Brief facts:

1. This ruling is in pursuance to the direction given vide Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2022/21 dated 27.9.2022, wherein the following order was passed viz [relevant extract]

" 10. The appellant has now presented new.fucls v'hich hcwe not heen placed before the GAAR md the ruling given by the GA,4R is thus based on diflerent .focts. Further, us the appellant have gtt the suhject advance ruling based on different sel offucrs, the advonce ruling given is not valid in view of the provisions ofSection 103(2) and 101(l) of the CGST Act. 2017.

11 In view of the obove cliscussion we find it .fit to remand lhe motter to lhe Authoritl, for Advance Ruling i.e. the GAAR for fresh decision. The GAAR will ldke into consideralion all aspects of lhe mutler and decide the case afresh following the principles of naturul justice.

12. ln view oflhe foregoing, the Advance Ruling in question is set aside and the case is remanded back to the Gujarat Authority for Advance Ruling (GAAR) to issue necessary ntling after hearing the appellant afresh. "

2. Briefly, the facts are that the applicant, M/s. Hilti Manufacturing India (P) Ltd., is engaged in the manufacture and supply of diamond cutting tools, other innovative tools required by the construction industry and providing in-house research & development service on diamond inserts.

3. The applicant is located at Plot No. 423, GIDC Estate, PO Kabiilpore Navsari, Gujarat-396424. Their additional manufacturing facilities are located at Plot No. 244 to 251, 48 & 29(Unit-I) and Plot No. C-IB,, 53/54-1 &2 GIDC lndustrial Estate, Sisodra, Navsari (unit-3). The applicant has a separate Research and Development [for short - 'R&D'] unit wherein activities are carried out for their own purposes as well as for other customers; that they carry out R&D activities on behalf of entities situated outside India i.e. on the product samples/goods sent by the foreign entities for R&D purposes and they submit a detailed report thereafter.

4. The applicant is a part of Hilti group of entities, the principal company being Hilti Aktiengesellschaft, located at Feldkircherstrasse 100, postfach 333, Principality of Liechtenstein, g4g4 FL-9494, Leichtenstein [for short ,HAc']. tn the application before the advance authority, the applicant stated that they had entered into an agreement with HAG for carrying out various R&D activities on the product samples provided to the applicant in India. A copy of the agreement was submitted as Annexure-2. The results of these activities undertaken by the applicant are then provided to the foreign company comprising of findings, performances, parameters, know-how, inventions, developed processes, objects and programs in the form of a report and an illustrative copy of such an R&D report was submitted as Annexure-3.

5. The applicant furlher stated that they raise periodic invoices for such services on the foreign customer for which consideration is received in foreign currency; that the invoices raised is inclusive of IGST @ 18% on the taxable value; that they are discharging IGST on the R&D services provided to fbreign companies. Illustrative copy of the invoice & BRC submitted as Annexure-3.

6. The applicant is before us under the belief that the services rendered by them falls under 'export of service' and is therefore exempt from IGST.

7. The applicant has further stated the following facts viz:

that in terms of the agreement with HAG they are required to conduct R&D, testing & engineering activities for developing new products & processes;

the results are communicated to HAG by way of detailed reports;

that prototypes reouired for performance testinq are manufactured by the applicant.

that they purchase raw material/consumables, etc. hire personnel & undertake R&D activities:

that certain material [which are not substantial such as consumables /capital goods including tools,reference material such as competitor products. show piece product  batteries are provided by HAG that this is made available only as a matter of convenience otherwise most of the materials can be sourced directly from the third party;

that no service is performed on the consumables, tools, reference materials etc received from HAG; that they further are consumed in the process of R&D :

prototypes on which testing activity is done gets exhausted in the process and is not supplied by the applicant to M/s. HAG;

that it is not mentioned in the agreement dated 18.3.2014 that the goods on which the applicant needs to carry out the R&D activities are supposed to be supplied by HAG;

that the applicant raises periodic invoices & the consideration is received by the applicant in convertible foreign currency.

