GST on R&D Services

The GST vide Circular No.04/2019- Integrated Tax dated on 30th September 2019 has clarified the place of supply for research and development services related to the pharmaceutical sector. In order to prevent double taxation or non-taxation of the supply of service, the Government through this notification stated the place of supply for specified Reseach & Development services provided by Indian pharma companies to foreign service recipients. In this article, we look at the Place of Supply of R&D Services in detail. To know more about GST Registration

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Place of Supply

The

Place of supply for services should be the location of the recipient of services under satisfying the following conditions:

The supply of services from the taxable territory has to be made as per the agreement made between the service provider located in taxable territory and service recipient located in the non-taxable territory.
Also, such supply of services should satisfy any other conditions specified of export of services, except sub-clause provided at Section 2 of Integrated Goods and Services Tax Act, 2017.

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Place of Supply of Goods

Components under Research and Development services

The following are the components covered under the supply of research and development services by a person located in the taxable territory to a person located in the non-taxable territory: Integrated discovery and development Integrated discovery and development is the process which includes the discovery and development of molecules by the pharmaceutical sector for medicinal use. The following are the steps covered under this process:

Designing of the compound,
Biological activity,
Manufacture of target compounds,
Evaluation of the drug metabolism,
Stability study and
Long-term toxicology impact.

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Provisions of GST on Drug and Pharmaceutical Industry

Evaluation of new chemical/biological entities in animal models of disease

Under this process, the new chemical is developed to evaluate the gene and protein expression in response to animal disease. Also, this process seeks to discover that the substances present in such chemical can reduce or modify the hardness of diseases. Note: In this case, the chemical is supplied by the service to the recipient located in non-taxable territory.

Evaluation of biological entities in in-vitro assays/biological activity of chemical

The vitro research outside the animal is performed to develop an assay and then novel chemical under this research and development process. Note: In this case, the chemical is supplied by the service to the recipient located in non-taxable territory.

Drug metabolism and pharmacokinetics of new chemical substances

Under this process, new compound manufactured by the supplier can be provided as a new drug to treat human diseases in respect of stability in body fluids and stability in liver tissue and its effect on body tissues.

Safety Assessment/Toxicology

The safety assessment process involves the evaluation of new chemical substances in laboratory research animal models to support the filing of investigational drug application. And then the toxicology team will analyse the potential toxicity of a drug to enable fast and effective drug development.

Stability Studies

Stability studies are performed to support the formulation, development, safety and efficacy of a new drug. It is also done to evaluate the quality of the drug in its intended packaging configuration.

Bioequivalence and Bio-availability Studies

Bio-equivalence is a term used in pharmacokinetics to assess the vivo biological equivalence of two proprietary preparations of a drug. Bio-availability is a measurement of the rate and to which extent a therapeutically active chemical is absorbed from a drug product.

Clinical trials

Under clinical trials, the new drugs are developed for human consumption and would undergo testing to confirm its utility and safety before being registered for marketing. The clinical trials help in the collection of information related to drugs used by human bodies such as absorption, distribution, metabolism, excretion and interaction.

Bio-analytical studies

Bio-analysis will cover the quantitative measurement of drugs and their metabolites, and biological molecules in unnatural locations or concentrations and macromolecules, proteins, DNA, large molecule drugs and metabolites in biological systems. The notification No.04/2019- Integrated Tax for Place of Supply of R&D Services under GST is attached below for your reference:

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Frequently Asked Questions

Common questions about GST on R&D Services: Place of Supply Clarification.

The purpose of the GST Circular No. 04/2019-Integrated Tax is to clarify the place of supply for research and development services related to the pharmaceutical sector. It aims to prevent double taxation or non-taxation of the supply of such services by Indian pharma companies to foreign service recipients.

The place of supply for R&D services is the location of the recipient of services, provided that the supply of services from the taxable territory is made as per the agreement between the service provider located in the taxable territory and the service recipient located in the non-taxable territory. Additionally, such supply of services should satisfy any other conditions specified for the export of services, except sub-clause (a) of Section 2 of the Integrated Goods and Services Tax Act, 2017.

The components covered under the supply of research and development services include integrated discovery and development, evaluation of new chemical/biological entities in animal models of disease, evaluation of biological entities in in-vitro assays/biological activity of chemical, drug metabolism and pharmacokinetics of new chemical substances, safety assessment/toxicology, stability studies, bioequivalence and bioavailability studies, clinical trials, and bio-analytical studies.

Integrated discovery and development is the process that includes the discovery and development of molecules by the pharmaceutical sector for medicinal use. It covers steps such as designing of the compound, biological activity, manufacture of target compounds, evaluation of the drug metabolism, stability study, and long-term toxicology impact.

The evaluation of new chemical/biological entities in animal models of disease aims to discover if the substances present in such chemical can reduce or modify the severity of diseases. This process involves evaluating the gene and protein expression in response to animal disease.

Bioequivalence studies assess the in vivo biological equivalence of two proprietary preparations of a drug. Bioavailability studies measure the rate and extent to which a therapeutically active chemical is absorbed from a drug product. These studies are crucial in supporting the formulation, development, safety, and efficacy of a new drug.

Clinical trials are conducted to confirm the utility and safety of new drugs before they are registered for marketing. These trials help in collecting information related to how drugs are absorbed, distributed, metabolized, excreted, and interact within the human body.

Bio-analytical studies cover the quantitative measurement of drugs and their metabolites, biological molecules in unnatural locations or concentrations, macromolecules, proteins, DNA, large molecule drugs, and metabolites in biological systems. These studies are essential for evaluating the effects and behavior of new drugs.

The GST Circular No. 04/2019-Integrated Tax clarifies the place of supply for specified research and development services provided by Indian pharma companies to foreign service recipients. By defining the place of supply, the circular aims to prevent situations where these services might be subject to double taxation or non-taxation.