Karnataka High Court
M/S. Iprocess Clinical Marketing Pvt ... vs Asst. Commissioner Of Commercial Taxes on 8 December, 2025
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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WP No. 10989 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF DECEMBER, 2025
BEFORE
THE HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
WRIT PETITION NO. 10989 OF 2025 (T-RES)
BETWEEN:
1. M/S. IPROCESS CLINICAL MARKETING PVT LTD.,
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT,
HAVING OFFICE AT NO. 29,
2ND FLOOR, MALLIKS BUILDING,
HOSPITAL ROAD,
BENGALURU - 560 051
REPRESENTED BY ITS
AUTHORIZED SIGNATORY
MOHAMMED SALEEM,
DIRECTOR
...PETITIONER
Digitally signed (BY SRI. VIKRAM HUILGOL, SENIOR ADVOCATE FOR
by
SHARADAVANI
B SRI. SYED KHAMRUDDIN, ADVOCATE)
Location: High
Court of
Karnataka AND:
1. ASST. COMMISSIONER OF COMMERCIAL TAXES
TAXES (AUDIT)-1.7, DGSTO-1
5TH FLOOR, TTMC BUILDING,
ROOM NO. 42,
YESHWANTHPUR
BENGALURU 560 022
2. JOINT COMMISSIONER OF COMMERCIAL TAXES
(APPEALS-1),
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SHANTINAGAR,
BENGALURU 560 025
...RESPONDENTS
(BY SRI. K. HEMA KUMAR, AGA)
THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO ISSUE AS WRIT /
DIRECTION / ORDER IN THE NATURE OF CERTIORARI, QUASHING
/ SETTING ASIDE THE IMPUGNED ORDER DATED 25.02.2025
UNDER SECTION 107(11) BEARING GST AP NO. 287/2024-25
PASSED BY THE 2ND RESPONDENT (ANNEXURE A) AND ETC.
THIS PETITION, COMING ON FOR ORDERS, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
ORAL ORDER
In this petition, the petitioner seeks the following reliefs:
"i. Issue a Writ / Direction / Order in the nature of CERTIORARI, quashing / setting aside the impugned Order dated 25.02.2025 under nd Section 107(11) bearing GST AP No.287/2024-25 passed by the 2 Respondent (Annexure A).
ii. Issue as Writ / Direction / Order in the nature of CERTIORARI, quashing / setting aside the impugned Adjudication Order dated 28.03.2024 bearing No. ACCT (Audit) 1.7/GST-ADJ-33/23-24 (Annexure B).
iii. Issue as Writ / Direction / Order in the nature of CERTIORARI, quashing / setting aside the impugned Summary of Order and Order -3- NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR under Section 73 both bearing reference no. ZD290324079816V dated 28.03.2024 issued by the Respondent No. 1 (Annexure B1 and B2).
iv. Pass such other or further order as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity."
2. Heard the learned Senior counsel for the petitioner, learned AGA for the respondents and perused the material on record.
3. Learned Senior counsel for the petitioner invites my attention to the impugned order passed by the Adjudicating Authority at Annexure-B dated 28.03.2024 and the impugned order passed by the Appellate Authority in order to point out that despite having come to the conclusion that the petitioner was involved in the activity of conducting clinical trials, which would amount to export of services and in terms of Section 13(2) of the IGST Act since the place of recipient of the services was situated outside the territory of India and Section 13(3)(a) of the IGST Act was not applicable and in view of the Notification No.04/2019 - Integrated Tax dated 30.09.2019 issued by the Central Government, respondent Nos.1 and 2 have come to the erroneous conclusion -4- NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR that the said notification was prospective in nature and application and was not retrospective without appreciating that the said notification was pursuant to the 37th GST Council Meeting conducted / held on 20.09.2019, wherein the said issue as regards export of services in the pharmaceutical sector, including services in relation to clinical trials has been clarified, thereby indicating that the said notification clarifying the nature of services was only clarificatory and consequently the same is retrospective in nature, application and operation and as such, the impugned orders deserve to be set aside and the adjudication proceedings initiated by the respondents against the petitioner deserve to be quashed.
4. Per contra, the learned AGA would support the impugned orders and submit that there is no merit in the petition and the same is liable to be dismissed.
5. As rightly contended by the learned Senior counsel for the petitioner, a perusal of the impugned order will indicate that the respondents have taken note of the aforesaid notification dated 30.09.2019, wherein it is specifically declared and clarified by the Central Government that the place of supply of services, including -5- NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR the nature of services as provided by the petitioner by way of the clinical trials, shall be the location of the recipient of such services, subject to fulfillment of certain terms and conditions. In the instant case, it is an undisputed fact as borne out from the material on record, that the place of recipient of the services provided by the petitioner is in USA, which is outside the territory of India and in a non-taxable territory and consequently, by virtue of the aforesaid notification, the petitioner could not have been saddled with the liability to pay GST.