8. On the merits, the applicant has stated as follows viz:

9. The Advance Ruling following questions were raised before the Authority of viz

(i) whether the services provided by the applicant to the entities located outside India is covered under Section I 3 (2) of the Integrated Goods and Services Tax Act. 2017

(ii) whether the services provided by the applicant is liable to Central Goods and Service Tax and State Goods and Service Tax or Integrated Goods and Services Tax or is it eligible to be treated as a 'zero rated supply' under Section 16 of the Integrated Goods and Services Tax Act, 2017.

10. The GAAR vide its order No. GUJ/GAAR/R12612021 dated 9.7.2021 , while deciding the issue, held as follows:

11. The GAAR, vide its earlier order dated 9.7.2021 concluded that the subject services did not fall within the ambit of section l3(2), IGST Act and hence were liable to CGST and SGST.

12. Feeling aggrieved, the applicant filed an appeal before the Gujarat Appellate Authority for Advance Ruling IGAAAR]. The GAAAR, vide its aforementioned order dated 27 .9.2022 supra, held as follows:

On the aforementioned findings, the matter was remanded back to the GAAR with the directions as mentioned in para (1) supra.

13. The applicant vide his submission dated 28.2.2023, has now stated as follows viz:

that he is required to conduct R&D, testing and engineering activities for developing new products & process; the result are then communicated to HAG; the prototypes required for performance testing are manufactured bv the aoplicant;

a substantial portion of the raw material involved in making the prototype is sourced by appticant; that certain material are provided by HAG: that these are made available by HAG, as a matter of convenience;

that no services are performed on such small portion of consumables' tool' reference material etct

that the prototypes developed by the applicant on which testing is carried out gets exhausted and is not supplied to HAG;

that the reports & findings derived by the applicant is supplied to HAG.

14. Personal hearing was held virtually in the matter on 2332023 wherein the applicant reiterated his submission. They relied on the case of M/s. Sutherland Mortgage Services lnc delivered by the Kerala High Court further adding that Revenue had not filed any appeal against the same. It was further informed that they will submit a list of consumables/goods supplied by HAG. Thereafter, in their additional submission dated 30.3.2023, it was stated that

certain material (which are not substantial) such as consumables/capital goods including tbols, reference material such as competitor products, showpiece products, barriers etc are at times provided by HAC.

that no services are performed on such small portion of consumables, tools, reference material etc. received f'rom HAG. They are merely used./consumed in the process of R&D services i.e. in designing and manufacturing ofprototypes and its testingihereon;

that the said materials (though not substantial) are made available by HAG as a matter of convenience only (as they are readily available with HAG) otherwise most of these materials can be bought/sourced directly from the third party

the details of goods received lrom HAG by the applicant for the VORTEX-2 project and the manner of use of such items is as under

Above listed materials are imported fronr HAG to support laster exccuti on (immediate availability) for the development project. Listed products (except for set plate) can be purchased in India

that in addition to the above consumables/goods supplied by HAG for the said VORTEX 2.0 project, a substantial amount of consumaable/goods are procured directly , by the applicant from third paties, which are consumed in- the process ro. f-riaing R&D activity;

that during the span of such project which was for approximately 2 years. more than 900 items were procured during the yeu 2019 - 2ozi'for multipie projects (incruding voRTEx 2.0) whereas only 6 items were sourced from HAG. Moreorei all these itemi (both directly procured and sourced I'rom HAG) have been consumed in the R&D process.

Discussion and findings

15. At the outset, we would like to state that the provisions of both the CGST act  and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specificalry made to such dissimilar provisions, a reference to the GGST Act would also mean a reference to the same provisions under the GGST Act.

16. we have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made during the course of personal hearing and additional submission post the said personal hearing we have also considered the issue involved, the relevant facts & the applicant submission/interpretation of law in respect of question on which the advance ruling is sought.

17. Before dealing with to the submissions made by the applicant, we would like to reproduce the relevant sections, for ease of reference:

CENTRAL GOODS AND SERVICE TAX ACT.2OI7

Section 95. Definitions of Advance Ruling.-

18. On a bare reading of section 97(2) of the CGST Act, 2017, we are mindful of the fact that rulings under AAR can be sought only on seven issues listed under sub-clauses 2(a)to (g). 'Export ofservices' is further defined under section 2(6) of the IGST Act,2017. We are also aware of the directions in the appellate order asking us to take into consideration all aspects of the matter and decide the case afresh following the principles of natural justice.

