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Major GST Win: Clinical Trial Services for Foreign Clients Are Exports & Tax Free Retrospectively

By Aditya Bhattacharya

Contributed by Vipin Upadhyay

In a significant victory for the Indian pharmaceutical and research services industry, the Hon’ble High Court of Karnataka has ruled that clinical trial services and allied pharmaceutical R&D services provided to recipients located outside India qualify as “export of services” under GST law. The ruling also held that the key GST place of supply notification which clarified this position operates retrospectively, thereby invalidating long-standing GST demands for earlier years.

Background: GST Dispute on Clinical Trials

M/s Iprocess Clinical Marketing Pvt. Ltd., an Indian company engaged in conducting clinical trials and observations studies, entered into agreements to provide services to pharmaceutical and research entities located abroad.

Despite this, the GST authorities treated these services as domestic taxable supplies for the period April 2018 to March 2019, on the basis that the services were performed in India. They denied export status and demanded GST, arguing that the vital notification clarifying the place of supply was prospective only.

The Legal Issue

The core questions before the High Court were:

  • Do clinical trial and other pharma R&D services rendered in India to foreign recipients qualify as “export of services” under the IGST Act?

  • Does Notification No. 04/2019-Integrated Tax (dated 30 September 2019) operate retrospectively, especially for the period before its issuance?

    • Statutory Framework

    Section 13 of the IGST Act, 2017 determines the place of supply of services. Generally:

  • If a service recipient is located outside India, the place of supply is treated as the recipient’s location (making it an export under GST).

  • However, under Section 13(3)(a), where services are supplied in respect of goods made physically available to the service provider, the place of supply could be where the service is performed.

    • To remove ambiguity in the pharmaceutical sector, the Central Government issued Notification No. 04/2019-Integrated Tax under Section 13(13) of the IGST Act, clarifying that certain R&D services (including clinical trials) provided to foreign entities shall have the place of supply as the location of the recipient abroad.

    37th GST Council’s Role

    This notification was issued following recommendations made during the 37th GST Council Meeting (20 September 2019), where concerns were raised about competitive disadvantages faced by Indian pharma companies due to GST ambiguities on export of R&D services.

    High Court’s Key Findings

    On 8 December 2025, the Karnataka High Court delivered its judgment holding:

  • Clinical Trial Services Are Export Services

  • The petitioner’s clinical trial and pharma R&D services provided to foreign recipients satisfy the export conditions under Section 13(2) of the IGST Act.

  • The place of supply is the location of the foreign recipient outside India and hence such services are not subject to GST.

  • The Notification Is Retrospective

  • The Court examined the language, object, and context of Notification No. 04/2019 and held that it was clarificatory, elucidatory, and beneficial.

  • Relying on established precedents (including Vatika Township Pvt. Ltd.), the Court reaffirmed that clarificatory notifications operate retrospectively to remove doubts and prevent double taxation.

  • GST Demands Quashed

  • By applying the notification retrospectively, the Court quashed the GST demands raised on the petitioner for services supplied during April 2018 to March 2019.

  • Both the adjudication order and appellate order upholding the GST liability were set aside.

    • What This Means for the Pharma & R&D Sector

    Immediate Benefits:

  • Companies engaged in clinical trials and other pharma R&D services for foreign clients can treat such supplies as exports, free from GST, even for pre-2019 periods.

  • This eliminates legacy GST demands based on retrospective application of place-of-supply rules.

    • Broader Implications:

  • Reinforces the application of common law principles that clarificatory and beneficial notifications have retrospective effect.

  • Provides tax certainty for cross-border service providers in the pharmaceutical, biotech, and research sectors.

    • Tax Strategy & Compliance Insights

    Professionals and taxpayers may consider:

  • Re-opening past GST assessments where export status was denied for pharma R&D/clinical trial services.

  • Reviewing place-of-supply positions in light of this ruling for other cross-border services.

  • Evaluating how retrospective notifications impact input tax credits and refund positions.

    • Conclusion

    The Karnataka High Court’s ruling is a game-changer for Indian service exporters in the pharmaceutical R&D space. By affirming that exports of clinical trial services are non-taxable and that the clarifying a notification applies retrospectively, the court has provided robust legal support for international competitiveness and eliminated significant tax uncertainties.