The Gujarat Authority for Advance Ruling (AAR), Ahmedabad has held that the Research & Development (R&D) activities and services provided by the applicant to foreign entities shall be treated as “Export of Service” and deemed to be “Zero Rated Supply” if the goods or prototypes are supplied by the foreign entity whereas Goods and Services (GST) is applicable when the Prototypes are developed by the applicant itself.
The applicant, M/s. Hilti Manufacturing India Pvt. Ltd. is engaged in the manufacture and supply of diamond-cutting tools and other innovative tools required by the construction industry.
The appellant also provides in-house R&D services on diamond inserts. They have a separate R&D unit where R&D activities are conducted for their own purposes as well as on behalf of foreign entities.
The applicant had previously approached the AAR for Advance Ruling, wherein a ruling was given based on certain facts presented by them at that time.
However, during the appeal filed before the Appellate Authority for Advance Ruling (AAAR), the applicant presented new facts, leading to the issue being remanded back to the AAR for afresh consideration.
The applicant, represented by Sanjeev Nair had sought a clarification on the GST implication and liability on the R&D activities and services provided by them to foreign entities, especially for the prototypes that are developed by the applicant itself and also for the goods/prototypes that are physically made available to them by the foreign entity.
The crucial issue before the AAR was whether the services provided by the applicant to foreign entities fall under “export of service” and whether they are deemed “zero rated supply” under Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017.
The Authority consisting of Milind Kavatkar (SGST Member) and Amit Kumar Mishra (CGST Member), after thorough examination of the new submissions and the agreement entered into by the applicant with Hilti Aktiengesellschaft (HAG) as the principal company, observed that the services provided by the applicant to the entities located outside India is covered under Section 13(2) of the IGST Act, 2017 in respect of the services mentioned in List (B) and (C) under Appendix-I as per para 28 of the agreement. This is subject to the condition that the services supplied in respect of goods/prototypes which are required to be made physically available by HAG to the applicant.
It was also clarified that in respect of the service under List (A) under Appendix-I of para 28, it does not merit to be covered under section 13(2) of the IGST Act, 2017.
The AAR also ruled that the services provided by the applicant is eligible to be treated as a “zero rated supply” under Section 16 of the IGST Act, 2017 in respect of the services mentioned in List (B) and (C) under Appendix-I as per para 28 of the agreement.
The authority concluded that in respect of the service listed in (A) under Appendix-I of para 28, the subject services are liable to Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST).
The ruling offered by the authority thus clarified the tax implications of the appellant based on the nature of their service offerings to entities outside India.
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