GST cannot be Levied on Data Management Services Provided to Foreign Affiliate: Karnataka HC [Read Order]

In a recent ruling, the Karnataka High Court held that GST cannot be levied on data management services provided by an Indian company to its foreign affiliate, as such services qualify as export of services and are not taxable under the GST law.

IQVIA RDS (India) Private Limited, the petitioner, filed two writ petitions before the Karnataka High Court challenging orders passed by the GST authorities for different tax periods. The authorities had treated the data management services provided by the petitioner to its overseas group entity as intra-State supply and levied GST on the same.

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In one set of proceedings, the authorities had also rejected the petitioner’s claim of zero-rated turnover. The petitioner had entered into a Master Service Agreement dated 1 January 2018 with its foreign affiliate, IQVIA Holdings Inc., which is located in the United States.

Under this agreement, the petitioner was engaged in conducting clinical trials and providing allied data management and software-related services to the foreign entity. The petitioner’s counsel argued that the services were rendered to a recipient located outside India and were like export of services.

The counsel submitted that under the applicable law and the circular dated 4 May 2018, the place of supply for software and data management services is the location of the recipient of service. Since the recipient was based in the United States, the services could not be treated as domestic supply.

The GST authorities opposed the petitions and argued that the services were performed in India and were liable to GST. According to the department, the classification adopted in the impugned orders was proper and the tax demands were legally valid.

After hearing both sides, Justice S.R. Krishna Kumar observed that the circular dated 4 May 2018 clearly explains that for services involving development, testing, debugging, modification, and other software-related activities, the place of supply is the location of the service recipient.

The court pointed out that the nature of services provided by the petitioner fell squarely within this category. The court observed that a reading of the Master Service Agreement and the activities carried out by the petitioner showed that the recipient of the services was situated outside India.

In such circumstances, the services amounted to export of services and could not be subjected to GST in India. The court allowed the writ petitions and quashed the impugned orders to the extent they levied GST on data management services provided to the foreign affiliate. The court clarified that all other issues raised by the petitioner were left open and no opinion was expressed on those aspects.