6. Insofar as the findings recorded by the respondents that the said notification is prospective and not retrospective in its nature, application and operation is concerned, it is pertinent to note that at the 37th GST Council Meeting conducted / held on 20.09.2019, Item No. 5, which came up for consideration / discussion, was in relation to a request for clarification on GST related export of services with the pharmaceutical sector. The GST Council has made the following recommendations:
Sl. Proposal Justification Fitment Committee Recommendations No. -6- NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR 5 Request for Pharma sector Recommendation:
clarification on in India is made GST related to to pay GST of A notification may be issued under 'export of 18% on Section 13(13) of IGST Act, to notify services' in services given that the place of supply of specific R & pharmaceutical to foreign D services as listed in para 2 when sector clients due to provided by Indian pharma companies lack of clarify on to foreign service recipients, shall be Ref: place of supply the place of effective use and Association of of pharma R & enjoyment of a service i.e location of Biotechnology D Services. the service recipient. Led Enterprises Indian pharma Analysis:
(ABLE) companies are
losing Indian pharmaceutical industry supplies
competitiveness various kinds of R&D services to
as pharma R & recipients located outside India against
D services consideration received in foreign
given to foreign exchange. Some of the example of such
clients are not services are integraed discovery and
treated as development services (involving research,
exports. This development, prototype and
has led to loss manufacturing arrangements), Integrated
in export Development (involving in-house
contracts as development of molecule/ substance and
other countries subsequent process including testing),
service processing and testing, in vivo and assay
providers are evaluation services, drug metabolism and
cost effective. pharmacokinetics research, safety
assessment/ toxicology, analytical testing, Govt is also bio equivalence and bio availability losing export studies, clinical trials etc. However, these revenue of Rs services are performed in India and the 170 Crores per reference materials for the above services year. are made available by foreign recipient in India. The specific R&D Services rendered by Indian Pharma sector to foreign clients are not treated as 'export of service' as place of supply is place of performance of service i.e India as per Section 13(3)(a) of IGST Act.-7-
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2. Following are R&D services provided by Pharma companies to foreign clients: -
Sl Type of R & D Description . Services N o.
1 Integrated This process
discovery and involves
development discovery
and
development
of molecules.
Steps include
Designing of
compound,
evaluation of
the drug
metabolism,
biological
activity,
manufacture
of target
compounds,
stability study
and long-
term
toxicology
impact
2 Integrated
development
3 Evaluation of the This is in vivo
efficacy of new research (i.e.
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chemical/biologica within the
l entities in animal animal) and
models of disease involves
develop of
customied
animal model
diseases and
administer of
novel
chemical in
doses to
animals to
evaluate the
gene and
protein
expression in
response to
disease. In
nutshell this
process tries
to discover if
a novel
chemical
entity that
can reduce
or modify the
severity of
diseases.
The novel
chemical is
supplied by
the client.
4 Evaluation of This is in
biological activity vitro research
of novel (i.e. outside
chemical/biologica the animal).
l entities in in-vitro An essay is assays first developed and then the -9- NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR novel chemical is supplied by the client and is evaluated in the assay under optimized conditions.
5 Drug metabolism This process
and is involved to
pharmacokinetics investigate
of new chemical whether a
entities new
compound
synthesized
by supplier
can be
developed as
new drug to
treat human
diseases in
respect of
solubility,
stability in
body fluids,
stability in
liver tissue
and its toxic
effect to body
tissues.
Promising
compounds
are further
evaluated in
animal
experiments
using rat and
mice.
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6 Safety Safety
Assessment/Toxic assessment
ology involves
evaluation of
new chemical
entities in
laboratory
research
animal
models to
support filing
of
investigation
al new drug
and new drug
application.
Toxicoogy
team
analyses the
potential
toxicity of a
drug to
enable fast
end effective
drug
development.
7 Stability Studies Stability
studies are
conducted to
support
formulation
development
and safety
and efficacy
of a new
drug. It is
also done to
ascertain the
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quality, shelf
life of the
drug in their
intended
packaging
configuration.
8 Bio Equivalence Bioequivale
and Bio nce is a term
Availability in
Studies pharmacokin
etics used to
assess the
expected in
vivo
biological
equivalence
of two
proprietary
preparations
of a drug. If
two products
are said to be
bioequivalent
it means that
they would
be expected
to be, for all
intents and
purposes, the
same.
