Understanding Clause (ca) of Section 10(1) of the IGST Act: Place of Supply for Unregistered Persons – Whether issue solved or created?
Circular No. 209/3/2024-GST Dated: 26th June 2024
Background –
The government vide Notification 02/2023-Integrated Tax, dated 29th September 2023, the provisions of the Integrated Goods and Services Tax (Amendment) Act, 2023 (Act 31 of 2023) were brought into effect from 1st October 2023 which inserted clause (ca) into Section 10(1) of the IGST Act , 2017 which is as follows –
“(ca) where the supply of goods is made to a person other than a registered person, the place of supply shall, notwithstanding anything contrary contained in clause (a) or clause (c), be the location as per the address of the said person recorded in the invoice issued in respect of the said supply and the location of the supplier where the address of the said person is not recorded in the invoice.
Explanation. —For the purposes of this clause, recording of the name of the State of the said person in the invoice shall be deemed to be the recording of the address of the said person;”
Now this amendment was brought in effect from 01st October 2023, where in it started with a non obstante clause overriding the provisions of section 10(1)(a) and section 10(1)(c) of the IGST Act, which specifically applied in case of supplied to unregistered person. So it was trying to clarify as below –
- If the address of the recipient is recorded on the invoice, the place of supply is the location as per that address.
- If the address is not recorded on the invoice, the place of supply defaults to the location of the supplier.
- Explanation: If only the State is mentioned in the invoice, it is considered as the recipient’s address for determining the place of supply.
Clarification
The circular tries to clarify the applicability of provisions of the place of supply where supplies are made by an e-commerce operator under the bill-to-ship-to model to an unregistered person. Generally in case of online transactions which happens through a web portal, one person can purchase or buy a product for any person across the country and just he has to mention a separate address named as Delivery address which may be any city in the country, so the question came up, in case of GST which is a consumption-based tax, the tax should be levied and collected where the goods are used or consumed and revenue should accrue to that state and not the state where just invoicing/billing has happened.
Issue in hand –
Let’s analyse the provision which has place of supply rules at the first place, starting with section 10 –
“Section 10(1)(a) – where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient
Section 10(1)(c) – where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient”
So analysing this, makes it clear that where the goods involve movement, the place of supply would be the place where the delivery terminates to recipient, now who is the recipient is again a point of dispute, as in case of bill to ship to model, the person receiving the goods is actual recipient however as per provisions of the law, deemed receipt of goods in case of bill to party is also conveyed. Now the circular tries to clarify the word in clause (ca) as “address of the said person” which seems to be little confusing as who is the said person? However, below are some important points to note –
1. Earlier also, in the GST Council, this issue had popped up in the meeting where in the goods sold through the counter, but taken to different locations after being sold, by the recipient was discussed however there was no consensus as to how to take the place of supply in such scenarios, after which in 50th GST Council meet, they inserted clause (ca) to section 10(1) of the IGST Act which had an overriding impact on section 10(1)(a) & 10(1)(c) which was also notified through above notification. However, the issue remains open as it said the address to be considered as place of supply, however in the above transaction, two addresses are possible, one Bill to, the other Ship to – Now which to consider was a question? Now this circular says where the goods are being delivered or in simple terms Ship to address, but than it is exactly opposite to section 10(1)(ca) which was just introduced which says the address recorded on the invoice of the recipient, so in current case the recipient is deemed to be the person who has been in to “Bill to” stage and hence the delivery address would become redundant in such cases, where deemed delivery is already mentioned in the Act itself.
2. Now as this new clause has an overriding effect on section 10(1)(a), where in the provision is where the goods involve movement, the place of supply would be the place where the movement terminates for delivery. What is supply involving movement is itself a very disputable question as the goods involves movement only after supply has happened or prior to supply and end delivery, any movement will be considered to be goods involving movement? Sometimes the goods are sold over the counter and the person who is receiving such goods, takes such goods to other states which also can be considered to be involving movement of goods, nevertheless, this circular tries to say the same thing which is mentioned in section (1)(a), so what is the purpose of actually bringing the above new clause and this new circular?
3. Interestingly, these circular mentions that specifically this would be applicable in the case of e-commerce transactions where the person ordering the goods wants to transfer the goods to the third person where the state is different from his state. Still, the issue of over-the-counter remains open. Would this apply only to cases of online transactions? As the provisions say, the interpretation of the word “said person” in clause (ca) is to be taken from the person receiving the goods, however, the provision is silent on this issue, now just by clarifying through a circular, whether that can be solved, even the issue of over the counter sales still remain open.
4. Interestingly, through Notification 02/2023-Integrated tax, clause (ca) has been inserted with effect from 01.10.2023 which talks about place of supply in case of unregistered persons, now this recent circular clarifies on 26th June 2024, that the address of delivery is to be taken as address of delivery to be the place of supply in light of GST being consumption based tax and the same can be used for considering chargeability of CGST + SGST or IGST to be charged? Now what would the scenario be where in the transactions are done between these dates? Will it be required to be done as mentioned in circular or it have to be regularised on “as is, where is” basis which the government has started doing for other matters amending the section 11A of the GST Act, 2017 by giving the power to the government to make such changes?
Conclusion
So at the end, it is interesting to see, how the circular overriding the provisions of the Act and also, as to solving the problem which never existed in the eyes of law and which was already clear with the provisions of law, how it is being created and solved which creates more confusion amongst the industry and trade as to how to actually implement such suggestions and recommendations which does not try to solve many important issues in trade and industry, however solving the issue which never existed.
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