M/S Bioneeds INDIA Private Limited vs. Commissioner Of Central Tax (Audit)

Briefly stated, the facts giving rise to the present petitions are as under: The petitioner is stated to be engaged in conducting pre clinical trials and studies on pharmaceuticals and non pharmaceutical products for foreign and domestic customers. The petitioner prepares formulations by using test items supplied by the clients or procured under own arrangement, administers them to laboratory animals, study their responses and reactions, prepares and submits detailed reports to the clients. After notices, proceedings, audit enquiry etc., issued and conducted by the respondents, to which, the petitioner submitted replies, documents etc., and contested the same, the respondents issued the impugned show cause notice dated 29.09.2023 under HC-KAR NC: 2025:KHC:53151 Section 74 of the CGST Act for the tax period from July 2017 to March 2022, to which, the petitioner submitted a reply and challenged the same, by preferring W.P.No.26611/2023 seeking the aforesaid reliefs. Subsequently, during the pendency of this petition, the respondents issued one more impugned show cause notice dated 18.12.2024 for the tax period April 2022 to March 2023, pursuant to which, the petitioner got W.P.No.26611/2023 amended by challenging even this show cause notice and seeking further relief’s. Similarly, respondents issued a show cause notice dated 29.06.2020 proposing demands of service tax against the petitioner for the tax period from April 2016 to June 2017 under Section 73(1) of the Finance Act, 1994. The petitioner having submitted replies, the respondents proceeded to pass the impugned order in original dated 28.03.2024 confirming the demands which is assailed by the petitioner in W.P.No.21677/2024 to the extent of the demand under clause (i), (iii), (iv) together with respective portion of interest under clause(v) and penalty under clauses (vii), (viii) and (x) and for other reliefs. HC-KAR NC: 2025:KHC:53151

The respondents have filed their statement of objections and have contested the petitions and contend that the same are liable to be dismissed.

Since common questions of law and fact arise for consideration in both the petitions, they are taken up together and disposed of by this common order.

Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record.

In addition to reiterating the various contentions urged in the petitions and referring to the material on record, learned Senior counsel for the petitioner submits that the impugned notices and orders are illegal, arbitrary and without juri iction or authority of law and the same are contrary to the provisions contained in Section 74 of the CGST Act, 2017 and the IGST 2017 as well as the provisions contained in Section 73(1) of the Finance Act, 1994 and the same deserve to be quashed. It was submitted that the issue in controversy involved in the present petitions are directly and squarely covered by the judgment of this Court in the case of M/s.IProcess Clinical Marketing Pvt. Ltd., vs. The Assistant Commissioner of Commercial Taxes - W.P.10989/2025 dated HC-KAR NC: 2025:KHC:53151

2025. He would also placed reliance upon the following judgements: 882 (T-Mum) iv. Fertin Pharma R&D Pvt.Ltd vs CGST 2020 (38) GSTL 33 (T-Mum) v. Shayaro Bano vs UOI (2017) 9 SCC 1; petitioner is an OECD GLP certified Pre-clinical Contract Research organization (CRO) and performs safety, efficacy, kinetics, analytical and environment risk Assessment (ERA) studies for various clients located globally. We conduct/perform studies on different types of test item/substance like agrochemicals, HC-KAR NC: 2025:KHC:53151 pharmaceuticals, vaccines, medical devices, nutraceuticals, specialized chemicals, bio-pesticides etc. The workflow write- up/chart of the activities of the petitioner is as under: Business Development Team(BD) talks to clients/sponsors and in consultation with the Head of Department (HOD) and technical team shares proposal and closes accordingly. ↓ Post approval and sharing of PTD (Project Transfer Document) to respective PM (Project Management), a Study Director ( ) is identified and required quantity/volume of test item/substance will be calculated and shared to clients/sponsors based on studies recommended ↓ If the test item/substance is to be received from overseas/outside India, then permit/approval to be taken for pharmaceutical/vaccines from concerned Indian authority ↓ Once the test item/substance is received, it will be stored in Test Item Control Office(TICO) which is a secured area for maintaining and dispensing of test item/substance ↓ Based on the list of studies allotted, PM will share a study schedule and map status of the studies and also raising of invoices. A study plan/protocol will be shared, and the first invoice will be raised ↓ As per approved study plan/protocol, study will be initiated. TICO issues requested quantity/volume of test item/substance to ↓ During the course of conduct of study, different audits (by Quality Assurance (QA)will happen witnessing the reliability of the ongoing progress/conduct. Wherever necessary different support group such as Analytical, Bioanalytical, Clinical pathology, Pathology and Statisticians will offer internal support ↓ Based on the raw data generated, prepares a Study Report (SR) and draft report is shared to sponsor and PM raises the final invoice ↓ will archive all data/communication etc in the ARCHIVES (ARC) HC-KAR NC: 2025:KHC:53151 ↓ After completion of all studies, remaining quantity of test item/substance will be either sent to sponsor or will be disposed-off as per standard procedures and documented.

