In day today business ,there can be cases where the supplier does not have the stock of the goods ordered or it not economically viable for him to first get goods at his place and then forward it to recipient’s place . In such cases he will asks the third party to ship the goods directly to the customer. This is called as Bill to – ship transactions.
In Pre GST Regime also ,Bill to Ship to transactions was a common practice in trade .
For example :-
M/s. Sonu Ltd, a dealer in automobile goods, located in Maharashtra receives an order from M/s. Monu Ltd , located in Gujrat. The order is for the supply of 5,000 qty of automobile part, with an instruction to ship this goods to M/s. Natu Ltd (Customer of M/s.Monu Ltd), located in Karnataka.
There are two transactions involved in this example:-
|Between Sonu Ltd. and Monu Ltd. :
Sonu Ltd. is the supplier and Monu Ltd. is the buyer. Accordingly, Sonu Ltd. will bill the transaction to Monu Ltd., and as per the instruction, ships the goods to Natu Ltd. in Karnataka.
|Between Monu Ltd. and Natu Ltd. :
Monu Ltd. is the supplier and Natu Ltd. is the buyer. Monu Ltd. bills the transaction to Natu Ltd., and endorses the lorry receipt (goods shipped in a lorry by Sonu Ltd.) in favour of Natu Ltd.
|Taxes:- CST 2%||Taxes:- NIL|
|Forms:- Monu Ltd. – C Form
Sonu Ltd. – E-1 Form
|Forms:- Natu Ltd. – C Form
Sonu Ltd. – Lorry Receipt
In the above illustration, Sonu Ltd. bills to Monu Ltd., and ships the goods to Natu Ltd. Sonu Ltd. issues Form E1 to Monu Ltd. as against the C form produced by Monu Ltd for availing CST @ 2%. Subsequently, Monu Ltd. bills to Natu Ltd. against C Form without charging any tax, and endorses the Lorry Receipt in favour of Natu Ltd.
Bill to – Ship to transactions in GST Regime :Section 10(1)(b) of IGST Act covers supply before or during movement of goods by transfer of documents or otherwise. In case of such sale, it shall be presumed that the final recipient’s place is place of supply of goods. Thus, if supplier and final recipient are in different States, the supply will be inter-state even if goods are delivered in the same State on direction of final customer (third party).
In GST Regime , the place of supply of goods is an important factor to determine the transaction as interstate or intrastate and accordingly, the applicable taxes can be levied.
if the goods are supplied by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person.
Place of supply for Bill to – Ship to transactions is defined under GST under Section 10 (b) of IGST;
(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;
Input Tax Credit :- The third person (under whose instructions goods are supplied to recipient) can take ITC of GST charged by supplier and in turn charge GST to final recipient in bill to ship to transaction under section 10(1)(b) of IGST Act.( Umax Packaging (A unit of Uma Polymers Ltd.), In re  (AAR- RAJASTHAN)
Let’s take a same example in GST regime.:-
In the example, on the instruction from Monu Ltd., Sonu Ltd. ships the goods to Natu Ltd. located in Karnataka. Here, Monu Ltd. is deemed as the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Gujrat. Accordingly, Sonu Ltd. charges IGST on billing to Monu Ltd. and in second part of transaction between Monu Ltd. and Natu Ltd. will also be interstate, and IGST will be charged.
Let us discuss further with various scenarios along with understanding purpose-
|Supplier||Bill to (Third party)||Ship to (Recipient)||Place of Supply||GST|
E Way Bill : As per GST rules, an E-way Bill Number is to be generated whenever there is any movement of goods. In Bill-to and Ship-to scenario, though there are two invoices, the physical movement of goods is happening only once. Thus E-way bill needs to be created only once and could be based on either of the invoices.
In the e-way bill form, there are two portions under ‘TO’ section. On the left-hand side – ‘Billing To’ GSTIN and trade name is entered and in the right-hand side – ‘Ship to’ address of the destination of the movement is entered. The other details are entered as per the invoice. In case, ship to state is different from Bill to State, the tax components are entered as per the billing state party. That is if the Bill to location is inter-state for the supplier, IGST is entered and if the Bill to Party location is intra-state for the supplier, the SGST and CGST are entered irrespective of movement of goods whether movement happened within the state or outside the state.
Considering the GST provisions, it is very important to have an accurate determination of place of supply for below reasons:
Lastly, it is very important to understand first the main purpose of transaction in proposed Bill to – Ship to transactions, as it will define the place of supply under GST regime and taxes will be applicable accordingly.
(Republished with Amendments. Amendments been made by CA Anita Bhadra)