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Today’s story is one that many startups and growing businesses will instantly relate to. It begins with global ambition—filing patents abroad—and ends with a sharp GST lesson at home. If you’ve ever assumed that a cost marked as “reimbursement” automatically stays outside GST, this ruling asks you to pause and read carefully.

Summary

A startup engaged an Indian IPR firm to file patent applications in Japan, the USA, and the UK. The Indian firm raised invoices in two parts: Part A for “reimbursement” of foreign patent attorney fees and Part B for its own professional charges. While GST was paid on Part B, the applicant believed that Part A was merely a pass-through cost and not taxable.

The West Bengal Authority for Advance Ruling (AAR), however, examined the transaction closely and held that the so-called reimbursement did not qualify as a “pure agent” expense under Rule 33 of the CGST Rules. The Authority concluded that the services were legal services received from foreign attorneys and were taxable under the Reverse Charge Mechanism (RCM). As a result, GST was payable on the foreign attorney fees as well.

Facts of the Case (Background)

MedtrainAI Technologies Private Limited, an Indian company, decided to protect its intellectual property by filing patents overseas. For this purpose, it engaged an Indian service provider, Seenergi IPR, to coordinate the filing of patent applications in Japan, and subsequently in the USA and the UK.

After completing the work, Seenergi IPR issued invoices to MedtrainAI. Each invoice was split into two parts. Part A represented the amount paid to foreign patent attorneys for drafting, filing, translations, and related government fees. This amount was described as “reimbursement.” Part B covered Seenergi IPR’s own handling and professional charges.

The invoices were fully paid by the applicant. Seenergi IPR did not charge GST on either part and instead directed the applicant to discharge tax liability under reverse charge. MedtrainAI accepted GST liability on Part B but disputed GST on Part A, arguing that it was merely reimbursing expenses incurred abroad and therefore outside the scope of GST.

To obtain clarity, MedtrainAI approached the West Bengal Authority for Advance Ruling under Section 97 of the CGST Act.

Legal Issue

The core issue before the Authority was simple but significant:

Is GST payable under the Reverse Charge Mechanism on foreign patent attorney fees shown as “reimbursement” in the invoice, or can such payments be excluded as pure agent reimbursements under Rule 33 of the CGST Rules?

Arguments

The applicant argued that:

• The actual patent filing and related services took place outside India.

• The amounts paid to foreign attorneys were merely reimbursed and were not consideration for any supply in India.

• Since the company had no business operations abroad and derived no immediate benefit in India, the transaction should not be taxable.

• Legal services provided by advocates are exempt under certain GST notifications, and the same logic should apply here.

The tax department, on the other hand, took the view that:

• The applicant, located in India, was the recipient of services provided by foreign patent attorneys.

• The place of supply was India under Section 13 of the IGST Act.

• The services constituted import of legal services and were taxable under reverse charge.

Authority’s Decision

The West Bengal Authority for Advance Ruling, vide Order No. 25/WBAAR/2025-26 dated 24 December 2025, ruled against the applicant.

The Authority held that the amount described as reimbursement did not qualify as a pure agent transaction under Rule 33 of the CGST Rules. One crucial fact weighed heavily: the applicant had paid the expenses in advance. It was not a case where the Indian service provider first incurred costs on behalf of the applicant and later recovered them. Because of this, the payment could not be treated as reimbursement “per se.”

The Authority further observed that Seenergi IPR was not providing the patent filing service itself. Instead, the actual legal services were rendered by foreign patent attorneys. These services fell under SAC 9982, specifically legal documentation services relating to patents.

Applying Section 13 of the IGST Act, the Authority determined that the place of supply was India, as the recipient of services was located in India. Consequently, the supply constituted import of services.

Referring to Section 9(3) of the CGST Act read with Notification No. 13/2017-Central Tax (Rate), the Authority concluded that legal services provided by foreign advocates to an Indian business entity are taxable under the Reverse Charge Mechanism. Therefore, GST was payable on Part A of the invoice as well.

Legal Reasoning & Analysis

At the heart of this ruling lies a practical interpretation of the term “reimbursement.” The GST law does not define reimbursement, so the Authority relied on common meanings and judicial principles. Reimbursement, in essence, means repaying someone for an expense they have already incurred.

Rule 33 allows exclusion of pure agent expenses from the value of supply, but only if all conditions are met. These include a clear contractual agreement to act as a pure agent, payment made on authorization, and recovery of only the actual amount spent.

In this case, there was no written agreement establishing Seenergi IPR as a pure agent. More importantly, the applicant paid the amounts upfront. This broke the chain required to treat the payment as reimbursement.

The Authority also rejected the argument that the services were exempt legal services. It clarified that exemptions for advocates apply to advocates as defined under the Advocates Act, 1961, which does not extend to foreign advocates. Hence, the exemption under Notification No. 12/2017 was not available.

Important Takeaways (Message for Business Owners)

• Labels don’t decide taxability: Calling a payment “reimbursement” in an invoice does not automatically take it out of GST.

• Pure agent rules are strict: Rule 33 works only when every condition is satisfied. Missing even one condition can trigger GST.

• Advance payments matter: If you pay expenses in advance, it weakens the reimbursement argument.

• Foreign legal services attract RCM: Legal services received from foreign advocates by an Indian business are taxable under reverse charge.

• Documentation is critical: Written agreements and clear authorization are essential when claiming pure agent benefits.

Why This Matters

This ruling has wide relevance for startups, tech companies, and exporters who routinely incur foreign professional costs. It sends a clear message that GST authorities will look beyond invoice descriptions and examine the real nature of transactions. Businesses planning global expansion must factor GST implications into their cost structures early.

Conclusion

This case is a reminder that GST compliance often hides in the fine print. What looked like a simple reimbursement turned into a taxable import of service because the underlying structure did not match the law’s requirements. Global ambition is commendable, but tax planning must move alongside it, not behind it. When facts and documentation align with the law, GST becomes manageable. When they don’t, surprises follow.

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FAQ

Q: What was the dispute in this case?

A: Whether foreign patent attorney fees shown as reimbursement were taxable under GST.

Q: How did the Authority rule?

A: The Authority ruled that GST was payable under reverse charge on the foreign attorney fees.

Q: Why was Rule 33 not applicable?

A: Because the expenses were paid in advance and there was no pure agent arrangement.

Q: Are foreign legal services taxable under GST?

A: Yes. Legal services provided by foreign advocates to an Indian business entity are taxable under RCM.

References

• Case Citation: MedtrainAI Technologies Pvt. Ltd. – West Bengal Authority for Advance Ruling, Order No. 25/WBAAR/2025-26 dated 24.12.2025 (2025-VIL-217-AAR).

• Statutory Provisions:

  • Section 9(3), CGST Act, 2017

  • Section 13, IGST Act, 2017

  • Rule 33, CGST Rules, 2017

Written by CA Vikash Dhanania | Reviewed by GST DOST Legal Research Team | Updated on 3012/2025.

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