R&D Work for Ministry of AYUSH Treated as Taxable Supply

Case Details: Laila Nutra (P.) Ltd., In re - [2025] 180 taxmann.com 433 (AAR-ANDHRA PRADESH)

Judiciary and Counsel Details

K. Ravi Sankar & B. Lakshmi Narayana, Member
A. Siva Prasad, CA for the Applicant.

Facts of the Case

The applicant, a private limited company engaged in herb-extract research and development (R&D), was selected under the Ayurgyan scheme as a sub-nodal agency for two projects involving manufacture of raw-material extracts. It submitted that the activity was executed on a no-profit basis funded through grant-in-aid. It was contended that the activity did not constitute ‘Supply’ under Section 7(1)(a) of the CGST Act as the funding was grant-in-aid and alternatively claimed exemption as pure service or composite supply, asserting that services were provided to a Central Government body in relation to public health functions. The matter was accordingly placed before the AAR.

AAR Held

The AAR held that the grant-in-aid received constituted ‘consideration’ under Section 2(31) of the CGST Act and the R&D activity satisfied the statutory elements of supply. It observed that the absence of profit motive did not alter taxability, as the organised and continuous nature of the activity brought it within the scope of ‘business’ under the GST regime. It was further held that exemptions were inapplicable, as the services were neither rendered to a Panchayat nor Municipality nor shown to have a direct and proximate nexus with functions entrusted under Article 243G. It concluded that the said R&D activity constituted a taxable supply.