Cir.No.118/37/2019GST dt.11.10.19. The trade has requested clarification on whether provision of hardware prototypes and samples and testing thereon lends these services the character of performance-based services in respect of “goods required to be made physically available by the recipient to the provider”. The provisions relating to determination of place of supply as contained in the Integrated Goods & Services Tax Act,2017 (hereinafter referred to as “the IGST Act”) have been examined. In contractswhere service provider is involved in a composite supply of software developmentand designfor integrated circuitselectronically, testing of software on sample prototype hardwareisoften an ancillary supply, whereas, chip design/software development is the principal supply of the service provider. Theservice provider is not involved in software testing alone as a separate service. The testingof software/designis aimed at improving the quality of software/design and is an ancillary activity. The entire activity needs to be viewed as one supply and accordingly treated for the purposesof taxation. It is clarified that the place of supply of software/designby supplier located in taxable territoryto service recipient located in non-taxable territoryby using sampleprototype hardware/test kits in a composite supply, where such testing is an ancillary supply, is the location of the service recipientas per Section 13(2) of the IGST Act. Provisions of Section 13(3)(a) of IGST Actdo not applyseparately for determining the place of supplyfor ancillary supplyin such cases.

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