notification No. 04/2019–Integrated Tax, the services constituted export of services not liable to GST for the relevant period.
Issue:
Whether clinical-trial / clinical observation study and allied R&D services rendered by the Petitioner in India to foreign recipients located outside India constitute “export of services” for the period April 2018 to March 2019, in view of Section 13(2) of the IGST Act and Notification No. 04/2019–Integrated Tax dated September 30, 2019, and whether the said notification, issued pursuant to the 37th GST Council Meeting, is clarificatory, elucidatory and beneficial so as to operate retrospectively, thereby invalidating the GST demand raised on the Petitioner for the pre-notification period.
Held:
The Hon’ble Karnataka High Court in WRIT PETITION NO. 10989 OF 2025 (T-RES) held as under:
- Observed that, the Adjudicating Authority and the Appellate Authority had themselves proceeded on the basis that the Petitioner was involved in the activity of conducting clinical trials, which would amount to export of services, and that in terms of Section 13(2) of the IGST Act, since the place of recipient of the services was situated outside the territory of India.
- Noted that, Notification No. 04/2019–Integrated Tax dated September 30, 2019 was issued pursuant to the specific recommendations made in the 37th GST Council Meeting held on September 20, 2019 (Item No. 5 – “request for clarification on GST related to ‘export of services’ in pharmaceutical sector”), wherein the Council recorded detailed justification that Indian pharmaceutical companies provide various kinds of R&D services – including in vivo and in vitro studies, drug metabolism and pharmacokinetics, toxicology, stability studies, bioequivalence / bioavailability studies and clinical trials – to foreign clients against consideration in foreign exchange, and that such services, though performed in India on samples, reagents and reference materials supplied from abroad, should not be treated as domestic supplies under Section 13(3)(a) but as exports, recommending issuance of a notification under Section 13(13) of the IGST Act to notify that the place of supply of such specified R&D services shall be the place of effective use and enjoyment i.e., location of the service recipient.
- Observed that the minutes of the 37th GST Council Meeting expressly discussed that samples given by foreign clients to Indian pharma companies do not, by themselves, make the place of supply the location of the service provider under Section 13(3)(a) of the IGST Act, having regard inter alia to the Education Guide of Service Tax and the test of “goods” laid down in Vikas Sales Corporation v. Commissioner of Commercial Taxes [(1996) 4 SCC 433], and that it was recommended to issue a notification under Section 13(13) to treat the place of supply of specified pharma R&D services, including clinical trials, as the location of the service recipient abroad, so as to prevent double taxation or non-taxation.
- Further observed that the Constitution Bench of the Supreme Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd. [(2015) 1 SCC 1] has laid down that (a) amendments which are merely clarificatory, explanatory or declaratory of earlier law are generally retrospective, while (b) provisions which impose new burdens or liabilities are presumed to be prospective, unless the legislature clearly indicates retrospectivity, and that beneficial provisions intended to confer relief on the assessee may, on a purposive construction, be construed as retrospective, especially where they remove doubts or correct anomalies in the earlier regime.
- Held that, in the light of (a) the detailed recommendations in the 37th GST Council Meeting, (b) the language and object of Notification No. 04/2019–Integrated Tax dated September 30, 2019, (c) the settled principles on retrospectivity of clarificatory, elucidatory and beneficial amendments / notifications laid down in Vatika Township Pvt. Ltd. (supra,) all amendments and notifications of such nature must be construed as clarificatory and beneficial and therefore operate retrospectively / retroactively, so that the impugned Notification No. 04/2019–Integrated Tax dated September 30, 2019 is clearly retrospective in nature, application and operation.
- Held that, once Notification No. 04/2019–Integrated Tax dated 30.09.2019 is treated as retrospective, the clinical-trial / R&D services rendered by the Petitioner to foreign recipients located in the USA, pursuant to the tripartite agreement, clearly qualify as export of services, with the place of supply being the location of the recipient outside India under Section 13(2) of the IGST Act, and therefore the Petitioner cannot be saddled with liability to pay GST on such services for the period April 2018 to March 2019, and accordingly, set aside the impugned appellate order passed under Section 107(11), thereby quashing the GST demand raised on the Petitioner.