As rightly contended by the learned Senior Counsel for the petitioner, the issue in controversy involved in the present petitions as to whether export of pre-clinical services by the petitioner was exigible/amenable to service tax/GST is directly and squarely covered by the judgment of this Court in IProcess Clinical Marketing case supra, this Court held as under:-

As rightly contended by the learned Senior counsel for the petitioner, a perusal of the impugned order will indicate that the respondents have taken note of the aforesaid notification dated 30.09.2019, wherein it is specifically declared and clarified by the Central Government that the place of supply of services, including the nature of services as provided by the petitioner by way of the clinical trials, shall be the location of the recipient of such services, subject to fulfillment of certain terms and conditions. In the instant case, it is an undisputed fact as borne out from the material on record, that the place of recipient of the services provided by the petitioner is in USA, which is outside the territory of India and in a non-taxable territory and consequently, by virtue of the aforesaid notification, the petitioner could not have been saddled with the liability to pay GST. HC-KAR NC: 2025:KHC:53151

Insofar as the findings recorded by the respondents that the said notification is prospective and not retrospective in its nature, application and operation is concerned, it is pertinent to note that at the 37th GST Council Meeting conducted / held on 20.09.2019, Item No. 5, which came up for consideration / discussion, was in relation to a request for clarification on GST related export of services with the pharmaceutical sector. The GST Council has made the following recommendations: Sl. No. Proposal Justification Fitment Committee Recommendations 5 Request for clarification on GST related to 'export of services' in pharmaceutical sector

Following are R&D services provided by Pharma companies to foreign clients: -

Clarification is needed whether pharma R & D services provided to foreign clients falls within Section 13(3)(a) of the IGST Act, 2017, the place of supply where the location of the recipient is outside India, shall be the location where the services are actually performed.

In pharma R&D services, client provides reference materials, sample drugs, reagnet etc. All these R&D services are administered on the materials supplied at the laboratory of hte pharmaceutical industry. Further it is to say that, such materials supplied by the client gets consumed in the process.

It is important to determine whether service provided fall within the meaning of "goods that are made physically available, by the receiver to the service provider", under section 13(3)(a) of IGST Act, 2017. Education Guide of Service Tax released by CBEC answers the questions as below:-

The above clarification implies that samples given by foreign clients to Indian pharma companies should be goods and such goods should temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered.

As is evident from judicial precedents [Vikas Sales Corporation Vs. Commissioner of Commercial Taxes], in order to be considered "goods", the article under consideration shall be a "marketable commodity", i.e. having the following features - (i) It should have an intrinsic value; (ii) It should be freely transferable. As samples provided by oversea clients are in the nature of chemical or biological molecules which are not marketable commodities. Such samples are consumed in order to develop final product by the foreign clients. Even if we consider such sample molecules as goods, as per the Education Guide of Service Tax, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in the category of Section 13(3)(a) of IGST Act, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of HC-KAR NC: 2025:KHC:53151 the product by the manufacturer, to carry for door-to-door surveys.

Prima facie, few samples given by foreign clients to Indian pharma do not make place of supply of specific R&D services as location of service provider as per Section 13(3)(a) of IGST Act and hence such specific services rendered by Indian pharma qualify as 'export of services'

On 27.04.2018, the Finance Secretary observed in the file F.No. 345/58/2018-TRU that "We must follow the best international practice in this. We must change IGST law for this if need be. India has a great potential for service export and we must not let it lose competitive edge. Please find a way out. "An OM dated 14.05.2018 was sent from TRU to GST Policy Wing accordingly. But no reply has been received on the matter.

