Filing International Patent through Foreign Attorney is Supply of Service: AAR affirms GST liability for Reimbursement through RCM [Read Order]

The West Bengal Authority for Advance Ruling (AAR) recently ruled that the reimbursement paid by an Indian company to a foreign patent attorney for filing patents outside of India constitutes a “supply of service” under the Goods and Services Tax (GST) regime and thus requires the company availing such service to pay tax through the Reverse Charge Mechanism (RCM).

The ruling was delivered by the authority against an application filed by MedTrainAI Technologies Private Limited, Kolkata. Director of MedTrainAI Nilabhra Banerjee wanted to file a patent in Japan, and enlisted the services of Seenergi IPR for the same. Seenergi completed the task in the Japanese Patent Office and raised an invoice against MedTrainAI for their services.

The invoice was two-fold: Part-A being the amounts for reimbursement of payments made to the Japanese attorney and Part-B being Seenergi’s own IPR Fee.

The present application primarily pertained to the payments in Part-A, where int was the contention of the company that it derives no benefit of any kind by its Director obtaining patents in Japan.

The applicant submitted before the authority that the reimbursement was for expenditure done by Japanese patent lawyers. It was further submitted that the company does not intend to do business in Japan and that except for a plausible opportunity of income from royalty and GST on the Seenergi IPR’s consultancy fee component, no other tax was payable as GST.

The applicant further stated that the “legal; services” availed by them are exempt under GST when provided to individuals or business entities under exemption category; with MedTrainAI being a startup with zero turnover in the preceding 2 years.

The submissions were heard by a bench of Shafeeq S., Joint Commissioner, CGST & CX and Jaydip Kumar Chakrabarti, Senior Joint Commissioner, SGST and noted that through the international patents were executed abroad, the same was executed on behalf of the Indian applicant and thus constituted a service supplied to the Indian entity.

The Authority observed that Seenergi IPR had engaged foreign attorneys for the purpose of securing patent protection for the applicant and did not function as a ‘pure agent’, and facilitated a supply that was taxable as per the CentralGoods and Services Tax Act, 2017.

In this instance, it was observed that the place of supply in this case would be the location of the recipient, i.e., India and as such, the payment to the foreign patent attorney forms part of the taxable value of services procured from abroad.

Accordingly, the Authority ruled that the reimbursement made by MedTrainAI Technologies Pvt. Ltd. to Seenergi IPR towards payments made to a foreign patent attorney qualifies as import of services and attracts GST under the Reverse Charge Mechanism.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates