Introduction:-

This article discusses in detail about the nature of supply under GST With the drawn of 01st July, 2017, India witnessed one of the biggest changes in its indirect taxation structure after independence i.e. Goods & services tax. GST is a destination-based tax which implies that goods & services will be taxed at the place of consumption. By Destination based tax we mean that the revenue accrued to the place where the goods or services are consumed. Therefore under GST, the state where the goods & services are supplied or finally consumed will have to right to collect GST.

GST is understood as a ‘destination-based consumption tax’ but there is no provision that declares this fact. This missing declaration is more than adequately supplied by the principle being embodied in the provisions of ‘place of supply’. It is here that we find that the destination principle of GST is fully captured. The law makers have declared, in each case of supply, its destination of supply.

Goods and Services Tax GST sign on the page. 

Therefore Place of Supply in GST is nothing but the place where the goods or services are consumed. ‘Place of Supply’ under GST is an important factor as it defines whether the transaction will be counted as intra-state (i.e within the same state) or inter-state (i.e. between two states) and accordingly the changeability of tax, i.e levy of SGST, CGST & IGST will be determined.

Furthermore, the nature of supply under GST determines the type of tax to be levied and accordingly

> CGST, SGST is levied if the supply is an intra-state supply or

> IGST is levied if the supply is an inter-state supply.

1. INTRA-STATE SUPPLY

Section (8) of IGST Act, deals with Intra-state supply of goods & service. It can be defined as a supply in which the actual location of the supplier and the supply of goods/services are the same state or UT.

2. INTER-STATE SUPPLY

Section (7) of the IGST acts deals with the following supplies which shall be treated as Inter-state supply under GST. It can be defined as a supply in which the location of supplier and place of supply are in different states/UT or in one state and UT.

Certain other conditions in which the nature of supply would be Inter-state are:

  • Supplies to international tourists
  • Import & export of goods & services
  • Supply to or by Special economic zones (SEZ)
  • Supplies of goods & services imported into India.
  • Other supply in the taxable territory which is not covered under Intra-state supply.

The Central and State governments will have simultaneous powers to levy the GST on Intra-State supply.

However, the Parliament alone shall have exclusive power to make laws with respect to levy of Goods and Services Tax on Inter-State supply.

We can divide this topic Nature of Supply as:-

  • Inter-State supply of goods in India
  • supply of goods imported into India
  • Inter-State supply of services into India
  • import of services into India
  • Certain supplies of goods or services are treated as supplies in the course of inter-State trade or commerce
  • Intra-State Supply of goods
  • Intra-State Supply of services
  • Supplies in Territorial Waters

Determination of Nature of Supply

7. Inter-State supply

8. Intra-State supply

9. Supplies in territorial waters

Statutory provisions

7. Inter-State Supply

(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or commerce.

(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.

(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in––

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.

(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.

(5) Supply of goods or services or both, ––

(a) when the supplier is located in India and the place of supply is outside India;

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

7.1 Introduction

To determine is the nature of supply so as to identify the right kind of tax applicable in a given case. It is important to note that nature of supply is not a question of fact but the result of application of the law to the fact, which provides us the answer. The nature of tax is paramount importance for the selection of the right kind of tax .

Wrong classification of supply between interstate or intra-state and vice-versa may lead to hardship to the taxpayer as per section 19 of IGST Act and section 77 of CGST Act Where wrong taxes have been paid on the basis of the wrong classification, refund will have to be claimed by the taxpayer.

However interest is not payable on such tax paid due to wrong classification of tax. Also, correct determination of place of supply will help us in knowing the incidence of tax

As if place of supply is determined as a place outside India, then tax will not have to be paid on that transaction

Nature of supply does not refer to ‘place of supply’.

To deals with place of supply but before getting into place of supply it is important to understand the nature of supply. There are very specific principles laid down that need to be identified from the facts in each transaction in order to determine the nature of supply that is involved.

This section provides as to when the supplies of goods and/or services shall be treated as Supply in the course of inter-State trade/commerce.

Section 7(1) and 7(2) of IGST Act, primarily covers two kinds of supplies – Supply of goods within India and supply of goods imported into India respectively and

Section 7(3) and 7(4) of IGST Act, covers two kinds of supplies – supply of services within India and import of services into India respectively.

Certain supplies of goods or services are treated as supplies in the course of inter-State trade or commerce as defined in Section 7(5) of the IGST Act.

7.2 Analysis

Inter-State supply of goods

One may need to bear in mind the treatment extended to the subject matter of supply, that is, whether the supply is of

> goods or services or both or

> supply involving goods but treated as supply of services in terms of the fiction specified in Schedule II of CGST Act, 2017.

In respect of goods (treated as goods), if the location of the supplier and the place of supply are in two different States or UT or either, then the supply will be in the course of inter- State trade or commerce (amongst others).

We need to examine the two terms that have been used, namely:

(a) Location of supplier – Unlike in the case of services, location of supplier of goods is a term that is not defined in the law. This is not an oversight of the draftsmen but a deliberate intention of the lawmakers due to the reason that location of the supplier of goods can be easily tracked & to leave it to the facts of each case to determine the ‘location of supplier of goods’.

where the location of supplier of goods is more accurately determined by the physical point where the goods are located (under the control of the person wherever incorporated or registered), and ready to be supplied.

However, there may be a few exceptions to the rule stated above:

a) In case of in-transit sales:-

The principle of the location of supplier as the place where the goods are held in the control of the supplier may not be possible to be determined.

In such cases, the place where goods were held before being dispatched should be taken.

 In this case, the place where the goods are actually present cannot be taken.

Example:-

 A person in West Bengal is instructing his supplier in Delhi to supply the goods directly to his customer in Maharashtra while the goods are in transit.

First leg of the transaction i.e. supply between the person in Delhi and West Bengal.

For the second leg of the transaction i.e. the supply between the person in West Bengal and the one in Maharashtra, the location of goods may not be determinable.

In such a case, the location of supplier for this leg of the transaction will be considered as West Bengal even though the goods never reach West Bengal.

b) Goods send on approval Basis:-

As per Circular no. 10/10/2017-GST dated 18th October 2017, clarification was given in a case where the suppliers are registered in a state but have to visit other states other than their state of registration and need to carry the goods for approval.

 In such case, if the goods are approved then the invoice is issued at the time of supply. It was clarified that all such supplies, where the supplier carries goods from one State to another and supplies them in a different State, will be inter-state supplies and attract integrated tax in terms of Section 5 of the Integrated Goods and Services Tax Act, 2017.

In such case also, the location of supplier is the place where the supplier is registered and not the place where the goods are actually present when they are approved.

 Even though this is in contradiction with the concept of Casual Taxable person which requires the supplier to register in the state where he is carrying the goods, this clarification was provided for the ease of trade and industry.

c) Import of Goods:-

Advance ruling in case of Sonkamal Enterprises Private Limited under the Maharashtra Authority for Advance Ruling (2018-TIOL-301-AAR-GST). It was stated that invoice can be raised from Mumbai Head office for imports received at Haldia Port, Kolkata by the company where no separate registration is there in West Bengal if supplies are directly made from the customs bonded warehouse within West Bengal.

Here, IGST will be charged from Mumbai to the customer and no separate registration will be required in West Bengal. So, even though the goods are lying in West Bengal when the goods are supplied to the customer, the location of supplier of goods will be that of the registered place of business of the supplier i.e. Mumbai.

(b) Place of supply – It appears to be a phrase that is easily understandable but due to the presence of Chapter V (i.e. place of supply of goods or services or both) in this Act demands that the

Common sense understanding be disregarded but the meaning ascribed to the phrase ‘place of supply’ from sections 10 to 14 of this Act be applied.

‘Place of supply’ is a phrase of legal significance whose meaning is to be determined by examining the respective sections in Chapter V and brought to bear while determining nature of supply.

For example

Manufacture in Maharashtra and supply to a company in Delhi on Ex-Works basis, its place of supply has to be the location of completion of delivery.

And in respect of the new supply from Maharashtra to Madhya Pradesh, the place of supply is where the movement terminates for delivery – Madhya Pradesh.

It is therefore important to identify the location of supplier of goods and not based on a statutory definition but by inquiring into the facts of a transaction of supply and comparing this with the place of supply appointed by the statute in Chapter V. Now, if these two are situated in different States or UTs or either, then the nature of supply is declared by section 7 to be in the course of inter-State trade or commerce.

This provision is subject to the provisions of section 10 because any interpretation or application of this section 7 cannot be in derogation of the place of supply dictated by section 10.

 Section 7 can be correctly interpreted only by identifying the location of supplier of goods based on the physical point where the goods are situated and comparing that with the answer from referring to section 10 regarding place of supply of goods.

With regard to supply of goods that are imported into the territory of India, by legislative override it is declared that if the goods crossed the customs frontiers of India, the supply will always be in the course of inter-State trade or commerce.

Reference may be made to the definition of import of goods [section 2(10)] which adverts to the physical movement of goods into India from a place outside India by the active efforts on the part of any person (who may be situated in India or outside India).

There may be any number of supplies taking place between persons who are incorporated outside India and persons who are incorporated and even registered in India – they will all be transactions of supply in the course of inter-State trade or commerce – till such time the goods cross the customs frontiers of India.

We need to examine two kinds of transactions –

> those that commence outside the territory of India and are concluded also outside territory of India and

> those that commence outside India but conclude by entering the territory of India.

For example,

Company in Germany supplies goods from Germany to another company in Sri Lanka – this is not a supply in the course of inter-State trade or commerce because it commences and concludes outside the territory of India.

It would be so, even if the goods were supplied by the company in Germany from Germany to a customer incorporated in India if the goods are not ‘brought’ into India but sold in high seas to yet another company in Singapore.

In order for every supply to come within the operation of sub-section 2 to section 7 it requires that the resultant effect of the supply must cause the goods to enter the territory of India.

This Act does not enjoy extra-territorial jurisdiction and is limited to imposing tax if the goods are imported into the territory of India.

After the CGST Amendment Act 2019 as effective from 1st February 2019, goods sold before the same is cleared for customs clearance i.e. high sea sales, sale of goods when they are in the bonded warehouses before customs clearance etc. will not be treated as a supply under Schedule III read with Section 7(2) of the CGST Act 2017.

Further, if goods have been brought into India but have not left the customs frontiers of India, that is, the limits of a customs area, any supplies that are taking place after being brought into India until they cross the customs frontiers of India even though the place of entry into India and the place that comprises the customs frontier may be in the same State will continue to be supply is in the course of inter-State trade or commerce.

For example,

Goods have been imported from France by a company incorporated and registered in Nasik which have landed at Mumbai port but during their clearance are supplied by the Nasik company to a company in Pune, this supply continues to be in the course of inter-State trade or commerce. Even though the supplier is in Nasik and the recipient is in Pune, since the goods have not yet crossed the customs frontiers of India at the time of supply.

In the above example, supply by Nasik company to recipient of Pune is high sea sale transaction and is not subject to levy of IGST. When Pune recipient files bill of entry, IGST has to be paid on the assessable value which shall include the margin charged by Nasik supplier also.

 This supply comes within the operation of sub-section 2 of section 7.

A test that can be applied to determine whether the supply has been concluded before the goods crossed the customs frontiers of India or not crossed the customs frontiers of India is – who has filed a bill of entry in respect of the goods imported as required under the Customs Act. Transactions taking place before filing of bill of entry are termed as “high sea sale” transactions under common trade practice where the original importer sells the goods to a third person before the goods are entered for customs clearance.

This supply is covered within definition of inter-State supply. Provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 in as much as in respect of imported goods provides that all duties, taxes, cess’ etc. shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes.

High sea sale transactions, though regarded as supply in the course of inter-State trade or commerce, are not subject to levy of IGST as the supply takes place before filing of Bill of entry and IGST in case of importation of goods can be levied at the time of filing of Bill of Entry.

Hence, IGST on high sea sale(s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time.

Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/ commission paid etc, to establish a link between the first contracted price of the goods and the last transaction.

In fact, after the CGST Amendment Act 2018, all high seas transactions and merchant trading transactions will be covered by Schedule III i.e. activities which are neither supply of goods nor supply of services w.e.f. 01/02/2019

‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;

Import of goods into India would be treated as supply of goods in the course of inter-State trade/ commerce and would be liable to integrated tax under this Act.

The following aspects need to be noted:

> The place of supply of goods in case of imports would be the location of the importer. E.g.: If goods are imported at Mumbai port but the importer is at Delhi, the place of supply shall be Delhi;

> The integrated tax would be levied on the value of goods as determined under the Customs law in addition to the custom duties levied on such imports.

In other words, levy of Basic Customs Duty (BCD) will continue and the component of Countervailing Duty (CVD) and Special Additional Duty (SAD) will be replaced by Integrated tax;

> The time at which the customs duties are levied on import of goods would also be the time when integrated tax is levied;

> The importer will be liable to pay integrated tax on a reverse charge basis and the same will have to be discharged by cash only and credit cannot be utilized for discharging such a liability;

> Merchant Trading Transactions i.e. where the supplier of goods will be resident in one foreign country, the buyer of goods will be resident in another foreign country and the merchant will be resident in India, would primarily not come under the ambit of GST since they do not involve entry of goods into India.

> In case of multi State registration, GSTIN mentioned on the Bill of entry would discharge the IGST on Reverse charge on import of goods even if the port is situated in separate State

Inter-State supply of services

(supply of services but also in respect of transactions involving goods which are treated as supply of services)

Continuing with inter-State supply, but in respect of services, it is firstly important to recollect that this provision will apply not only in respect of supply of services but also in respect of transactions involving goods which are treated as supply of services by the fiction in Schedule II of the CGST Act, 2017.

The discussion regarding location of supplier of goods and place of supply of goods will be applicable in the context of services but only to a limited extent for the reason that location of supplier of services has been defined in this Act.

The location of supplier of services and the place of supply of services are in two different States or UTs or either, such as supply of services shall be in the course of inter-State trade or commerce.

It is interesting to note that inter-State trade is not simply called ‘inter-State trade’ but is prefixed with ‘in the course of’. This prefix is not without reason, because such prefix is missing in relation to intra-State supply. The significance of ‘in the course of’ is well explained in the decision of State of Bihar Vs Telco Ltd. 27 STC 127 at pg. 148 where the Hon’ble Supreme Court has held that it signifies a series of activities that are all inter-related in an unbroken chain of events so intimately linked to each other that all of them are bound together ‘in the course of’ such an inter-State trade transaction.

Location of supplier of services is defined to mean ‘place of business from where supply is made and duly registered for the purpose’. It also includes other places ‘from where’ supplies are made being a fixed establishment – a place with sufficient degree of permanence and suitable structure to supply services. And lastly, the usual place of residence of the service provider.

It is interesting to note that the location of supplier of services has nothing to do with the business premises ‘wherefrom’ supply is made.

For example,

A company incorporated in Chennai engaged in the business of investment in immovable property and letting them out on rent may have such investments in Chennai and in Hyderabad. By the definition of location of supplier of services being the ‘place of business’, the company has its place of business where its ‘seat of management’ is located – Chennai.

Accordingly, the location of service provider in relation to the transaction involving renting of immovable property is not where the property let out is situated but the registered office of the company where the management has its seat for decision making.

Therefore, in relation to property in Chennai that is let out, it is an intra-State supply because location of supplier of services and place of supply both in Chennai.

In respect of its property located in Hyderabad, it is an inter-State supply because the location of supplier of service is in Chennai but the place of supply is Hyderabad.

All decisions are taken where the seat of management is located and therefore, the location of supplier of service remains Chennai wherever the let-out properties may be situated.

This view may not be acceptable to all but merits attention.

Special category of inter-State supplies

GST law indulges in use of fiction without any hesitation. The following categories of supplies of goods or services or both, are treated as being in the course of inter-State trade or commerce:

(a) when the supplier is located in India and the place of supply is outside India

Here, it is extremely important to note that usage of the ‘supplier is located’ is not to be equated with ‘location of supplier’.

From the previous discussion, it is learnt that location of supplier of goods is –physical point where the goods are situated under the control of the person wherever incorporated or registered, ready to be supplied.

Supplier is located in India does not refer to location of supplier.

Instead, it is a simple question of fact as to where the supplier is located. Please note, that the ‘supplier’ is none other than the ‘one who supplies’ and not his agent or representative or any other person.

The question that arises is – what is the GST impact in case the supplier is located outside India and the place of supply is outside India?

The Act applies to supplies within the taxable territory and when both – supplier as well as place of supply – being located outside India, the Act does not enjoy any jurisdiction to impose tax even if the recipient is located in India.

The destination of consumption being decided by the place of supply provisions and not location of the recipient

(b) where the supply is

> ‘to’ or ‘by’ an SEZ developer or unit Here, it is important to note that supply to SEZ (developer or unit) is treated as inter-State supply.

> Supply ‘by’ SEZ (developer or unit) will also be treated as inter-State supply.

> supply by SEZ’s inter se – one SEZ unit (or developer) to another SEZ unit (or developer) – will also be treated as a supply in the course of inter-State trade or commerce.

Examples to illustrate the implications from this provision:

  • Taxable person (non-SEZ) located in Jaipur supplying goods to a SEZ unit located in Jodhpur is a supply in the course of inter-State trade or commerce.
  • SEZ unit in Kolkata supplying services to another SEZ unit in Kolkata is a supply in the course of inter-State trade or commerce.
  • Lease of premises by SEZ developer in Chennai to SEZ unit in that same zone in Chennai will be a supply in the course of inter-State trade or commerce.
  • Supply by SEZ unit in Kochi to a non-SEZ in Kochi will be a supply in the course of inter-State trade or commerce.
  • Disposal of scrap by a SEZ developer in Mumbai to a scrap dealer in Mumbai (outside the zone) is a supply in the course of inter-State trade or commerce.
  • Export of goods by a SEZ unit to a customer in Italy is a supply in the course of inter- State trade or commerce.

(c) Any supply not being an intra-State supply

Here, it is to be considered that any supply that falls outside the scope of intra-State supply will not escape GST, but would be an inter-State supply by virtue of this residual provision in the Act.

Statutory provisions

8. Intra-State Supply

(1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:

Provided that the following supply of goods shall not be treated as intra-State supply, namely: –

(i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

(ii) goods imported into the territory of India till they cross the customs frontiers of India; or

(iii) supplies made to a tourist referred to in section 15.

(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:

Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.

Explanation 1 ––For the purposes of this Act, where a person has, ––

(i) an establishment in India and any other establishment outside India;

(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or

(iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.

Explanation 2 ––A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.

8.1 Introduction

With the above  discussion on inter-State supplies, it would be appropriate to contrast this understanding with a discussion on intra-State supplies.

8.2 Analysis

Intra-State supply of goods

In relation to goods, Section 8 of the IGST Act provides that where the ‘location of the supplier’ and the ‘place of supply’ are in the same State or same UT, such a supply will be treated as an intra-State supply.

Reference may be had with respect to the discussion on location of supplier of goods in the context of Section 7 of the IGST Act which may be relied upon for the purpose of this discussion. This provision too, is made subject to the provisions of Section 10, that is, regarding the place of supply, and the conclusion reached by applying the said provisions is required to be read into this Section for the purpose of determination of intra-State in nature.

The two factors –

 ‘location of supplier’ and

‘place of supply’ –

must at the conclusion of a supply, be in the same State or UT. And when it is so, the supply would be an intra-State supply of goods.

For example,

A company having its regular registration in Uttar Pradesh has taken a causal registration in Haryana. It has purchased certain goods in Haryana and supplying the same to the customer also in Haryana under two separate transactions of supply, both of them will be intra-State supplies.

Therefore, it is important to bear in mind that the place of incorporation of the supplier in any transaction relating to goods is not relevant as the location of the supplier which has been explained earlier as – physical point where the goods are situated under the control of the distinct person, wherever incorporated or registered, ready to be supplied.

 Not only this, three cases have been discussed above  wherein the location of supplier of goods may not be the location of supplier (i.e. in-transit sales, sales on approval or return basis wherein the goods are carried from one state to another and sales from the port directly without bringing the same to the registered place of business of the importer).

Further, three exceptions have been carved out in this provision to state that a few supplies are to be treated as inter-state even if the supplier and recipient are in the same state:

(1) supply ‘to’ or ‘by’ a SEZ developer or unit;

(2) supply involving goods imported into India but not beyond the customs frontiers;

(3) supply to outbound tourist in terms of Section 15 of the IGST Act.

These three exceptions make it abundantly clear that they have been treated to be an inter- State supply, expressly stated under Section 7. This proviso excludes any opportunity to question the probable intra-State nature of the said supply.

Please note that the supplies are not three specific supplies but three classes of supplies

Location of supplier of services

means –

(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;

(b) where a supply is made from a place other than the place of business for which registration has been obtained

(a fixed establishment elsewhere), the location of such fixed establishment;

(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and

(d) in the absence of such places, the location of the usual place of residence of the supplier;

Intra-State supply of services

With regard to supply of service, if the twin factors –

location of supplier of services’ and

‘place of supply of services’ – are in the same State or UT, then such supply will be treated as intra-State supply.

Location of supplier of services has been defined in the Act to mean ‘place of business from where supply is made and duly registered for the purpose’. It also includes other places and reference may be had to the discussion in respect of inter-State supply of services for the implications of this definition.