Section 13(3)(a) was amended vide IGST(Amendment) Act, 2018 to exclude goods 'for any other treatment or process' without being put to use in India other than required for such treatment or process. Sample molecules used in pharma R&D activities undertaken by Indian pharma companies. Such sample molecules are not used in India for any other purpose.

Instead of tweaking IGST Act which may have implicaiton for place of supply of other intermediary services too, as there is provision under Section 13(13) of IGST Act which empowers the Central Government to notify any service or circumstances in which the place of supply shall be the place of supply of effective use or enjoyment of service in order to prevent double taxation or non-taxation of the supply of service, we may issue a notification under Section 13(13) of IGST Act, to notify the place of supply of specific R&D services as listed in para 2 when provided by Indian pharma companies to foreign service recipients, to be the place of effective use and enjoyment of a service i.e. location of the service recipient. HC-KAR NC: 2025:KHC:53151

As can be seen from the aforesaid recommendations by the GST Council in its aforesaid meeting, it was recommended to issue a notification under Section 13(13) of the IGST Act to notify that the place of supply of specific R & D services, as listed in para-2 of the recommendations, when provided by Indian pharmaceutical companies to foreign service recipients, such place of the recipients shall be the place of effective use and enjoyment of the service, i.e., location of the service recipient and the relevant portion of the said recommendation at Sl.No.11 of the said minutes of the meeting at Item No.5 specifically refers to clinical trials conducted by the petitioner.

In this context, a perusal of the notification at Annexure - G dated 30.09.2019 will fairly indicate that the same was issued pursuant to the aforesaid decision taken in the 37th GST Council Meeting and consequently, having regard to the fact that the recipient of services of the provided by the petitioner is located in USA, pursuant to a tripartite agreement between the petitioner, New York School of Medicine and Administrative Unit of the New York University at New York and the petitioner's associated company at USA for conducting clinical observation studies, I am of the considered opinion that the said notification would operate retrospectively in relation to the petitioner for the period prior to 30.09.2019 also including the subject period, which is April, 2018 to March, 2019. HC-KAR NC: 2025:KHC:53151

Under identical circumstances, this Court in W.P.No.9505/2021 and connected matters dated 26.11.2025, has held as under: "In these petitions, the petitioners seek the following reliefs: "In W.P.No.9505/2021: (i) quashing the impugned reassessment order dated 31.03.2021 passed by the 1st Respondentfor RC No.581409256 under Sections 7-A(1), 5-A(2-A) and 7-A(2) of the Karnataka Tax on Luxuries Act, 1979 (Annexure-'A'); (ii) quashing the impugned demand notice in Form VI dated 31.03.2021 bearing T. No.129 for RC No.581409256issued by the 1st Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B'); (iii) quashing the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C'); (iv) declaring that Sections 3-E(1) and 2(1-C) of the Karnataka Tax on Luxuries Act, 1979, are ultra vires Article 246(3) read with Entry 62 of List II in Schedule VII to the Constitution of India, 1950, if the said provisions are construed so as to provide for the levy of tax under the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units; (v) declaring that the levy of tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units is ultra vires Arctiles 14 and 21 of the Constitution of India, 1950; and (vi) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity. In W.P.No.9378/2021: (i) stay the operation of the impugned reassessment order dated 31.03.2021 passed by the 1st Respondent for RC 544413134 under Sections 9(1)(b), 5-A(2-A) and 7of the Karnataka Tax on Luxuries Act, 1979,read with Rule 6(3) of the Karnataka Tax on Luxuries Rules, 1979 (Annexure 'A'); (ii) stay the operation of the impugned demand notice in Form VI dated 31.03.2021 for Regn. HC-KAR NC: 2025:KHC:53151 CertificateNo.544413134 issued by the 1st Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B'); (iii) stay the operation of the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C'); (iv) pass ad-interim ex-parte ordersin terms of VI.(i) to VI.(iii) above; and (v) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity.

