Karnataka High Court Holds Clinical Trial Services as 'Export of Services'; GST Demand on Pharma R&D to Foreign Clients Quashed

“Notification Clarifying Place of Supply in Pharma R&D Services Is Clarificatory and Retrospective in Nature”, In a critical judgment Karnataka High Court decisively quashed the levy of GST on clinical trial services rendered by an Indian pharmaceutical company to foreign recipients, holding that such services qualify as "export of services" under the IGST Act, and are therefore non-taxable.

Justice S.R. Krishna Kumar, allowing the writ petition under Article 226 of the Constitution, set aside the adjudication order dated 28.03.2024 and the appellate order dated 25.02.2025, both of which had erroneously imposed GST for the period April 2018 to March 2019 by treating Notification No. 04/2019–IGST dated 30.09.2019 as prospective. The Court held that the said notification was "clarificatory and declaratory in nature" and therefore retrospective in operation, affirming the settled principle that clarificatory provisions are presumed to have retrospective effect.

“Clinical Trials Involving Consumable Foreign Samples Are Not ‘Goods Physically Made Available’ Under Section 13(3)(a) of IGST Act”

At the core of the dispute was whether clinical trial services, involving sample molecules supplied by foreign pharma clients, fall within the ambit of Section 13(3)(a) of the IGST Act, 2017, which fixes the place of supply at the location of performance of service when goods are made "physically available" to the supplier.

Rejecting this application, the Court held: “Samples provided by foreign clients are consumed during the clinical process and are not marketable commodities. Such materials are not ‘goods’ in the commercial sense and do not attract Section 13(3)(a).”

The Court distinguished these consumables from tangible, movable goods that are physically made available for repair or reconditioning, as contemplated in Section 13(3)(a). Relying on judicial precedents such as Vikas Sales Corporation v. Commissioner of Commercial Taxes (1996) 4 SCC 433, the Court ruled that marketability and intrinsic value are essential to treat something as “goods”.

“GST Council Clarification Is Binding and Operative Retrospectively”

The High Court placed considerable emphasis on the 37th GST Council Meeting held on 20.09.2019, which acknowledged the competitive disadvantage faced by Indian pharma companies in exporting R&D services due to ambiguity in place of supply rules.

Justice Krishna Kumar noted: “It is an undisputed fact that the place of recipient of the services provided by the petitioner is in the USA... and consequently, by virtue of the said notification, the petitioner could not have been saddled with the liability to pay GST.”

The notification dated 30.09.2019 was issued under Section 13(13) of the IGST Act, empowering the Central Government to clarify the place of effective use and enjoyment of certain services. The Court observed:

“The said notification issued pursuant to the GST Council’s decision clearly operates retrospectively and applies to the subject period. The contrary finding of the adjudicating and appellate authorities is erroneous and unsustainable in law.”

“Clarificatory Notifications Must Be Treated as Retrospective in Nature”

The Court heavily relied on landmark decisions of the Supreme Court in:

• Commissioner of Income Tax v. Vatika Township Pvt. Ltd. [(2015) 1 SCC 1]

• Suchitra Components Ltd. v. Commissioner of Central Excise [(2006) 12 SCC 452]

• CCE v. Mysore Electricals Industries Ltd. [(2006) 12 SCC 448]

Quoting Vatika Township with approval, the High Court reiterated: “Clarificatory amendments or notifications which explain an existing provision, remove ambiguity, or cure an omission are retrospective in nature.”

It held that the notification dated 30.09.2019 did not create new rights or obligations but merely clarified the existing position, and therefore, applied retrospectively to transactions prior to that date.

No GST Liability for Export-Oriented Clinical Trials: Relief Granted for Pre-Notification Period

Accordingly, the High Court concluded: “Having regard to the notification and the undisputed fact that the petitioner’s services were rendered to a recipient located outside India, the petitioner qualifies for exemption from GST under the export of services framework.”

The Court allowed the writ petition and quashed both the adjudication and appellate orders, directing that no GST shall be levied for the relevant period (April 2018–March 2019).

Landmark Win for Pharma Exporters; GST Department’s Narrow Interpretation Rejected

This ruling sets a strong precedent for the Indian pharmaceutical R&D and clinical trial industry, many of whom had been facing arbitrary GST demands due to a restrictive and literal reading of place-of-supply rules. The High Court’s decision now provides legal certainty and confirms that services rendered to foreign clients—even when performed in India—can constitute export of services, when the recipient is outside India and payment is received in foreign currency.

By recognizing the retrospective applicability of clarificatory notifications, the Court has reaffirmed the principles of fairness, legality, and competitiveness in India's taxation regime.

Date of Decision: 08.12.2025