R & D Service whether taxable U\Rule 4 of POP rules 2012

[Yatin Bhopi]

Dear experts

We are manufacturer of organic chemicals. We have also researchanddevelopment center in our factory where we are developing new products.

We have our US base parent company for them only we develop new products. Parent company will be sole owner of discoveries made in R & D center. All expenses incurred by us on R & D center which includes salary of employees reimbursed by parent company through quarterly invoice raised by us.

Our EA-2000 audit is going on and audit team is of view that service tax will be payable according to Rule 4 of place of provision rules 2012 i.e. we are doing R & D on goods which are reimburse by our parent company.

Please share your views

AI Summary

Export of service: R&D supplied to a foreign parent is outside taxable territory when no recipient provided goods are involved.
When an Indian entity conducts R&D for a foreign parent and invoices reimbursed expenses plus mark up, with all innovation rights assigned to the parent and no goods physically provided by the recipient, the service constitutes export of service under the Place of Provision Rules and the place of provision is outside the taxable territory, so service tax is not leviable on the output service; factual deviations such as recipient supplied goods or domestic sale arrangements may alter the tax outcome.