GST on R&D Services
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.
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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.
Also, read about 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.
Also, read 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:
notfctn-4-2019-igst-english