The question of whether Indian companies must pay GST on payments for filing patents abroad has been a long-standing source of confusion for startups and technology firms. Many companies assumed that if patents are filed outside India through foreign patent attorneys, and the payments are routed via an Indian intermediary, such transactions would not attract GST. This assumption has often led to delayed compliance or unplanned tax liabilities.
The West Bengal Authority for Advance Ruling (AAR) in In re: Medtrainai Technologies Pvt. Ltd. provided clarity on this issue. The AAR ruled that fees paid to foreign patent attorneys for filing patents abroad are considered import of services and are taxable at 18% under the Reverse Charge Mechanism (RCM).
The ruling highlights several key points for Indian businesses:
1. Foreign patent attorneys are not “advocates” under Indian law, so legal-service exemptions cannot be applied.
2. Labeling payments as “reimbursements” or routing them through Indian intermediaries does not remove GST liability.
3. Filing patents abroad is part of a company’s business activity in India, making it a taxable service.
This decision is especially relevant for technology startups and companies with cross-border intellectual property (IP) portfolios, as it underscores the importance of planning for GST in global patent strategies.
Why Payments to Foreign Patent Attorneys Are Taxable
Medtrainai Technologies, a medical technology company, regularly files patents in foreign jurisdictions, including Japan, the USA, and the UK. To manage these filings efficiently, it engaged an Indian company, Seenergi IPR, to act as a coordinator. Seenergi’s responsibilities included:
- Receiving payments from Medtrainai,
- Handling invoices for foreign patent attorneys, and
- Providing coordination and support services in India.
Seenergi raised invoices with two main components:
1. Amounts labeled as reimbursements for fees paid to foreign patent attorneys.
2. Seenergi’s own service and coordination charges.
While Medtrainai discharged GST on Seenergi’s service charges, it disputed the applicability of GST on the reimbursement portion. Their argument rested on three main points:
- The services were performed entirely outside India.
- The payments were merely reimbursements without any markup.
- Filing patents abroad was not “received” in India and therefore not taxable.
The AAR carefully examined these arguments and rejected all of them, setting a clear precedent.
The company argued that reimbursements are not consideration for a supply and therefore cannot attract GST. However, the AAR clarified that for a reimbursement to avoid GST, the service provider must first incur the expense and then recover it. In this case, Medtrainai transferred funds to Seenergi, which simply forwarded them to the foreign attorneys. This is not a reimbursement in the GST sense.
Furthermore, Medtrainai also attempted to rely on Rule 33 of the CGST Rules, 2017, which allows certain expenses to be recovered by a supplier acting as a pure agent without GST. A pure agent must have a formal contractual agreement authorizing them to incur expenditure on behalf of the recipient. The AAR found no such agreement existed, and simply describing payments as reimbursements or “coordination costs” does not qualify.
Another argument put forward by Medtrainai was that patent filing services are legal services, which are exempt under Entry 45 of Notification No. 12/2017–Central Tax (Rate) if provided by an advocate. The AAR clarified that foreign patent attorneys do not qualify as advocates under Indian law. While the service is legal in nature, GST law considers the status of the service provider, not only the nature of the work. Consequently, foreign patent services cannot claim this exemption.
Place of Supply, Import of Services, and Course of Business
The next critical question is whether these foreign patent services qualify as imports, and what the correct place of supply is under GST law.
Section 13 of the IGST Act- Place of Supply
Under Section 13 of the IGST Act, 2017:
Section 13. Place of supply of services where location of supplier or location of recipient is outside India.-
(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.
(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services
Since Medtrainai is located in West Bengal, the place of supply is in India, making the foreign patent services an import of services. Consequently, GST under the Reverse Charge Mechanism at 18% applies automatically.
This point is crucial because many startups assumed that services rendered entirely outside India are outside the GST net. The ruling clarifies that location of the recipient, in this case, Medtrainai, is determinative unless specific exceptions apply.
Services Are in the Course or Furtherance of Business
Medtrainai also argued that filing patents abroad does not qualify as being in the course or furtherance of business in India, since the protection is limited to foreign jurisdictions. The AAR rejected this, observing that intellectual property protection is integral to business strategy. Filing patents abroad safeguards innovation, secures competitive advantage, and preserves potential revenue streams, all of which are part of a company’s business in India.
By classifying these foreign patent services as in the course of business, the AAR confirmed that they constitute a taxable supply, even though the service provider (foreign attorney) is located outside India.
Conclusion
“This appears to be a dubious claim inasmuch as the act of filing a patent is to protect their intellectual property in the respective jurisdiction, which, in our view, is very much in the course or furtherance of the applicant‘s business. However, the point of determination on whether something is a supply is that whether the activity is in the course or furtherance of the business of the supplier of service, i.e. whether the legal services provided were in the course or furtherance of the business of the foreign attorneys, in this case. It is the second element that is the subject matter of the present application and we have no doubt that the service rendered by the foreign attorneys is a supply. So we find no force in the arguments put forward by the applicant.”
In conclusion, the AAR ruling firmly establishes that payments to foreign patent attorneys for filing patents abroad are taxable as import of services under GST via the Reverse Charge Mechanism. Indian intermediaries cannot avoid GST by labeling payments as reimbursements, and legal-service exemptions are strictly limited to Indian advocates. For startups and technology companies, the ruling underscores that foreign patent filings are part of doing business in India, and GST compliance must be integrated into financial and IP strategies proactively. Companies must account for this liability in advance, ensuring proper planning for cash flow and input tax credit eligibility, rather than treating cross-border patent filings as optional or uncertain from a GST perspective.
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