Preclinical trials, R&D Services exported to Foreign Clients, NOT taxable in India: HC

The Karnataka High Court in a recent case favoured the company’s view of categorising its services as exports, since the services provided by the company were received out of the country (India) and therefore should not be taxed in India. To support this ruling, the court cited provisions of Section 13(2) of the IGST Act, 2017, which says that the place of supply is generally the location of the recipient of services.

The High Court of Karnataka at Bengaluru has recently delivered a significant judgement in a case titled ‘Bioneeds India Private Limited and Others Vs Commissioner of Central Tax, Central Excise and Service Tax, Bengaluru, and other tax authorities’. The final decision was announced by the Honourable Justice Mr Krishna Kumar on December 11, 2025.

The company is engaged in conducting preclinical trials and studies on pharmaceuticals and non-pharmaceutical products for foreign and domestic customers. The petitioner company had challenged a few tax demands imposed by the Central GST authorities. The key issue raised before the court was “whether the services provided by the company to foreign clients should be treated as taxable services in India or as exports of services”.

Research studies on substances such as pharmaceuticals, agrochemicals, vaccines, medical devices, and other products are performed by the petitioner company. The process requires receiving test samples, conducting laboratory studies and trials, analysing results, and preparing detailed scientific reports that are sent to clients abroad.

The company argued that these activities are part of research services supplied to foreign clients and therefore should be categorised as exports and should not be taxed in India. Also, the payments are received in foreign currency. However, the tax authorities argued that services were performed inside India and therefore should be taxed under the GST Law. Further, claimed that since the testing work used to physically take place in the country, the place of supply was India.

However, the court rejected this argument of the tax authorities. To support this rejection, the court cited provisions of Section 13(2) of the Integrated Goods and Services Tax Act, 2017, which says the place of supply is generally the location where the services have been received. Since, in the present case, the clients were located outside India and research reports were also sent abroad, the petitioner was right in categorising the services as exports.

The court further observed that the samples used in research cannot be treated as “goods” for the purpose of applying Section 13(3)(a). Therefore, the general rule under Section 13(2) applies. Considering the aforesaid findings, the court quashed the challenged notices and order imposing tax demands on the petitioner, holding that the services provided by Bioneeds to foreign clients should be treated as an export of services and not taxed in India.