19. Thus, ideally, AAR cannot admit an application seeking a ruling on a question pertaining to place of supply, more so since it does not find a mention under section 97(2) of the CGST Act, 2017. We are of the considered view that being a creature of the Act, we cannot go beyond the diktats of what is spelt out in the Act. However, having said so we are also mindful of the fact that in the first round when the application u'as made before the Authority, the same was entertained and a ruling was given. In-fact we are also aware of the fact that no appeal was preferred against the ruling dated 9.7.2021 challenging the jurisdiction of the AAR to rule on the question of place of supply. This being the factual position, we proceed to decide on the merits of the matter in the backdrop of the judgement of the Hon'ble High Court of Kerala in the case of M/s. Sutherland Mortgage Services Inc. [WP(C) No.3263412019(D) dated 3.2.2020.

20. Now the applicant is before us arguing that the correct facts were not presented before the GAAR in the earlier round, the applicant we observe has taken a complete U tum and stated that he is required to conduct R&D, testing and engineering activities for developing new products & process; the result are then communicated to HAG by way of detailed reports; that the prototypes required for performance testing are manufactured by the applicant. On being specifically asked during the course of personal hearing, the applicant has also submitted the details of goods received from HAG and the manner of use of such items.

21. On summarizing what is stated before us, we find that the applicant develops a prototype. Some of the materials/goods that go into the making of the prototype are supplied by HAG [the recipient]. The protolype is not supplied to the recipient as it gets consumed in the process. After conducting the R&D, testing and engineering activities for developing new products & process, the applicant communicates the result to HAG. It is on this activity that the applicant ruling from the GAAR 

22. Provisions of section l3 of the IGST Act, 2017 shall apply in so far as deteminins the place of supply of services, is concerned.

23. We have gone through the sub-clauses 2 to l3 of section 13 of the IGST Act, 2017, mentioned supra. we find that that sub-clause 4 to 13, are not related to the issue on hand. what is in contention is sub-clause 2 and 3 of section 13 of IGST Act,2017. on examining section l3(3)(a), we find that the place of supply of services in respect of goods which are required to be made physically available by the recipient to the supplier, or to a person acting on behalf of the supplier of services in order to provide the services shall be the location where the services are actually performed. There are two proviso to this subclause. The first proviso states that when such services are provided from a remote Iocation by way of electronic means, the place of supply shalr be the location where goods are situated at the time of supply of services. The second proviso talks about a situation wherein goods which are temporarily imported into India for repairs or for other treatment or process further holding that clause I 3(3) shall not be applicable in such cases. section l3(3Xb) further deals with a situation wherein services are supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behall with the supplier for the supply of services.

24. On the other hand, section l3(2) of the IGST Act, 2017, states that the place of supply of services shall be the location of the recipient of services, except for the services specified in sub-sections (3) to (13). The only proviso in this sub clause goes on to state 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.

25. In this regard, we find that vide circular No. 10312212019-GST dated 28.6.201 9, following clarification has been issued viz

26. Vide Notification No. 0412019-lntegrated Tax dated 30.9.2019, CBIC has further clarified as under viz

27. It is here that the agreement entered into between HAG and the applicant assumes significance. The extracts relevant for the issue at hand, is reproduced below in verbatim for the ease of reference viz

Conlrucl Development & Testing Agreement

between

Hilti Aktiengesellschoft lreferred lo as 'Hilti'l recipient of service)

&

Hilti Manufacturing India P Ltd lreferred to as 'HMI'l (applicant)

2. Services

An overview and specifications of the Services rendered by HMI to Hilli according lo Article I is provided in Appendix I

4. Right to Results

4.3.  If Results are eligible.for intellectual property right protection Hilti shall be entitled to .file or apply for the reloting intellectual Property rights, both first .filling and to fbteign Jilings in ils own name and at its own cost and expense. HMI shall notify writing of any and all Results that may be eligible ./br intellectual property right protection immedialely in writing. Upon Hilti requesl HMI shall tranfer to such Result thar was generoted by HMIs employe es .free of charge. HMI shall ensure that is has the pov)er ro dispose or rransfer such resuh ro Hilri. HMI will &t such acts antl deecls necessary including making any /ilings with qny governmental aurhority ond execuling any inslruments or agreements thal muy be required or as may be requesled by Hilti, to transfer such Result to Hilti.