For Example:-

Consider audit services being provided by a Chartered Accountant located in Delhi to a company in Delhi. For the purpose of the audit, the Chartered Accountant visits the company’s factory located in Noida. Here, although the Chartered Accountant is physically moving to Noida, he is not supplying the audit services from Noida.

Here, the transaction will be an intra-State supply from Delhi to Delhi.

The two explanations provided are significant as the concept of distinct persons in Section 25(4) and (5) of the CGST Act is further clarified in stating that the following will also be distinct persons, namely:

  • establishment in India and an establishment outside India;
  • establishment in a State or UT and an establishment outside that State or UT;
  • establishment in a State or UT and any other establishment (registered separately) in the same State or UT.

Please note that the term ‘establishment’ may be interpreted as being similar to ‘fixed establishment’ which is defined in this Act in identical manner with the definition in section 2(50) of CGST Act. It refers to it being ‘a place with sufficient degree of permanence and suitable structure to supply services or to receive and use the services’.

Section 2(7) fixed establishment means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services or to receive and use services for its own needs.

Statutory provisions

9. Supplies in Territorial Waters

Notwithstanding anything contained in this Act, ––

(a) where the location of the supplier is in the territorial waters, the location of such supplier; or

(b) where the place of supply is in the territorial waters, the place of supply,

shall, for the purposes of this Act, be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

9.1 Introduction

GST being a destination-based consumption tax, the supply may at times take place in the territorial waters of India, including cases where a supplier is required to travel into the territorial waters in order to supply goods or services.

While the nature of supply in these cases may be inter-State supplies (in terms of Section 7(5)(c) of the IGST Act – residuary clause), by virtue of this Section, the law provides a deeming fiction to reinstate the steps to be applied in Sections 7 and 8 by artificially specifying the location of ‘location of supplier’ and the location of ‘place of supply’.

 For this reason, clear provisions are laid down as to where on the land mass of India, the actual location will be linked to.

 Please note, the statute uses the expression ‘deemed to be’ which would supply an artificial meaning.

Also, this provision does not seek to violate exclusive establishes a link to the land mass of India to overcome judicial intervention or assumptions by industry.

The non-obstante clause at the beginning of this Section is important to overcome any alternative interpretations that may be attempted by reading other provisions of the Act.

9.2 Analysis

The provision identifies two facts that have been discussed at length in the context of section 7 and 8, namely:

  • Location of supplier of goods or services or both
  • Place of supply of goods or services or both

By applying the provisions of Sections 10 and 12, if it is established that the ‘place of supply’ OR ‘the location of the supplier’ is found to be in the territorial waters and not on the land mass, an ambiguity could arise as to where the supplier is required to be registered, or which State the tax on the supply should be apportioned to.

To address these situations, the statue lays down, vide this deeming fiction, that such location – ‘supplier’ or ‘place of supply’ – will be the most proximate State or UT.

For example,

Consider a case where a ship is moored off the coast of Kochi (Kerala) needs a replacement of a crucial part, and such replacement is carried out along with the supply of the part by a Company located in Karnataka for the shipping company from U.K.

In this case, the place of supply of the part, being the location of the ship (as determined in terms of Section 10) will create doubt about the applicability of GST.

By virtue of the provisions of Section 9, it is clear that both the location of the supplier and the place of supply will not be the territorial waters but would be Kochi itself. ( coastal State where the nearest point of the appropriate baseline is located.)

 With this doubt having been resolved, it would be an inter-State taxable supply effected by the Company in Karnataka albeit to the U.K Company, while the State tax would be apportioned to the Kerala Government.

In these types of situation the provisions of section 9 will be applicable  by deeming fiction not the provisions of  Section 10 and  12.

Author Bio

Qualification: CA in Practice
Company: S.L.SACHDEVA & CO.
Location: ROHINI DELHI, New Delhi, IN
Member Since: 05 Sep 2018 | Total Posts: 10
B.COM, M.COM, CA, ISA (ICAI), LL.B 28 years of experience in Project Management, Business Consulting, Strategic Planning, Tax Consultancy, Audit work, Indirect Tax and Due Diligence in Corporate, Non- Corporate and Public sector. Subject Matter Expert in Internal Audit, Statutory Audit, Tax Pla View Full Profile

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One Comment

  1. V.A.Abraham says:

    You have not touched whether the sale of Hotel Rooms comes under Interstate or Intra-state sale. eg. a Tourism based company at Kerala selling Hotel rooms hired from Karnata state to a Travel Agent in Mumbai.
    Please have your valuable opinion.

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