Patent-filing documentation services from foreign attorneys treated as imported; SAC 998213 taxable under reverse charge, Notif 13/2017 Entry 2

Receipt of patent-filing and related legal documentation services from foreign patent attorneys constituted an import of services, classifiable under SAC 998213 (legal documentation and certification services concerning patents and other IPR). As the supplier was located outside India and the place of supply was the recipient's location in West Bengal, the services were taxable in India. The exemption for legal services by an "advocate"/"senior advocate" under the relevant entry was held inapplicable because those terms, as defined under the Advocates Act, 1961, do not extend to foreign attorneys; consequently, the reimbursements formed part of taxable consideration. Tax was held payable by the recipient under reverse charge under Entry 2 of Notification No. 13/2017-CT (Rate).

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the amount shown as "reimbursement" of foreign patent attorney charges, billed through an India-based service provider, forms part of a taxable supply and attracts GST under reverse charge.

(ii) Whether the India-based service provider acted as a "pure agent" so that the foreign attorney expenses could be excluded from the value of supply.

(iii) Whether legal services received from foreign patent attorneys qualify as taxable services with place of supply in India, and whether exemption for "legal services" applies to such foreign attorneys.

(iv) Whether patent filing/protection activity is to be treated as "in the course or furtherance of business" for the purposes of taxability of the legal service received.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Taxability of "reimbursement" and applicability of "pure agent" exclusion

Legal framework (as discussed by the Court): The Court examined the concept of "reimbursement" in the context of Section 7 (supply) and Section 15 (value of supply) of the GST Act, and Rule 33 of the CGST Rules on exclusion of expenditure incurred by a supplier acting as a "pure agent" of the recipient.

Interpretation and reasoning: The Court found that "reimbursement" in common parlance denotes repayment of what has already been spent/incurred, and is not, by itself, consideration for a service. However, the Court held that the present facts did not establish a true reimbursement or a "pure agent" arrangement under Rule 33. No contractual agreement evidencing a pure-agent relationship was produced despite being called for. The Court also noted that the applicant had paid amounts beforehand, rather than the intermediary first incurring liability and then being repaid. Further, foreign patent documents were issued in the applicant's name and did not show the intermediary acting in any capacity, reinforcing that Rule 33 conditions were not satisfied.

Conclusions: The intermediary was not treated as a "pure agent" and the amount described as "reimbursement" was not excluded on that basis. The Court nevertheless concluded that the payment corresponded to legal services received from foreign attorneys by the applicant, making the transaction taxable in the applicant's hands under reverse charge.

Issue (iii): Whether foreign patent attorney legal services are taxable in India; place of supply; inapplicability of exemption for "legal services"

Legal framework (as discussed by the Court): The Court applied Section 13(2) of the IGST Act to determine place of supply where supplier or recipient is outside India, and considered Notification No. 12 (exemption for specified legal services) and Notification No. 13 (reverse charge categories), as examined in the ruling.

Interpretation and reasoning: The Court characterized the service as legal service concerning patents and intellectual property documentation. For place of supply, the Court held that legal services are not covered by the specific exceptions in Section 13(3) to 13(13) of the IGST Act; therefore, under Section 13(2), the place of supply is the location of the recipient, i.e., in India. On the claimed exemption for "legal services," the Court rejected applicability of the exemption entry relied upon because the notification's terms "advocate" and "senior advocate" were required to be interpreted as per the meanings referenced in that notification, and the Court found no scope to include foreign advocates within that entry. Hence, exemption was held unavailable for legal services supplied by foreign attorneys to the applicant.

Conclusions: Legal services received from foreign patent attorneys were held to have place of supply in India and were held to be taxable; the exemption claimed for legal services was held inapplicable to foreign advocates/foreign attorneys for this purpose.

Issue (iv): Whether the activity is "in the course or furtherance of business" and impact on taxability/RCM

Legal framework (as discussed by the Court): The Court examined Section 7 regarding "supply," including the applicant's contention that the patent filing activity was not in the course or furtherance of business.

Interpretation and reasoning: The Court rejected the contention that the legal services were not connected with business. It reasoned that filing patents protects intellectual property in the relevant jurisdictions and is "very much in the course or furtherance" of the applicant's business. The Court further clarified that, for determining "supply" of the legal service, the relevant inquiry is whether the activity is in the course or furtherance of the supplier's business (foreign attorneys), and it had "no doubt" that the legal service rendered by the foreign attorneys constituted a supply.

Conclusions: The services were treated as a taxable supply; the applicant's "not in furtherance of business" argument was rejected and did not negate taxability or reverse charge liability.

Final determination applied by the Court (RCM): The Court held that GST is payable by the applicant on reverse charge basis on the foreign patent attorney component (described as reimbursement) for Japan, and the same treatment applies to similar reimbursements for other foreign patent filings such as USA and UK, specifically under the reverse charge entry applied by the Court.

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