Bioavailability
is a
measuremen
t of the rate
and extent to
which a
therapeuticall
y active
chemical is
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absorbed
from a drug
product into
the systemic
circulation
and becomes
available at
the site of
action.
9 Clinical trials Every drug
that is
developed for
human
consumption
would
undergo
human
testing to
confirm its
utility and
safety before
being
registered for
marketing.
The trials
help in
collection of
information
related to
drugs profile
in human
body such as
absorption,
distribution,
metabolism,
excretion and
interaction. It
allows choice
of safe
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dosage.
1 Bio analytical Bio analysis
0 studies is a sub-
discipline of
analytical
chemistry
covering the
quantitative
measuremnt
of drugs and
their
metabolites,
and
biological
molecules in
unnatural
locations or
concentration
s and
macromolecu
les, proteins,
DNA, large
molecule
drugs,
metabolites
in biological
systems.
3. Clarification is needed whether pharma R & D services provided to foreign clients falls within Section 13(3)(a) of the IGST Act, 2017, the place of supply where the location of the recipient is outside India, shall be the location where the services are actually performed.
Section 13(3)(a) of IGST Act is as below:-
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR The place of supply of the following services shall be the location where the services are actually performed, namely:-
(a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process;
4. In pharma R&D services, client provides reference materials, sample drugs, reagnet etc. All these R&D services are administered on the materials supplied at the laboratory of hte pharmaceutical industry. Further it is to say that, such materials supplied by the client gets consumed in the process.
5. It is important to determine whether service provided fall within the meaning of "goods that are made physically
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR available, by the receiver to the service provider", under section 13(3)(a) of IGST Act, 2017. Education Guide of Service Tax released by CBEC answers the questions as below:-
Services that are related to goods, and 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 here. The essential characteristic of a service to be covered under this rule is that the goods temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered. Thus, the service involves movable objects or things that can be touched, felt or possessed. Examples of such services are repair, reconditioning, or any other work on goods (not amounting to manufacture), storage and warehousing, courier service, cargo handling service (loading, unloading, packing or unpacking of cargo), technical testing/inspection/certification/ analysis of goods, dry cleaning etc. It will not cover services where the supply of goods by the receiver is not material to the rendering of the service e.g. where a consultancy report commissioned by a person is given on a pen drive belonging to the customer. Similarly, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in this category, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product by the
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR manufacturer, to carry for door-to-door surveys.
6. The above clarification implies that samples given by foreign clients to Indian pharma companies should be goods and such goods should temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered.
7. As is evident from judicial precedents [Vikas Sales Corporation Vs. Commissioner of Commercial Taxes], in order to be considered "goods", the article under consideration shall be a "marketable commodity", i.e. having the following features - (i) It should have an intrinsic value; (ii) It should be freely transferable. As samples provided by oversea clients are in the nature of chemical or biological molecules which are not marketable commodities. Such samples are consumed in order to develop final product by the foreign clients. Even if we consider such sample molecules as goods, as per the Education Guide of Service Tax, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in the category of Section 13(3)(a) of IGST Act, even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product by the manufacturer, to carry for door-to-door surveys.
8. Prima facie, few samples given by foreign clients to Indian pharma do not
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR make place of supply of specific R&D services as location of service provider as per Section 13(3)(a) of IGST Act and hence such specific services rendered by Indian pharma qualify as 'export of services'
9. On 27.04.2018, the Finance Secretary observed in the file F.No. 345/58/2018- TRU that "We must follow the best international practice in this. We must change IGST law for this if need be. India has a great potential for service export and we must not let it lose competitive edge. Please find a way out. "An OM dated 14.05.2018 was sent from TRU to GST Policy Wing accordingly. But no reply has been received on the matter.
10. Section 13(3)(a) was amended vide IGST(Amendment) Act, 2018 to exclude goods 'for any other treatment or process' without being put to use in India other than required for such treatment or process. Sample molecules used in pharma R&D activities undertaken by Indian pharma companies. Such sample molecules are not used in India for any other purpose.
11. Instead of tweaking IGST Act which may have implicaiton for place of supply of other intermediary services too, as there is provision under Section 13(13) of IGST Act which empowers the Central Government to notify any service or circumstances in which the place of supply shall be the place of supply of effective use or enjoyment of service in
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR order to prevent double taxation or non- taxation of the supply of service, we may issue a notification under Section 13(13) of IGST Act, to notify the place of supply of specific R&D services as listed in para 2 when provided by Indian pharma companies to foreign service recipients, to be the place of effective use and enjoyment of a service i.e. location of the service recipient.
