Whether R&D
services provided to foreign clients qualify as export of services under the
IGST Act
Name of the Party: M/s Hilti Manufacturing India
Pvt. Ltd.
Name of Ruling
Authority: Gujarat
Appellate Authority for Advance Ruling (GAAAR)
Ruling No.: GUJ/GAAAR/APPEAL/2022/A
Date of Ruling: 21.09.2022
Original Ruling No.: GUJ/GAAR/R/26/2021, dated
09.07.2021
Summary of Ruling:
The Gujarat Appellate Authority for Advance Ruling
(GAAAR) set aside the ruling of the Gujarat Authority for Advance Ruling (GAAR)
and remanded the case back for fresh consideration.
The case involved whether R&D services provided
by M/s Hilti Manufacturing India Pvt. Ltd. to foreign clients qualify as export
of services under the IGST Act, 2017. The GAAR initially ruled that the
services were not exports and were subject to CGST & SGST in India.
However, Hilti later clarified that their original
submission contained factual errors—the goods on which R&D was performed
were not supplied by the foreign client but manufactured in India. Based on
these new facts, the AAAR remanded the case for reconsideration.
Facts of the
Advance Ruling:
- Hilti
Manufacturing India Pvt. Ltd. is engaged in the manufacture and supply of
diamond cutting tools and other innovative construction tools.
- The
company operates as a 100% Export-Oriented Unit (EOU) and has an R&D
unit for product development.
- The
company conducts R&D services on samples/goods for foreign entities,
tests them, and submits detailed reports to the overseas clients.
- An
agreement existed with Hilti Aktiengesellschaft (Liechtenstein) for
carrying out R&D activities.
- The
company raises invoices in foreign currency and had been charging 18% IGST
on these services.
- The
appellant believed that these services qualify as "Export of
Services" under Section 16 of the IGST Act, 2017, making them
zero-rated supplies (i.e., exempt from GST in India).
- The
GAAR ruled that the services are subject to CGST & SGST because the
goods were physically available in India for R&D, making it an Indian
supply as per Section 13(3)(a) of the IGST Act.
Question Raised:
· Are the services provided by the
applicant to entities outside India covered under Section 13(2) of the IGST
Act, 2017?
· Are these services liable to CGST
& SGST or IGST, or do they qualify as zero-rated exports under Section 16
of the IGST Act, 2017?
Submission Made by
Applicant:
- The
services provided should qualify as "export of service" and be
zero-rated under Section 16 of the IGST Act.
- The
recipient of the service is located outside India, fulfilling the export
criteria under Section 2(6) of the IGST Act.
- The
testing and R&D services were performed on goods that were consumed
during the process and were not sent back to the foreign client.
- The
GAAR wrongly applied Section 13(3)(a), which applies only when goods are
physically made available for testing and returned after service.
- The
place of supply should be outside India, making it eligible for zero-rated
tax treatment.
- The
company cited several case laws supporting their claim, including:
- Commissioner
v. B.A. Research India Ltd. (2010)
- KSH
International Pvt. Ltd. v. Commissioner (2010)
- Commissioner
of Central Excise Pune-I v. Sai Life Sciences (2016)
Relevant Sections
and GST Provisions Considered:
1. Section 13(2) of IGST Act, 2017:
o
Specifies
that the place of supply for services shall be the location of the recipient,
unless covered under exceptions in Sections 13(3)–(13).
2. Section 13(3)(a) of IGST Act,
2017:
o
States
that if services are supplied in relation to goods made physically available to
the supplier in India, the place of supply is India.
o
GAAR had
ruled that this applies because the goods were tested in India.
3. Section 16 of IGST Act, 2017:
o
Defines
zero-rated supplies, including exports of services.
o
The
appellant argued that their services qualify as zero-rated exports.
4. Section 103(2) and Section 104(1)
of CGST Act, 2017:
o
States
that an advance ruling is binding only if facts remain unchanged.
o
Since
Hilti changed its factual submissions, the ruling lost its validity.
Discussion and
Findings of Ruling Authority:
- The
appellant admitted that their original submission contained factual
errors.
- The
GAAR had ruled based on incorrect facts, believing that the goods were
sent from the foreign client for testing.
- The
corrected facts showed that the goods were manufactured in India and were
not returned to the foreign client.
- Given
this major factual change, the AAAR ruled that the GAAR decision was no
longer valid under Sections 103(2) and 104(1) of the CGST Act.
- The
case was remanded back to GAAR for a fresh ruling based on the corrected
facts.
Final Ruling and
Conclusion:
- The
original Advance Ruling by GAAR was set aside.
- The
case was remanded back to GAAR for fresh consideration.
- The
GAAR will now reassess whether the services qualify as "export of
services" under IGST law.
- The
AAAR did not make a final decision on taxability but instructed GAAR to
issue a new ruling after considering the revised facts.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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