4.6 If Results are subject ro a copyright or similar right, HMI hereby grants to Hilti the sole and exclusive, worldwide, perpetual and unlimited right of use ii these copyrights .for any and all types of use. whelher with or without copyright reference/uuthoi's iore This shull include, without limirotion, copyrighted soliware programs u,hich HMI shalt be ohliged to hand over to Hiiti in both, source arul object code, saved ro u data carrier in a machine readable .fbrmut, together will oll relating documentation. HMt y,i do all :such acls and deeds necessury, including making any./ilings u,ith any goternmenlal autfutrity und executing any inslrumenls or ogreemenls lhal moy be required or as muy be requested by Hilti, to gront tnd vest the aforementionetl rights and bene.fits in Hilii. The right o.f use in the copyrights or similar rights shull include. withour limiration, the righr oJ Hilti ro copy, Io trunsmit and./or save on picture, sound qnd darq carrier, to edit, to ulter ond to translate such results and to divulge and spread them, t,herher in originol or modilied .fbrmal. yt,ithoul having to obtoin the consent of HMI.

28. On going through Appendix I, [which depicts an overview & specification of the service rendered by the applicant to HAG], we find that the services provided by the applicant to HAG, is in respect of the following areas viz

(A) Testing acrivities related to HAG items, specified in detail by HAG

(B) Product development & engineering related to HAG items, specified by HAG

(C) Product development, testing & engineering activities related to OEM items.

29. Vide the additional submission dated 30.3.2023, applicant has further submitted that the materials supplied by HAG are not substantial, vz consumables/capital goods including tools, reference material etc. They have also listed some items which were provided by HAG, which is mentioned at para 14, supra. They have also stated that the listed materials are imported from HAG to support faster execution, further stating that except for set plate, the rest of the items can be purchased in India.

30. Sub-clause (3) of section 13 of the IGST Rules, 2017, primarily covers the following viz

Under this sub-clause, services related to goods, which require such goods to be made available to the service provider or a person acting on behalf of the service provider so that the service can be rendered, are covered;

Under this sub-clause, the goods temporarily come into the physical possession or control of the service provider because without this the service cannot be rendered

To lall under this sub-clause, the service involves movable objects or things that can be touched, felt or possessed.

Now let us compare these conditions with the type of service rendered by the applicant in the present case. The applicant, as is mentione d, supra, provides [a] testing activities related to HAG items, specified in detail by HAG; [b] product development & engineering related to HAG items specified in detail by HAG and [c]product development, testing & engineering activities related to OEMs. In providing this service, it is the applicant's say that some of the materials are being provided by the recipient ,e HAG. Further, the applicant is on record before us that a substantial amount of consumable/goods/capital goods are procured directly from third parties. what is interesting is also that these materials get consumed in the process of the said R&D activity as stated by the applicant. Thus we find that the parameter listed out in sub-clause 3, as mentioned above is not met viz that the prototype is developed by the applicant and is not supplied by HAG [recipient]. We find that it would not make much of a difference since what is supplied by the applicant is only some materials which go into making of the prototype and not the entire prototype. The question therefore that pops us is whether it would make a mark-able difference if the entire materials is supplied by the recipient (HAG in this case). Would it then put this supply under sub-clause 3 of the Section 13, ibid We have no hesitation in answering that even in such a situation, since the prototype on which R&D is conducted and whose report is supplied to HAG is not being supplied by HAG, this service would not fall within the ambit of sub-clause 3 of section l3 of IGST Act, 2017 .