Our comments:
The Hon’ble Karnataka High Court in the case of Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd. (2006) 12 SCC 448 : 2006 (204) ELT 517] and the Supreme Court in the case of Suchitra Components Ltd. v. Commissioner of Central Excise, Guntur [(2006) 12 SCC 452], held that a beneficial circular must be applied retrospectively, while an oppressive circular operates only prospectively, and that when a circular or clarification favours the assessee, the benefit cannot be denied for past periods on the plea of prospectivity. This judgment extends this doctrine to clarificatory notifications under Section 13(13) of the IGST Act, thereby affirming that beneficial clarifications on place of supply for export-oriented R&D services must apply to earlier periods as well.
Relevant provisions:
Section 13 of the IGST Act, 2017
“13. Place of supply of services where location of supplier or location of recipient is outside India.-
(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.
(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.
(3) The place of supply of the following services shall be the location where the services are actually performed, namely:-
(a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process;
(b) services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located.
(5) The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held.
(6) Where any services referred to in sub-section (3) or sub-section (4) or sub-section (5) is supplied at more than one location, including a location in the taxable territory, its place of supply shall be the location in the taxable territory.
(7) Where the services referred to in sub-section (3) or sub-section (4) or sub-section (5) are supplied in more than one State or Union territory, the place of supply of such services shall be taken as being in each of the respective States or Union territories and the value of such supplies specific to each State or Union territory shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.
(8) The place of supply of the following services shall be the location of the supplier of services, namely:-
(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month.
Explanation . – For the purposes of this sub-section, the expression,-
(a) “account” means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account;
(b) “banking company” shall have the same meaning as assigned to it under clause (a) of section 45A of the Reserve Bank of India Act, 1934;
(c) “financial institution” shall have the same meaning as assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934;
(d) “non-banking financial company” means, –
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or
(iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.
….
(13) In order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service.”
Notification No. 04/2019–Integrated Tax, dated September 30, 2019
“In exercise of the powers conferred by sub-section (13) of section 13 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on being satisfied that it is necessary in order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, on the recommendations of the Council, hereby notifies following description of services or circumstances as specified in Column (2) of the Table A, in which the place of supply shall be the place of effective use and enjoyment of a service as specified in the corresponding entry in Column (3), namely:-
TABLE A – Place of Supply
The place of supply of services shall be the location of the recipient of services subject to fulfillment of the following conditions:- (i) Supply of services from the taxable territory are provided as per a contract between the service provider located in taxable territory and service recipient located in non-taxable territory. (ii) Such supply of services fulfills all other conditions in the definition of export of services, except sub- clause (iii) provided at clause (6) of Section 2 of Integrated Goods and Services Tax Act, 2017 (13 of 2017)”
Item No. 5 of the 37th GST Council Meeting discussions held on September 20, 2019
“Fitment Committee Recommendation:
Recommendation: A notification may be issued under Section 13(13) of IGST Act, to notify that the place of supply of specific R & D services as listed in para 2 when provided by Indian pharma companies to foreign service recipients, shall be the place of effective use and enjoyment of a service i.e location of the service recipient.
Analysis:
Indian pharmaceutical industry supplies various kinds of R&D services to recipients located outside India against consideration received in foreign exchange. Some of the example of such services are integraed discovery and development services (involving research, development, prototype and manufacturing arrangements), Integrated Development (involving in-house development of molecule/ substance and subsequent process including testing), processing and testing, in vivo and assay evaluation services, drug metabolism and pharmacokinetics research, safety assessment/ toxicology, analytical testing, bio equivalence and bio availability studies, clinical trials etc. However, these services are performed in India and the reference materials for the above services are made available by foreign recipient in India. The specific R&D Services rendered by Indian Pharma sector to foreign clients are not treated as ‘export of service’ as place of supply is place of performance of service i.e India as per Section 13(3)(a) of IGST Act.”
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