A perusal of the material on record will indicate that the petitioners are hospitals having Intensive Care Unit ('ICU' for short) facilities, comprising of exclusive / independent ICU units for its patients. On 25.03.2021, 20.12.2019, 23.03.2021, 20.12.2019, 05.03.2022, and HC-KAR NC: 2025:KHC:53151

2022, the first respondent issued notice to the petitioners' hospital respectively proposing to levy luxury tax on ICU charges collected by the petitioners for patients admitted in the ICU for the assessment years April 2015 - January 2016, April 2015 - March 2016, April 2015 - January 2016, April 2015 - March, 2016, April 2013 - March 2014, April 2014 - March 2015. The petitioners submitted reply dated 03.04.2021, 17.01.2020, 30.03.2021, 27.12.2019, 15.03.2022 and in W.P.No.6804/2022, the petitioner has not submitted its reply, inter alia contending that the petitioners had not collected luxury tax from the patients admitted to ICU during the said assessment years and also that having regard to the amendment to Section 3-E of the Karnataka Tax on Luxuries Act, 1979 ('the said Act, 1979' for short) with effect from 01.04.2016 vide Act 5/2016, having regard to the State Government Notification dated 20.01.2016 issued by the respondent- State in relation to exemption from payment of luxury tax towards charges collected in respect of ICU units in hospitals and the amended provisions contained in Section 3-E of the said Act, 1979, with effect from 01.04.2016 vide Act 5/2016, the said exemption would operate and apply retrospectively and retroactively since the same is by way of a declaration / clarification and consequently, the petitioners would not be liable to pay luxury tax on charges collected towards ICU units from its patients. Pursuant to the aforesaid reply submitted by the petitioners, the first respondent proceeded to pass the impugned assessment order and demand notice dated 31.03.2021, impugned assessment order and demand notice dated 31.03.2021, assessment order and demand notice dated 30.03.2021, assessment order and demand notice dated 31.03.2021, assessment order dated 28.03.2022 and assessment order and demand notice dated 29.01.2022 rejecting the claim of the petitioners. Aggrieved by the impugned assessment orders and demand notice, the petitioners are before this Court by way of the present petitions.

Per contra, learned AGA and learned HCGP, on behalf of the respondents would support the impugned orders and submit that the Notification dated 20.01.2016 as well as the amended provision of Section 3-E of the said Act of 1979 were prospective in nature and application and consequently, there is no merit in the petitions and the same are liable to be dismissed. HC-KAR NC: 2025:KHC:53151

Before adverting to the rivals submissions, it would be necessary to extract Section 3-E of the said Act, 1979, as it stood prior to amendment by Act 5/2016 with effect from 01.04.2016, which reads as under: ""There shall be levied and collected tax at the rate of 8% on the charges collected for luxuries provided in a hospital in a hospital in a room such as accommodation, air- conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, where such charges are more than Rs.1000/- per day per room."

By Act 5/2016 with effect from 01.04.2016, the aforesaid provision was amended to read as under: "3-E. Levy and collection of tax on luxury provided in a hospital .-[(1) There shall be levied and collected a tax at the rate of eight per cent on the charges collected for luxuries provided in a hospital in a room such as accommodation, air conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, [other than facilities provide in a Intensive Care Unit (ICU)] where such charges are more than one thousand rupees per day per room.]"

The said amendment was preceded by the State Government Notification dated 20.01.2016, which also reads as under: NOTIFICATION Whereas Section 3-E of the Karnataka Tax on Luxuries Act, provides for levy of tax on luxuries as follows: "There shall be levied and collected tax at the rate of 8% on the charges collected for luxuries provided in a hospital in a hospital in a room such as accommodation, air- conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, where such charges are more than Rs.1000/- per day per room." Whereas State Government is of the opinion that Luxury Tax on ICUs provided in the Hospital shall be exempted from the Luxury Tax.