7. As can be seen from the aforesaid recommendations by the GST Council in its aforesaid meeting, it was recommended to issue a notification under Section 13(13) of the IGST Act to notify that the place of supply of specific R & D services, as listed in para-2 of the recommendations, when provided by Indian pharmaceutical companies to foreign service recipients, such place of the recipients shall be the place of effective use and enjoyment of the service, i.e., location of the service recipient and the relevant portion of the said recommendation at Sl.No.11 of the said minutes
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR of the meeting at Item No.5 specifically refers to clinical trials conducted by the petitioner.
8. In this context, a perusal of the notification at Annexure - G dated 30.09.2019 will fairly indicate that the same was issued pursuant to the aforesaid decision taken in the 37 th GST Council Meeting and consequently, having regard to the fact that the recipient of services of the provided by the petitioner is located in USA, pursuant to a tripartite agreement between the petitioner, New York School of Medicine and Administrative Unit of the New York University at New York and the petitioner's associated company at USA for conducting clinical observation studies, I am of the considered opinion that the said notification would operate retrospectively in relation to the petitioner for the period prior to 30.09.2019 also including the subject period, which is April, 2018 to March, 2019.
9. Under identical circumstances, this Court in W.P.No.9505/2021 and connected matters dated 26.11.2025, has held as under:
"In these petitions, the petitioners seek the following reliefs:
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR "In W.P.No.9505/2021:
(i) quashing the impugned reassessment order dated 31.03.2021 passed by the 1st Respondentfor RC No.581409256 under Sections 7-A(1), 5-A(2-A) and 7-A(2) of the Karnataka Tax on Luxuries Act, 1979 (Annexure-'A');
(ii) quashing the impugned demand notice in Form VI dated 31.03.2021 bearing T. No.129 for RC No.581409256issued by the 1st Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B');
(iii) quashing the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C');
(iv) declaring that Sections 3-E(1) and 2(1-C) of the Karnataka Tax on Luxuries Act, 1979, are ultra vires Article 246(3) read with Entry 62 of List II in Schedule VII to the Constitution of India, 1950, if the said provisions are construed so as to provide for the levy of tax under the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units;
(v) declaring that the levy of tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units is ultra vires Arctiles 14 and 21 of the Constitution of India, 1950; and
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(vi) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity.
In W.P.No.9378/2021:
(i) stay the operation of the impugned reassessment order dated 31.03.2021 passed by the 1st Respondent for RC 544413134 under Sections 9(1)(b), 5-
A(2-A) and 7of the Karnataka Tax on Luxuries Act, 1979,read with Rule 6(3) of the Karnataka Tax on Luxuries Rules, 1979 (Annexure 'A');
(ii) stay the operation of the impugned demand notice in Form VI dated 31.03.2021 for Regn.
st CertificateNo.544413134 issued by the 1 Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B');
(iii) stay the operation of the impugned Clarification dated 02.07.2015 bearing No.KTL/CR- 08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C');
(iv) pass ad-interim ex-parte ordersin terms of VI.(i) to VI.(iii) above; and
(v) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity.
In W.P.No.9491/2021:
(i) quashing the impugned reassessment order dated 30.03.2021 passed by the 1st Respondent RC
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR No.571410291 under Sections 7-A(1), 5-A(2-A) and 7-A(2) of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'A');
(ii) quashing the impugned demand notice in Form VI dated 30.03.2021 bearing T. No.130 for RC No.571410291 issued by the 1st Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B')
(iii) quashing the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C');
(iv) declaring that Sections 3-E(1) and 2(1-C) of the Karnataka Tax on Luxuries Act, 1979, are ultra vires Article 246(3) read with Entry 62 of List II in Schedule VII to the Constitution of India, 1950, ifthe said provisions are construedso as to provide for the levy of tax under the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided topatientsadmitted in Intensive Care Units, Neo-Natal Intensive Care Units and Coronary/Cardiac Care Units;
(v) declaring that the levy of tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units, Neo-Natal Care Units and Coronary/Cardiac Care Units is ultra vires Articles 14 and 21 of the Constitution of India, 1950; and
(vi) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity."
