5% GST Rate and ITC for Scientific Research Supplies Explained
The Telangana tax authority ruled that supplies to research institutions qualify for 5% GST locally and interstate, with full input tax credit.
- Ruling
- TSAAR Order No. 7/2018 dt. 02-07-2018
- Dated
- 02 Jul 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Manjira Machine Builders asked if 5% GST applies to local research sales.
- They asked if input tax credit is allowed on raw materials.
- The authority ruled 5% GST applies to both local and interstate sales.
- Input tax credit can be claimed in full on raw materials.
In short
A manufacturer supplying equipment to research bodies like ISRO and DRDO sought clarity under Goods and Services Tax (GST) rules. The company asked whether the discounted 5% GST rate applies only when selling across state borders or also on local sales within the state. They also asked whether charging this reduced rate blocks them from taking input tax credit (ITC) on raw materials.
What has changed
How it worked before
Before TSAAR Order No. 7/2018, suppliers were uncertain if local sales qualified for the reduced tax rate because Notification No. 47/2017 listed Integrated Tax (IGST). Many businesses also assumed that selling at a concessional rate meant reversing or forfeiting input tax credit on raw materials.
What has changed
The authority clarified that Notification No. 45/2017-Central Tax (Rate) provides a parallel 5% total tax rate (2.5% CGST and 2.5% SGST) for local sales to eligible institutions. Furthermore, supplies made at a concessional rate are not exempt supplies, so manufacturers can claim full input tax credit on raw materials.
Who this affects
Businesses supplying equipment, scientific instruments, or raw components to recognized research institutions, DRDO labs, and ISRO centers.
An example
Apex Instruments, a manufacturer in Telangana, sells testing gear to a local DRDO lab that provides a valid concessional tax certificate. Based on this ruling's logic, Apex charges 2.5% CGST and 2.5% SGST instead of the standard rate. Apex also continues claiming full input tax credit on the steel and electrical parts used to build the gear.
What you should do
Verify that your buyer provides the required concessional rate certificate before charging 5% GST on local or interstate orders. Keep in mind that an advance ruling binds only the business that asked for it and its tax office. Other businesses should evaluate their contracts or apply for their own ruling before relying on this decision.
If you do nothing
If a business charges 5% GST on local sales without verifying the underlying notifications, tax authorities may issue a demand for short-paid tax plus interest. Automatically surrendering input tax credit on concessional sales increases your production costs unnecessarily. Conversely, applying the lower rate without proper certificates from the research body can lead to penalties during audits.
The terms explained
- input tax credit
- The tax you pay on raw materials and business inputs, which you deduct from the tax you collect on final sales.
- exempt supplies
- Goods or services on which no GST is charged, which usually prevents a business from claiming input tax credit on related expenses.
- intrastate sales
- Sales where the supplier and customer are located within the same state, attracting local CGST and SGST.
The ruling in detail
Authority for Advance Ruling
M/s. Manjira Machine Builders (P) Ltd
TSAAR Order No. 7/2018 dt. 02-07-2018 · Telangana
Questions before the authority
- Is the concessional tax rate of 5% as given under Notification No. 47/2017 dated 14.11.2017 is applicable only for Interstate sales i.e., on IGST or also applicable for sales within the state i.e., on SGST & CGST.
- If this concessional tax rate of 5% is applicable for both Interstate and within the state sales, then can we avail the Input tax credit (ITC) for the raw materials used for these supplies.
Facts
The applicant supplies equipment to research institutions including DRDO labs and ISRO centers (SDSC SHAR and VSSC), which issue purchase orders stating that concessional tax certificates under Notification No. 47/2017-Integrated Tax (Rate) will be provided. The applicant sought clarity on whether the 5% concessional rate applies to intrastate transactions as well as interstate transactions. Additionally, they queried whether Input Tax Credit can be claimed on raw materials consumed in executing these concessional supplies.
Ruling
| Question | What the authority ruled |
|---|---|
| Applicability of concessional tax rate of 5% for intrastate sales | 5% IGST applies for interstate sales under **Notification No. 47/2017-Integrated Tax(Rate)**; 2.5% CGST + 2.5% SGST applies for intrastate supplies under **Notification No. 45/2017-Central Tax (Rate)** Subject to compliance with conditions specified in the respective notifications. |
| Availability of Input Tax Credit (ITC) on raw materials | **Input tax credit is available** on raw materials used for supplies made under concessional rate of tax Concessional supplies are not exempt supplies and are not listed under blocked credit in Section 17(5). |
The Authority held that interstate sales attract 5% IGST under Notification No. 47/2017-Integrated Tax (Rate), whereas **intrastate sales attract 5% tax (2.5% CGST + 2.5% SGST)** under Notification No. 45/2017-Central Tax (Rate). The Authority further held that **Input Tax Credit is fully available** on raw materials used for making such concessional rate supplies.
Reasoning
Notification No. 45/2017-Central Tax (Rate) grants a parallel concession for intrastate clearances to specified institutions by capping central tax at 2.5% (resulting in 5% total GST with SGST). Regarding Input Tax Credit, Section 17(5) of the TGST/CGST Act, 2017 lists blocked credits, which do not include goods subject to concessional tax rates. Furthermore, goods supplied at a concessional rate do not constitute **exempt supplies**, so ITC on raw materials used for these supplies remains fully allowable.
Provisions relied on
- Section 97(1) of TGST Act, 2017
- Rule 103 of CGST/TGST Rules, 2017
- Notification No. 47/2017-Integrated Tax (Rate) dated 14.11.2017
- Notification No. 45/2017-Central Tax (Rate) dated 14.11.2017
- Section 17(5) of TGST Act, 2017
- Section 5 of IGST Act, 2017
- Section 9 of CGST Act, 2017
For the practitioner
This order confirms that suppliers catering to scientific and research institutions can extend the **concessional 5% GST rate to intrastate sales** under Notification No. 45/2017-Central Tax (Rate). It establishes that making supplies at a concessional rate does not restrict or demand reversal of **Input Tax Credit on raw inputs**.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/tsaar_07-2018_telangana.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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