The aforesaid provisions contained in Section 3-E (pre amendment and post amendment) and the aforesaid notification dated 20.01.2016, will clearly indicate that the respondent-State have categorically exempted payment of luxury tax on charges collected by hospitals towards ICU charges from its patients. The only question that arises for consideration in the present petitions is as to whether the said amendment to Section 3-E of the said Act, 1979, exempting payment of luxury tax on ICU charges collected from patients, is retrospective / retroactive or whether it is retrospective / retroactive in nature and application, as contended by the petitioners, or as to whether it is prospective, as contended by the respondent-State. In this context, it is relevant to state that it is trite law that any amendment / legislation, which merely clarifies, elucidates or declares an earlier existing provision would be retrospective as held by the Constitution Bench of the Apex Court in the case of COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED in (2015) 1 SCC 1, wherein it is held as under:

It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See CED v. M.A. Merchant [1989 Supp (1) SCC 499 : 1989 SCC (Tax) 404] .)

We would also like to reproduce hereunder the following observations made by this Court in Govind Das v. ITO [(1976) 1 SCC 906 : 1976 SCC (Tax) 133] , while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 1-4-1962, the date on which the Income Tax Act came into force : (SCC p. 914, para 11) “11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that HC-KAR NC: 2025:KHC:53151 ‘all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.’” (emphasis supplied)

In CIT v. Scindia Steam Navigation Co. Ltd. [AIR 1961 SC 1633 : (1962) 1 SCR 788] , this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year i.e. the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year."

As stated supra, any registration / amendment if clarificatory, elucidatory or declaratory would be retrospective / retroactive in nature and application. In this context, it is relevant to state that originally that prior to amendment, charging Section i.e. Section 3-E of the said Act 1979, specifically provided for payment of luxury tax on charges collected for luxuries provided in a hospital in a room including accommodation, air conditioning, telephone, telephone calls, etc., where charges are more than Rs.1000/- per room. However, pursuant to the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act of 1979, the said charging provision, which directed levy of luxury tax on charges collected from the hospital towards accommodation, air condition, etc., has been clarified by stating that the charges collected from patients admitted in ICU would be exempt; it follows there from while originally / free amendment, all facilities attached to a room / accommodation in hospital would be available to payment of luxury tax come on the amendment, merely clarifies / declares that the said liability to pay luxury tax would not apply to the patients admitted to ICU and charges collected in this regard by the hospitals.

Learned AGA submits that in the event the petitioners had already collected luxury tax along with ICU charges from the patients for the assessment year 2015- 16, the question of granting any relief in favour of the HC-KAR NC: 2025:KHC:53151 petitioners would not arise in the facts and circumstances of the instant case.

It is also relevant to state that by way of an amendment, the phrase “other than facilities provided in intensive care unit (ICU)” has been inserted by way of clarification / declarations / elucidation by making it clear that all charges towards accommodation rooms in hospital except ICU charges facilities provided in ICU accommodation would be available to luxury tax. In this context also, it is significant to note that amendment which has been inserted to clarify an existing provision is sufficient to come to the conclusion that it relates back to the date of the original provision and the same cannot be treated or construed as prospective as wrongly held by the respondents and averment in this regard is also made in the petitions.

Under these circumstances, I am of the considered opinion that the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act, 1979, specifically declaring, clarifying and elucidating that luxury tax on charges received / collected from patients admitted to in ICUs, would be exempt from payment of luxury tax since the said provision would not apply to such charges is clear from the said amendment. Under these circumstances, having regard to the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act, 1979, which should operate and apply retrospectively / retroactively to previous assessment years including the subject assessment years, the impugned order deserves to be quashed.

In the result, I pass the following: ORDER (i) These writ petitions are allowed. (ii) The impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9505/2021, the impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9378/2021, the impugned assessment order and demand notice dated 30.03.2021 at Annexures - A and B in W.P.No.9491/2021, the impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9507/2021, the impugned HC-KAR NC: 2025:KHC:53151 assessment order and demand notice dated 28.03.2022 at Annexures - A1 and A2 in W.P.No.8149/2022 and the impugned assessment order and demand notice dated 29.01.2022 at Annexures A and B in W.P.No.6804/2022 passed by respondent No.1, are hereby set aside."