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR In W.P.No.9507/2021:
(i) quashing the impugned reassessment order dated 31.03.2021 passed by the 1st Respondent for RC 532412727under Sections 6(1)(b), 5-A(2-A) and 7of the Karnataka Tax on Luxuries Act, 1979, read with Rule 6(3) of the Karnataka Tax on Luxuries Rules, 1979 (Annexure 'A');
(ii) quashing the impugned demand notice in Form VI dated 31.03.2021 for Regn. Certificate st No.532412727 issued by the 1 Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B');
(iii) quashing the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'C');
(iv) declaring that Sections 3-E(1) and 2(1-C) of the Karnataka Tax on Luxuries Act, 1979, are ultra vires Article 246(3) read with Entry 62 of List II in Schedule VII to the Constitution of India, 1950, if the said provisions are construed so as to provide for the levy of tax under the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units and Neo-Natal Intensive Care Units;
(v) declaring that the levy of tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units andNeo-Natal Intensive Care Units is ultra vires Articles 14 and 21 of the Constitution of India, 1950; and
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(vi) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity.
In W.P.No.6804/2022:
a. Quash the impugned demand notice in FORM VI dated 29th January, 2022 issued by the 1st Respondent. A copy of the demand notice in FORM VI dated 29th January, 2022 is herein produced as Annexure - A. b. Quash the Assessment Order dated 29th January, 2022 issued by 1st Respondent. A copy of the Assessment Order dated 29th January, 2022 is herein produced as Annexure -B. c. Declare that Section 3-E(1) and 2(1-C) of the provisions of the Karnataka Tax on Luxuries Act, 1979, are ultra vires Article 246(3) read with entry 62 of List II in schedule VII to the Constitution of India, 1950 and that the levy of Tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in intensive care units is ultra vires Article 14 and 21 of the Constitution of India, 1950. A copy of section 3-E(1) and 2(1-C) of the provisions of the Karnataka Tax on Luxuries Act, 1979 is herein produced as Annexure - L. d. Alternatively remand the matter before Respondent No.1 Assistant Commissioner of Commercial Taxes, yeshwanthpur to reconsider the Assessment of the Petitioner for the year 2014-15 in accordance with law vide Annexure-B.
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR e. Pass such other and incidental Orders as may be appropriate under the facts and circumstances of the case, including an order as to costs.
In W.P.No.8149/2022:
(i) quashing the impugned assessment order dated 28.03.2022 passed by the 1st Respondent for RC No.581409256 under Sections 6(1)(b), 5-A(2-A) and 7-A(2) of the Karnataka Tax on Luxuries Act, 1979, for AY 2013-
14 (Annexure 'A-1');
(ii) quashing the impugned demand notice in Form VI dated 28.03.2022 for RC No.581409256 issued by the 1st Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 for AY 2013-14 (Annexure 'A-2);
(iii) quashing the impugned Clarification dated 02.07.2015 bearing No.KTL/CR-08/2013-14 issued by the 2nd Respondent under the provisions of the Karnataka Tax on Luxuries Act, 1979 (Annexure 'B');
(iv) declaring that Sections 3-E(1) and 2(1-C) of the Karnataka Tax on Luxuries Act, 1979 (Annexures C-1 and C-2), are ultra vires Article 246(3) read with Entry 62 of List II in Schedule VII to the Constitution of India, 1950, if the said provisions are construed so as to provide for the levy of tax on the charges for facilities provided to patients admitted in Intensive Care Units;
(v) declaring that the levy of tax under the provisions of the Karnataka Tax on Luxuries Act, 1979, on the charges for facilities provided to patients admitted in Intensive Care Units is ultra vires Articles 14 and 21 of the Constitution of India, 1950; and
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(vi) pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity."
3. A perusal of the material on record will indicate that the petitioners are hospitals having Intensive Care Unit ('ICU' for short) facilities, comprising of exclusive / independent ICU units for its patients. On 25.03.2021, 20.12.2019, 23.03.2021, 20.12.2019, 05.03.2022, and 04.01.2022, the first respondent issued notice to the petitioners' hospital respectively proposing to levy luxury tax on ICU charges collected by the petitioners for patients admitted in the ICU for the assessment years April 2015 - January 2016, April 2015 - March 2016, April 2015 - January 2016, April 2015 - March, 2016, April 2013 - March 2014, April 2014 - March 2015. The petitioners submitted reply dated 03.04.2021, 17.01.2020, 30.03.2021, 27.12.2019, 15.03.2022 and in W.P.No.6804/2022, the petitioner has not submitted its reply, inter alia contending that the petitioners had not collected luxury tax from the patients admitted to ICU during the said assessment years and also that having regard to the amendment to Section 3-E of the Karnataka Tax on Luxuries Act, 1979 ('the said Act, 1979' for short) with effect from 01.04.2016 vide Act 5/2016, having regard to the State Government Notification dated 20.01.2016 issued by the respondent-State in relation to exemption from payment of luxury tax towards charges collected in respect of ICU units in hospitals and the amended provisions contained in Section 3-E of the said Act, 1979, with effect from 01.04.2016 vide Act 5/2016, the said exemption would
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR operate and apply retrospectively and retroactively since the same is by way of a declaration / clarification and consequently, the petitioners would not be liable to pay luxury tax on charges collected towards ICU units from its patients. Pursuant to the aforesaid reply submitted by the petitioners, the first respondent proceeded to pass the impugned assessment order and demand notice dated 31.03.2021, impugned assessment order and demand notice dated 31.03.2021, assessment order and demand notice dated 30.03.2021, assessment order and demand notice dated 31.03.2021, assessment order dated 28.03.2022 and assessment order and demand notice dated 29.01.2022 rejecting the claim of the petitioners. Aggrieved by the impugned assessment orders and demand notice, the petitioners are before this Court by way of the present petitions.