31. On the basis of the foregoing, we hold that the supply of services would therefore fall under section l3(2), as in paras 23 & 24, we have already concluded that it would not fall within sub-clauses 4 to 13. However, this would apply only in case of the services specified in (B) and (C) of Appendix I, as mentioned in para 28 supra. A bare reading of (A) of Appendix I, in para 28 prima facie depict that the testing activities related to HAG items - meaning thereby that the R&D service is perfbrmed on the goods provided by HAG hence as far as this portion of the service is concerned, it would fall within the ambit of sub-clause 3 of section l3 of IGST Act

32. IGST is levied u/s 5(l) of the IGST Act,2017 on all inter-state supplies ofgoods or services or both. Further, under section 7(5) ofthe IGST Act, 2017, supply of services wherein the supplier is located in India and the place of supply is outside India, will be treated as supply in the course of inter-state trade or commerce. Thus IGST is payable unless the supply is 'export of service'.

33. The applicant is on record stating that they are a part of HAG group' Supply of services by a subsidiary/sister concem etc of a foreign company, which is incorporated in India under the Companies Act,20l3 to establishments of the said foreign company located outside India is not barred by section 2(6) of the IGST Act, supra from being considered as export of services since they are not to be treated as supply between merely establishments of distinct persons under explanation I of section 8 of IGST Act,2017.

34. We further rely on Circular No. 161117l202l-GST dated 20.9.2021 , wherein it is clarified as follows viz

4.1 From the perusal ofthe delinition of "person" under sub-seclion (81) oJ scction 2 ol'the CGST Act, 2017 and the definitions of "company" and ".foreign company" under iection 2 of the Companies Acl. 2013. il is observe(l lhat u company incorporated in India and a./breign compdny incorporaled outside India, ore seporote "person" under the provisions of cGST Act and accordingly, are separate legal entities. Thtts, tt sttbiidiary/ sisfer concern/ group concern of any .foreign company which is incorporolcd in India, then the suid company incorytraled in lruliu will be considered as a sepurule "person" untler lhe provisions of CGST Acl and accordingly, v'ould be considered as a separqte legal enlity lhan the .foreign company

ClariFication:

5.1 In view qf the abore, it is cl(uri-lied lhat a companv incon)oruled in lndia.dnd u bo(l!! corporate incorporoted bv or uniler lhe lows of a counlrv outside lndiq. which.i akJrefeffeil to os -foreign comounv uncler comoanies Act. are separale persons uncler C'GST Act. and thus ore separale legol enlities. Accordinglv. these lwo separale per-sons would iot be considerecl as -merelv eslablishmenls of a distincl person in accordance with Explqndtion I in section 8".

Explanation I ofsection 8 oJ'IGST Act 2017. such supplies, therefore, would qualify as 'export of services', subject to fulfilment of other conditions as provided indei'subsection (6) ofsection 2 of IGST Act.

35. In view ofthe foregoing, the aforementioned service rendered by the applicant would fall under 'export of service', more so in view of the fact that all the five conditions as enumerated under section 2(6) of the IGST Act,2017, are met viz

(i) The applicant [being supplier ofservice] is located in India;

(ii) Tthe recipient of service [HAG] is located outside India

(iii) We have already held that the place of supply is the location of the recipient of service

(iv) The applicant on record has stated in the application that the payment of the supply is received in foreign exchange

(v) The supplier of service and recipient of service are not merely establishment of a distinct person in accordance with explanation t of section 8.

36. In view of the foregoing, we rule as under:

RULING

(i) The services provided by the applicant to the entities located outside India is covered under Section r3(2) of the Integrated Goods and Services Tax Act, 2017 in respect of the services mentioned in (B) and (C) under Appendix-l as per para 28. This is subject to the condition that the services supplied in respect of goods/prototypes which are required to be made physically available by HAG to the applicant. Further, in respect of the service listed in (A) under Appendix-I of para 2g, it does not merit to be covered under section 13(2), of IGST Act.

(ii) The services provided by the applicant is eligibre to be treated as a 'zero rated supply'under Section 16 of the IGST Act, 2017 inrespect of the services mentioned in (B) and (C) under Appendix_I as per para 28. In respect of the service listed in (A) under Appendix-I of para 2g, the subject services are liable to CGST and SGST.