GST applicable on R&D Activities on Goods made available by Foreign entities

Last updated: 25 August 2021

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The Gujarat Authority of Advance Ruling (GAAR) has determined that Goods and Services Tax (GST) is applicable on research and development (R&D) activities performed in India on goods made available by foreign entities. The ruling clarifies that the place of supply for such services is where the R&D activities are physically carried out, making the Indian entity liable for GST.

Court :
Gujarat Authority of Advance Ruling

Brief :
In M/s. Hilti Manufacturing India Pvt. Ltd. [ADVANCE RULING NO. GUJ/GAAR/R/26/2021 dated July 09, 2021], M/s. Hilti Manufacturing India Pvt. Ltd ('the Applicant') has sought a clarification on the liability to pay Goods and Services Tax ('GST') on Research and Development ('R&D') Sciences on goods physically made available by foreign entities.

Citation :
Gujarat Authority of Advance Ruling

In M/s. Hilti Manufacturing India Pvt. Ltd. [ADVANCE RULING NO. GUJ/GAAR/R/26/2021 dated July 09, 2021], M/s. Hilti Manufacturing India Pvt. Ltd ('the Applicant') has sought a clarification on the liability to pay Goods and Services Tax ('GST') on Research and Development ('R&D') Sciences on goods physically made available by foreign entities.

The Hon'ble Gujarat Authority of Advance Ruling ('GAAR') observed that the Applicant having a contract with Service Receiver ('Recipient') is of the nature wherein the goods being sent to the Applicant are put through various tests and R&D activities and the results of which are sent back to the Recipient.

Noted that, the situation is covered under Section 13(3)(a) of the Integrated Goods and Services Tax Act, 2017 ('IGST Act') which provides that the Place of Supply ('PoS') of services being the location where the services are performed i.e. location of the Applicant where performance of service is undertaken in the current case.

Further noted that the services provided by the applicant are in the form of R&D activity undertaken on the sample goods which are made physically available by the recipient to the applicant in order to enable the applicant to provide the services. Therefore, PoS being the location of Applicant that is, in Gujarat, making the transaction liable to GST accordingly.

FAQ :

Yes, the Gujarat GAAR ruled that GST is applicable on R&D activities performed in India on goods made available by foreign entities.

The Place of Supply is determined to be the location where the R&D services are physically performed, which in this case was in Gujarat.

Hilti Manufacturing India Pvt. Ltd. provided R&D services on sample goods made physically available by the foreign recipient.

Section 13(3)(a) of the Integrated Goods and Services Tax Act, 2017, was relevant, which states that the Place of Supply for services is where the services are performed.

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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