4. Per contra, learned AGA and learned HCGP, on behalf of the respondents would support the impugned orders and submit that the Notification dated 20.01.2016 as well as the amended provision of Section 3-E of the said Act of 1979 were prospective in nature and application and consequently, there is no merit in the petitions and the same are liable to be dismissed.
5. Before adverting to the rivals submissions, it would be necessary to extract Section 3-E of the said Act, 1979, as it stood prior to amendment by Act 5/2016 with effect from 01.04.2016, which reads as under:
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR ""There shall be levied and collected tax at the rate of 8% on the charges collected for luxuries provided in a hospital in a hospital in a room such as accommodation, air- conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, where such charges are more than Rs.1000/- per day per room."
6. By Act 5/2016 with effect from 01.04.2016, the aforesaid provision was amended to read as under:
"3-E. Levy and collection of tax on luxury provided in a hospital .-[(1) There shall be levied and collected a tax at the rate of eight per cent on the charges collected for luxuries provided in a hospital in a room such as accommodation, air conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, [other than facilities provide in a Intensive Care Unit (ICU)] where such charges are more than one thousand rupees per day per room.]"
7. The said amendment was preceded by the State Government Notification dated 20.01.2016, which also reads as under:
NOTIFICATION Whereas Section 3-E of the Karnataka Tax on Luxuries Act, provides for levy of tax on luxuries as follows:
"There shall be levied and collected tax at the rate of 8% on the charges collected for luxuries provided in a hospital in a hospital in a room such as accommodation, air- conditioning, telephone, telephone calls, television, radio, music, extra beds and the like, where such
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR charges are more than Rs.1000/- per day per room."
Whereas State Government is of the opinion that Luxury Tax on ICUs provided in the Hospital shall be exempted from the Luxury Tax.
Whereas, under Section 12-A, Sub-Section (1) provided for exempt or reduce of Luxury Tax payable in respect of a class of Hospitals, Clubs, Marriage Halls only.
Whereas, the intention of the Government is to exempt not a class of Hospital but class of facility provided in a Hospital which is not covered in the above said provision.
Whereas, difficulty has arisen to the State Government to give exemption to class of facility provided in a Hospital.
Now, therefore in exercise of the powers conferred under Section 21 of the said Act, Government of Karnataka in order to remove difficulties, hereby makes the following provision:
In exercise of the powers conferred by Section 12-A read with Section 21 of the Karnataka Tax on Luxuries Act, 1979 (Karnataka Act 22 of 1979), the Government of Karnataka being of the opinion that it is necessary in public interest so to do, hereby exempts with immediate effect the tax payable under the said Act, by the proprietor towards luxuries provided in an Intensive Care Unit (ICU) of a Hospital."
