GST is basically an indirect tax that brings most of the taxes imposed on various goods and services at the point of manufacture, sale and consumption of goods and services under one umbrella at the National level. While in Pre GST Era, taxes were levied separately on Goods and Services.
The Goods and Service Tax (GST) is significantly different from the previous tax system as it is a destination-based tax. A tax can be either be origin- based or destination- based. Origin based tax or production tax is levied where goods or services are produced. Destination- based taxation or consumption tax are levied where goods and services are consumed. Therefore, the SGST generally accrues to the State where the consumers of the goods or services reside and not to the State where the goods are produced.
What is Supply?
According to Section 7 of the CGST Act, 2017 and Section 7 (1) (c) states – “ For the purposes of this Act, the expression “supply” includes the activities specified in Schedule I, made or agreed to be made without a consideration. “ And as per SCHEDULE I issued under Section 7 dealing with ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION in clause (2) to the said Schedule, Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business and where provisions of Section 24 has been made applicable in Section 25, in categories of persons who shall be required to be registered under this Act,–– includes in clause (I) – “ persons making any inter-State taxable supply” .
In the GST provisions, the place of supply assumes a great importance to determine whether the supply of goods/ services is within the state or outside the state.
How to determine whether the transactions come under Intra State or Inter State in the case of Bill To & Ship To scenario ? . Below example will be helpful to get better understanding of BILL TO & SHIP TO scenario under GST Provision
If ABC Company (Pune Maharashtra) Bill to XYZ Company(Mumbai Maharashtra) & Ship material to XYZ Company’s warehouse at Bangalore . Whether this transaction come under INTRA STATE or INTER STATE?
Section 10 (1) ( b) of IGST Act, 2017 is relevant for the above example where the goods are not supplied to the place where the purchase order is placed but the goods are asked to be delivered to another place, which is Bangalore. And the said provisions of Section 10 (1)(b) reads as – “ The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,–– (b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person”.
In the above example , XYZ Company Mumbai has ordered the material but asking ABC Company Pune to supply directly to XYZ company’s warehouse at Bangalore, the deeming provisions as per Section 10 (1) ( b) of IGST Act, 2017, become applicable and it is construed in law that XYZ – Mumbai becomes a deemed recipient of the goods , as a third person and the place of supply of such goods from ABC – Pune in the given example will be within Maharashtra and hence , on the Tax invoice raised by ABC –Pune on XYZ – Mumbai regarding the said supplies as “ Intra – State supplies”, applicable CGST and SGST needs to be charged. XYZ – Mumbai can avail ITC credit CGST/ SGST paid by ABC – Pune.
In the above example, M/s XYZ located in Mumbai and its Warehouse located at Bangalore are distinct entities, as far as GST law is concerned and hence are holding separate GST registration in respective States in Maharashtra and Karnataka, for the simplicity of further understanding, XYZ -Bangalore is like a any other vendor to XYZ Mumbai .Further, XYZ – Mumbai has to raise Tax Invoice on XYZ – Bangalore and charge IGST tax being supplies to distinct person located in another State. Hence, if XYZ supplies any goods on stock transfer to XYZ – Bangalore then IGST tax needs to be paid and XYZ Mumbai has to raise a tax invoice on XYZ- Bangalore. XYZ- Bangalore can avail ITC credit based on invoice raised by XYZ -Mumbai on them as the said goods will be used by XYZ – Bangalore for further business of effecting taxable supplies to their customer charging appropriate tax.
It is also important and relevant to understand in the context of GST provisions that a registered person located in one State transact by way of supply with the same person who is located in another state, carrying our further business activity which is regarded as ” B to B business “ in law, as the other person is located in different State having a separate GST registration number, the supplies to self on Inter-state basis attracts IGST tax and the other person can avail ITC credit of the same. Thus two persons located in different States and transacting in GST regime, is regarded as a “distinct person “in law and is not a same person and hence registered person transacting within the State i.e. Intra State do not attract any GST, whereas when the same person who is the recipient of such supplies, is located at different State, it attracts IGST being Inter State supplies.
If XYZ- Bangalore had placed direct order on ABC (Pune), then it would have been a straight Inter State transaction and ABC (Pune) would have raised a Tax Invoice on XYZ Bangalore and charge IGST, whereas XYZ -Bangalore would get Input tax credit.
Conclusion: GST is significantly different from the previous tax system as it is a destination –based tax Supply of goods under Bill TO & Ship TO scenario is very much important and needs to consider whether the transaction is within the state or outside the state.