It is well settled that all amendments which are beneficial in nature, which are elucidatory and clarificatory would operate retrospectively when they seek to clarify and elucidate certain existing facts and situations and consequently, having regard to the specific observations made in the 37th GST Council Meeting, whereby it was resolved to clarify the tax liability in GST liability in relation to foreign recipients for R & D services provided by Indian pharmaceutical companies, the impugned notification at Annexure - G dated 30.09.2019 is clearly retrospective being clarificatory and elucidatory in nature and consequently, both the respondents clearly fell in error in coming to the conclusion that the said notification is prospective and not retrospective and would not be applicable for the period prior to 30.09.2019. It follows there from that if the notification dated 30.09.2019 is held construed and treated to be retrospective in nature, application and operation, the petitioner would be entitled to the benefit of the said notification and cannot be saddled with the liability to pay GST, as wrongly demanded by the respondents.

Under identical circumstances, the Apex Court in the case of Suchitra Components Ltd. v. Commissioner of Central Excise, Guntur reported in (2006) 12 SCC 452, has come to the conclusion that apart HC-KAR NC: 2025:KHC:53151 from amendments to statutory provisions which are clarificatory and elucidatory are retrospective, even circulars, notifications etc., which are clarificatory and elucidatory are also retrospective in nature and held as hereunder:

We have heard Mr A.R. Madhav Rao, learned counsel for the appellant and Mr K. Radhakrishna, learned Senior Counsel for the respondent. We have perused the orders passed by the lower authorities and also of the Tribunal. The point raised by the learned counsel for the appellant is covered by the recent judgment of this Court in CCE v. Mysore Electricals Industries Ltd. [(2006) 12 SCC 448 : (2006) 204 ELT 517] In the said judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively.

In view of the submission made by the learned counsel for the appellant and also of the judgment of this Court in Mysore Electricals [(2006) 12 SCC 448 : (2006) 204 ELT 517] , the appellant is liable to pay the duty from 29-8-1990 i.e. from the date of issue of the show-cause notice and not from 1-3-1990 as ordered by the Tribunal.

The civil appeal stands allowed on the above terms. No costs."

In the result, I pass the following:

It is also relevant to state that the samples sent by the foreign clients, whether pharma or non-pharma are not goods, on which operations are done in terms of Section 13(3)(a) of the IGST Act so as to attract the said provision which relates to testing or operations on goods which aspect is clearly dealt with in 37th GST Council Meeting Agenda and minutes to term the same as exports. Further, GST being a consumption tax in India, cannot be charged on exports and pre-clinical services in pharma sector and analysis of samples in non-pharma sector cannot be completed without the reports being sent abroad and the mere performance in India is of no value to the customer unless he gets the reports. Similarly, the position in services tax, being the precursor to the GST regime, contains Rule 4(a) of the Place of Provision of Services Rules, 2012, read with Rule 6A of the Service Tax Rules, 1994 dealing with export of services which are in pari materia with the current rules. It is also pertinent to note that as held by this Court in HC-KAR NC: 2025:KHC:53151 IProcess Clinical Marketing’s case supra, the aforesaid Notification extending benefit to the pharma sector being retrospective in nature, application and operation, silence in the notifications as regards non-pharma products does not mean that they could be taxed which would tantamount to under- classification, particularly when application of Section 13(2) cannot be limited by Section 13(13) of the IGST Act. It must also be borne in mind that the provisions of the IGST Act encompass Section 13 as the guiding principles regarding place of supply when either the location of the supplier or the recipient is outside India; Section 13(2) is the general rule that specifies that place of supply of services would be the place of location of the recipient except in cases covered by sub sections (3) to (13).

The relevant provisions relating to GST are set out hereunder: Section 2(6) “export of services” means the supply of any service when,–– (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange 1[or HC-KAR NC: 2025:KHC:53151 in Indian rupees wherever permitted by the Reserve Bank of India]; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where the services are actually performed, namely:- (a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services: Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services: HC-KAR NC: 2025:KHC:53151 Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process;

According to the respondents, fixing the place of supply where the services are actually performed under Section 13(3)(a) would mean that it would not be exports and would be taxed in India. It is also contended that if the place of supply is in India, the provisions of Section 2(6) would not be satisfied in respect of the place of supply being outside India and therefore, it would fail the test of being export of services though the other clauses may be satisfied.