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8. The aforesaid provisions contained in Section 3-E (pre amendment and post amendment) and the aforesaid notification dated 20.01.2016, will clearly indicate that the respondent-State have categorically exempted payment of luxury tax on charges collected by hospitals towards ICU charges from its patients. The only question that arises for consideration in the present petitions is as to whether the said amendment to Section 3-E of the said Act, 1979, exempting payment of luxury tax on ICU charges collected from patients, is retrospective / retroactive or whether it is retrospective / retroactive in nature and application, as contended by the petitioners, or as to whether it is prospective, as contended by the respondent-State. In this context, it is relevant to state that it is trite law that any amendment / legislation, which merely clarifies, elucidates or declares an earlier existing provision would be retrospective as held by the Constitution Bench of the Apex Court in the case of COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED in (2015) 1 SCC 1, wherein it is held as under:
"19.1. Dealing with the first question, the Court noted the contention of the assessee that Chapter XIV-B, which was inserted by the Finance Act, 1995 with effect from 1-7-1995 was a self-contained chapter as it lays down a special procedure for assessment of undisclosed income found during search for the "block period". It was argued by the assessee that this Chapter contains a charging section (Section 158-BA), a computation section (Section 158-BB), a procedural section for block assessment (Section 158-BC), limitation provision for completion of block assessment (Section 158-BE) and the provisions for
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR imposition of interest and penalty (Section 158-BFA). It was also argued that the scheme of assessment of "undisclosed income"
under Chapter XIV-B is different from the scheme of assessment of "total income" of any person in terms of Section 4(1) of the Act. In support of this argument, it was submitted that whereas Chapter XIV-B deals with assessment of "undisclosed income", Section 4 of the Act relates to the assessment of "total income". Moreover, "block period" mentioned in Chapter XIV-B was different from the assessment of income of the "previous year" under Section 4(1) of the Act. Even the rate of tax at which the "undisclosed income" is assessed is different inasmuch as it is 60% as specified in Section 158-BA(2) read with Section 113 of the Act, in contradistinction to the taxation of normal income which is at the rates specified in the relevant Finance Act. In a nutshell, it was argued that block assessment falls in Chapter XIV-B for which charging section was Section 158-BA and for assessment of block period, charging section was not Section 4(1) of the Act. On that basis, the assessee wanted the Court to hold that it was not open to the assessing officer to levy surcharge prior to 1-6-2002 i.e. before the insertion of the proviso to Section 113 of the Act.
26. Notwithstanding the aforesaid position clarified by us, we are of the opinion that dehors this discussion, in any case, on the application of general principles concerning retrospectivity, the proviso to Section 113 of the Act cannot be treated as clarificatory in nature, thereby having retrospective effect. To make it clear, we need to understand the general principles concerning retrospectivity.
General principles concerning retrospectivity
27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-à- vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [(1994) 1 AC 486 : (1994) 2 WLR 39 : (1994) 1 All ER 20 (HL)] Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators' object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Govt. of India v. Indian Tobacco Assn. [(2005) 7 SCC 396] , the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra [(2006) 6 SCC 289] . It was held that where a law is enacted for the benefit of community as a whole, even in the
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here.
31. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by outweighing factors.
32. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labelled as "declaratory statutes". The circumstances under which provisions can be termed as "declaratory statutes" are explained by Justice G.P. Singh [Principles of Statutory Interpretation, (13th Edn., LexisNexis Butterworths Wadhwa, Nagpur, 2012)] in the following manner:
"Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES [ W.F. Craies, Craies on Statute Law (7th Edn., Sweet and Maxwell Ltd., 1971)] and approved by the Supreme Court [Ed. : The
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR reference is to Central Bank of India v. Workmen, AIR 1960 SC 12, para 29] :'For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word "declared" as well as the word "enacted".' But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law."
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR The above summing up is factually based on the judgments of this Court as well as English decisions.
33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas [AIR 1968 SC 1336 : (1968) 3 SCR 623] , while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows : (AIR p. 1339, para 8) "8. ... The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115 of the Code of Civil Procedure, and the legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."
34. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See CED v. M.A. Merchant [1989 Supp (1) SCC 499 : 1989 SCC (Tax) 404] .)
35. We would also like to reproduce hereunder the following observations made by this Court in Govind Das v. ITO [(1976) 1 SCC 906 : 1976 SCC (Tax) 133] , while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 1-4-1962, the date on which the Income Tax Act came into force : (SCC p. 914, para 11)
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR "11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that 'all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.'"
(emphasis supplied)
36. In CIT v. Scindia Steam Navigation Co. Ltd. [AIR 1961 SC 1633 : (1962) 1 SCR 788] , this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year i.e. the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year."
9. As stated supra, any registration / amendment if clarificatory, elucidatory or declaratory would be
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR retrospective / retroactive in nature and application. In this context, it is relevant to state that originally that prior to amendment, charging Section i.e. Section 3-E of the said Act 1979, specifically provided for payment of luxury tax on charges collected for luxuries provided in a hospital in a room including accommodation, air conditioning, telephone, telephone calls, etc., where charges are more than Rs.1000/- per room. However, pursuant to the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act of 1979, the said charging provision, which directed levy of luxury tax on charges collected from the hospital towards accommodation, air condition, etc., has been clarified by stating that the charges collected from patients admitted in ICU would be exempt; it follows there from while originally / free amendment, all facilities attached to a room / accommodation in hospital would be available to payment of luxury tax come on the amendment, merely clarifies / declares that the said liability to pay luxury tax would not apply to the patients admitted to ICU and charges collected in this regard by the hospitals.
