Court Quashes Tax Demands Against Iprocess Clinical Marketing Pvt Ltd. for Exported Services to Foreign Clients
In a landmark decision, the Karnataka High Court has ruled that the GST notification regarding the place of supply for pharmaceutical research and development (R&D) services, as outlined in Notification No. 04/2019 - Integrated Tax dated 30.09.2019, is retrospective in nature. This judgment quashes the tax demands made on M/s. Iprocess Clinical Marketing Pvt Ltd., a Bengaluru-based company, for services provided to foreign clients.
The case, adjudicated by Justice S.R. Krishna Kumar, revolved around the classification of clinical trials and R&D services as exports, thereby exempting them from GST under the Integrated Goods and Services Tax (IGST) Act, 2017. The petitioner, represented by Senior Advocate Sri. Vikram Huilgol, argued that the notification, which clarifies that the place of supply is the location of the recipient, should apply retrospectively. The respondents, including the Assistant Commissioner of Commercial Taxes, Bengaluru, had erroneously applied the notification prospectively, leading to unjust GST liabilities for the petitioner.
The court emphasized that the GST Council, in its 37th meeting held on 20.09.2019, had recommended treating the location of the service recipient as the place of supply for specific R&D services. This was to ensure Indian pharmaceutical companies remain competitive globally, as the lack of clarity had previously led to an 18% GST on such services, impacting their market standing and causing significant revenue losses.
The High Court ruling aligns with precedents set by the Supreme Court, which assert that clarificatory and beneficial amendments should be applied retrospectively to prevent unjust tax burdens on service providers. The decision underscores the importance of clarity in tax regulations to facilitate international competitiveness for Indian industries.
Bottom Line:
GST liability on pharmaceutical R&D services provided to foreign clients - Notification clarifying place of supply is retrospective in nature.
Statutory provision(s): Goods and Services Tax Act, 2017 Section 13(13), Notification No. 04/2019 - Integrated Tax, 30.09.2019