The said contentions of the respondents cannot be accepted since as stated supra and held by this Court in IProcess Clinical Marketing’s case supra, the GST council deliberated on this very aspect and came to a conclusion that the samples are not goods and therefore operations envisaged under Section 13(3)(a) should be in respect of goods; in the instant case, the samples would become goods only after they are marketable which process HC-KAR NC: 2025:KHC:53151 happens only after the reports sent to the foreign customer would convince them that the formulation can be marketed at all; these are pre-production testing of materials and formulations which may never reach the market at all and therefore, since they are not covered by Section 13(3)(a), the general rule found in Section 13(2) would apply and if the recipient of services is located outside of India, they would satisfy the test of being exported.

Section 13(13) of the IGST Act, 2017 states as under: (13) In order to prevent double taxation or non- taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service.

This provision is resorted to prevent double taxation or non taxation or for uniform application of rules by way of the government issuing a notification to remove the anomalies or doubts and to specify that the place of supply of a service would be the place of effective use and enjoyment of a service; in the instant case, the aforesaid notification has been issued in terms of ensuring uniform application of the rules for pharma research and HC-KAR NC: 2025:KHC:53151 development and allied services and to state that Section 13(2) would apply and not Section 13(3) and therefore, since the effective use and enjoyment is outside India, the benefit of exports is being extended to the petitioner also; further, though the pharma sector only is covered, that by itself would not indicate that the non- pharma sector is excluded by implication especially when the GST council discussed only the pharma sector related issues as that was brought to its notice.

As stated earlier, even without a notification being issued under Section 13(13), by the application of the said provision itself, it is clear that the analogy of the samples being not goods and that the reports are sent outside India would equally apply to non-pharma sector and there is therefore no need to create an invidious classification where none exists. As rightly contended by the learned Senior Counsel for the petitioner, even without a notification being issued under Section 13(13), by the application of the general rules in Section 13, it would be more appropriate to classify the same activities in non-pharma sector under Section 13(2) rather than Section 13(3). It must also be borne in mind that notification under Section 13(13) can only apply HC-KAR NC: 2025:KHC:53151 the provisions of Section 13 to fix uniformity and cannot go beyond the said section and in doing so, the principles in Section 13 only are to be followed except that the criteria of effective use and enjoyment will determine the place of supply. Under these circumstances, the various contentions urged by the respondents cannot be accepted.

As stated supra, the service tax provisions relating to export of services and place of performance were in pari materia with the above provisions in the GST regime and are a precursor to the said GST regime; it is an undisputed fact as borne out from the material on record that whether the reports pertain to pharma or non-pharma sectors, they are sent outside India and it is the result of these reports which enable the person to say that they have completed the services; mere performance in India would therefore not be sufficient unless they are communicated to the person outside India and therefore, since the completion of the services is rendered outside the taxable territory, it has to be treated as exports and therefore, under the GST regime they would fall under Section 13(2) of the IGST Act and the appropriate rule in service tax regime would be Rule 3 of the Place of Provision of Services HC-KAR NC: 2025:KHC:53151 Rules, 2012 which point out to the location of the recipient of services being the place of provision of services, which being outside India, other conditions being fulfilled, the same would be considered exports.

In view of the aforesaid facts and circumstances, I am of the considered opinion that the impugned notices and orders passed by the respondents are illegal, arbitrary and without juri iction or authority of law and the same deserve to be quashed.

In the result, I pas the following:- ORDER (i) WP 26611/2023 is hereby partly allowed; (ii) The impugned Show Cause Notice at Annexure A dated 29.09.2023 and the impugned Show Cause Notice at Annexure S dated 18.12.2024 and further proceedings pursuant thereto are hereby quashed; (iii) WP 21677/2024 is hereby partly allowed; (iv) The impugned Order-in-Original at Annexure-A dated 28.3.2024 to the extent of demand under clauses (i), (iii) and (iv) r/w respective portions of interest under clause (v) and penalty HC-KAR NC: 2025:KHC:53151 under clauses (vii) and (viii) and (x) of the impugned order and further proceedings pursuant thereto are hereby quashed. (S.R.KRISHNA KUMAR) JUDGE