10. Learned AGA submits that in the event the petitioners had already collected luxury tax along with ICU charges from the patients for the assessment year 2015-16, the question of granting any relief in favour of the petitioners would not arise in the facts and circumstances of the instant case.
11. It is also relevant to state that by way of an amendment, the phrase "other than facilities provided in
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR intensive care unit (ICU)" has been inserted by way of clarification / declarations / elucidation by making it clear that all charges towards accommodation rooms in hospital except ICU charges facilities provided in ICU accommodation would be available to luxury tax. In this context also, it is significant to note that amendment which has been inserted to clarify an existing provision is sufficient to come to the conclusion that it relates back to the date of the original provision and the same cannot be treated or construed as prospective as wrongly held by the respondents and averment in this regard is also made in the petitions.
12. Under these circumstances, I am of the considered opinion that the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act, 1979, specifically declaring, clarifying and elucidating that luxury tax on charges received / collected from patients admitted to in ICUs, would be exempt from payment of luxury tax since the said provision would not apply to such charges is clear from the said amendment. Under these circumstances, having regard to the Notification dated 20.01.2016 and the amendment to Section 3-E of the said Act, 1979, which should operate and apply retrospectively / retroactively to previous assessment years including the subject assessment years, the impugned order deserves to be quashed.
13. In the result, I pass the following:
ORDER
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR
(i) These writ petitions are allowed.
(ii) The impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9505/2021, the impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9378/2021, the impugned assessment order and demand notice dated 30.03.2021 at Annexures - A and B in W.P.No.9491/2021, the impugned assessment order and demand notice dated 31.03.2021 at Annexures - A and B in W.P.No.9507/2021, the impugned assessment order and demand notice dated 28.03.2022 at Annexures - A1 and A2 in W.P.No.8149/2022 and the impugned assessment order and demand notice dated 29.01.2022 at Annexures A and B in W.P.No.6804/2022 passed by respondent No.1, are hereby set aside."
10. It is well settled that all amendments which are beneficial in nature, which are elucidatory and clarificatory would operate retrospectively when they seek to clarify and elucidate certain existing facts and situations and consequently, having regard to the specific observations made in the 37th GST Council Meeting, whereby it was resolved to clarify the tax liability in GST liability in relation to foreign recipients for R & D services provided by Indian pharmaceutical companies, the impugned notification at Annexure - G dated 30.09.2019 is clearly retrospective being
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR clarificatory and elucidatory in nature and consequently, both the respondents clearly fell in error in coming to the conclusion that the said notification is prospective and not retrospective and would not be applicable for the period prior to 30.09.2019. It follows there from that if the notification dated 30.09.2019 is held construed and treated to be retrospective in nature, application and operation, the petitioner would be entitled to the benefit of the said notification and cannot be saddled with the liability to pay GST, as wrongly demanded by the respondents.
11. Under identical circumstances, the Apex Court in the case of Suchitra Components Ltd. v. Commissioner of Central Excise, Guntur reported in (2006) 12 SCC 452, has come to the conclusion that apart from amendments to statutory provisions which are clarificatory and elucidatory are retrospective, even circulars, notifications etc., which are clarificatory and elucidatory are also retrospective in nature and held as hereunder:
"1. This appeal is directed against Final Order No. 204/05-NB-A dated 14-1-2005 passed by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi in Appeal No. E/3422/93-NB-A.
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR
2. We have heard Mr A.R. Madhav Rao, learned counsel for the appellant and Mr K. Radhakrishna, learned Senior Counsel for the respondent. We have perused the orders passed by the lower authorities and also of the Tribunal. The point raised by the learned counsel for the appellant is covered by the recent judgment of this Court in CCE v. Mysore Electricals Industries Ltd. [(2006) 12 SCC 448 : (2006) 204 ELT 517] In the said judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively.
3. In view of the submission made by the learned counsel for the appellant and also of the judgment of this Court in Mysore Electricals [(2006) 12 SCC 448 : (2006) 204 ELT 517] , the appellant is liable to pay the duty from 29-8-1990 i.e. from the date of issue of the show-cause notice and not from 1-3-1990 as ordered by the Tribunal.
4. The civil appeal stands allowed on the above terms. No costs."
11. In the result, I pass the following:
ORDER I. The petition is hereby allowed.
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NC: 2025:KHC:51769 WP No. 10989 of 2025 HC-KAR II. The impugned order dated 25.02.2025 passed by respondent No.2 vide Annexure-A and the impugned Adjudication order dated 28.03.2024 passed by respondent No.1 vide Annexure-B, are hereby set aside.
Sd/-
(S.R.KRISHNA KUMAR) JUDGE SJK List No.: 2 Sl No.: 5