Clinical Trial Services to Foreign Clients Treated as Exports: Karnataka High Court’s Ruling on Place of Supply

Overview of the Karnataka High Court Decision

The Karnataka High Court in M/s. Iprocess Clinical Marketing Pvt. Ltd. v. Asst. Commissioner of Commercial Taxes & Anr. has categorically held that clinical-trial and associated pharmaceutical R&D services carried out in India for overseas clients are to be regarded as “export of services” under Section 13(2) of the IGST Act.

The controversy centred on GST demands for the period April 2018 to March 2019, where the authorities had taxed such services as intra-State supplies, contending that Notification No. 04/2019–Integrated Tax dated 30.09.2019 applied only prospectively. The High Court disagreed and held that the notification is clarificatory and beneficial, and therefore retrospective in its operation.

By relying heavily on the Constitution Bench ruling in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd., the Court concluded that clarificatory notifications that benefit the assessee generally operate retrospectively. Consequently, the place of supply for the Petitioner’s services was held to be outside India, and the GST demand was quashed.

Factual Background

Nature of Business and Contractual Arrangement

  • M/s. Iprocess Clinical Marketing Pvt. Ltd. (“the Petitioner”) is a company incorporated under the Companies Act.
  • The Petitioner is engaged in conducting:
    • Clinical trials
    • Clinical observation studies
    • Allied pharmaceutical R&D support
  • These services were provided under a tripartite agreement involving:
    1. New York School of Medicine
    2. Administrative Unit of the New York University, New York
    3. An associated entity in the USA
  • The ultimate beneficiaries of the services were overseas pharmaceutical and research entities located outside India, and consideration was received in foreign currency.

Departmental Proceedings and Orders

The Asst. Commissioner of Commercial Taxes (Audit)-1.7, DGSTO-1, Bengaluru, initiated proceedings under Section 73 of the CGST/SGST Act on the basis that the Petitioner’s services were intra-State supplies and not exports.

  1. Adjudication Order

    • Date: 28.03.2024
    • Authority: Asst. Commissioner of Commercial Taxes (Audit)-1.7, DGSTO-1, Bengaluru
    • Finding: Clinical-trial/R&D services rendered by the Petitioner were taxable as intra-State supplies in India.
    • Reasoning: Notification No. 04/2019–Integrated Tax was considered only prospective, and hence not applicable to April 2018 – March 2019.

  2. Appellate Order

    • Date: 25.02.2025
    • Authority: Joint Commissioner of Commercial Taxes (Appeals-1), Bengaluru
    • The appellate authority affirmed the adjudication order, reiterating that the notification could not be given retrospective effect.

Aggrieved, the Petitioner invoked Article 226 of the Constitution of India before the Karnataka High Court, seeking to quash both orders and to declare that its services were exports and not liable to GST for the relevant period.

Question Before the Court

Whether clinical-trial / clinical observation study and allied R&D services carried out in India for foreign recipients between April 2018 and March 2019 qualify as “export of services” under Section 13(2) of the IGST Act, in the light of Notification No. 04/2019–Integrated Tax dated 30.09.2019, and whether that notification is clarificatory and beneficial, thereby operating retrospectively.

The resolution of this question determined the validity of the GST demand raised on the Petitioner for the pre-notification period.

Arguments of the Parties

Submissions of the Petitioner

The Petitioner maintained that:

  1. Export of Services Classification

    • The Petitioner was carrying out clinical trials and allied R&D for entities located outside India under a contract.
    • The recipient of services was situated outside India, and consideration was received in foreign exchange.
    • Therefore, under Section 13(2) of the IGST Act, the place of supply was the location of the recipient, i.e., outside India.
    • Section 13(3)(a) did not apply as the case involved export-oriented R&D, not domestic performance-based services liable in India.

  2. Nature of Notification No. 04/2019–Integrated Tax

    • The Petitioner relied on Notification No. 04/2019–Integrated Tax dated 30.09.2019, issued under Section 13(13) of the IGST Act.
    • It was contended that the notification did not introduce a new tax regime but merely clarified the correct position of law concerning pharma R&D services, particularly clinical trials.
    • Being clarificatory and beneficial, it should be construed as retrospective, covering even the period before 30.09.2019.
    • Consequently, the Petitioner’s services were always intended and understood to be treated as “export of services”, with place of supply outside India.