Applicant's R&D testing services to overseas entities liable for CGST/SGST under Section 13(2), other services qualify as zero-rated exports under Section 16

AAR Gujarat ruled on applicant's services to overseas entities. Services involving R&D testing on goods provided by foreign recipient fall under IGST Act Section 13(2) sub-clause 3, making them liable to CGST and SGST. However, other services qualify as export of services under Section 2(6) since all five conditions are met: supplier located in India, recipient outside India, place of supply at recipient's location, payment in foreign exchange, and parties not merely establishments of same person. These qualifying services are eligible for zero-rated supply treatment under IGST Act Section 16.

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Issues Involved:
1. Whether the services provided by the applicant to entities located outside India fall under Section 13(2) of the IGST Act, 2017.
2. Whether the services provided by the applicant are eligible for zero-rated supply under Section 16 of the IGST Act, 2017 or liable to CGST and SGST.

Summary:

Issue 1: Applicability of Section 13(2) of the IGST Act, 2017
The applicant, engaged in R&D services for foreign entities, argued that their services qualify as "export of service" and are exempt from IGST. They contended that the place of supply for their R&D services should be the location of the recipient, as per Section 13(2) of the IGST Act, 2017. The GAAR initially ruled that the services fell under Section 13(3)(a), making the place of supply Gujarat, thus subjecting the services to CGST and SGST. However, upon appeal and presentation of new facts, it was determined that the services related to product development and engineering (services mentioned in (B) and (C) under Appendix-I) qualify under Section 13(2), as the goods/prototypes are not supplied by HAG but developed by the applicant. Therefore, the place of supply is the location of the recipient, outside India.

Issue 2: Zero-Rated Supply under Section 16 of the IGST Act, 2017
The applicant asserted that their services should be treated as zero-rated supply under Section 16 of the IGST Act, 2017. The GAAR initially disagreed, stating that the services were liable to CGST and SGST. Upon appeal, it was clarified that the services listed in (B) and (C) under Appendix-I qualify as zero-rated supply since they meet all conditions under Section 2(6) of the IGST Act, 2017: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in foreign exchange, and the supplier and recipient are distinct legal entities. However, the services listed in (A) under Appendix-I, involving testing activities on goods provided by HAG, do not qualify as zero-rated and are subject to CGST and SGST.

Ruling:
1. The services provided by the applicant to entities outside India are covered under Section 13(2) of the IGST Act, 2017, for services mentioned in (B) and (C) under Appendix-I, subject to the condition that goods/prototypes are not supplied by HAG. Services listed in (A) under Appendix-I do not fall under Section 13(2).
2. The services mentioned in (B) and (C) under Appendix-I qualify as zero-rated supply under Section 16 of the IGST Act, 2017. Services listed in (A) under Appendix-I are liable to CGST and SGST.

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