Clarification on Determining Place of Supply for Software/Design Services in ESDM Industry
<p>The Ministry of Finance, through Circular No. 118/37/2019-GST, has provided important clarifications regarding the determination of the place of supply in cases where software/design services are provided by Indian companies to overseas clients in the Electronics Semiconductor and Design Manufacturing (ESDM) industry.</p><p><strong>Key Highlights:</strong></p><ul><li><strong>Nature of Services:</strong> The circular clarifies that when Indian companies develop software and design integrated circuits for overseas clients, the provision of hardware samples or prototypes for testing and validation does not alter the character of the primary service. Software and chip design remain the principal services, with testing being an ancillary service aimed at improving quality.</li><li><strong>Place of Supply:</strong> In cases where software/design services involve testing on hardware prototypes, the place of supply is determined by the location of the service recipient, as per Section 13(2) of the IGST Act. This applies even when testing is performed using sample hardware provided by the client.</li><li><strong>Composite Supply:</strong> The circular emphasizes that the provision of software development and hardware testing constitutes a composite supply. The entire service should be treated as one, and artificial separation of the contract for taxation purposes is not supported by law.</li></ul><p>This clarification ensures consistency in applying GST provisions for ESDM industry services and aids in the accurate determination of the place of supply for such contracts.</p><p><a href="https://cms.plasament.com/storage/circular-cgst-118.pdf">circular-cgst-118</a><br> </p>