Large OEM customers require their suppliers to supply material as and when required for their production. Majority of OEM customers have built into their contracts with supplier , where supplier is not based at their production location , that they would maintain inventory for one month – this varies depending on product & lead time of production by supplier – at a location near their factory. These contracts are typically FOR destination contracts. They would pick up material from the location as and when required by them. In order to meet these requirements the supplier sends material to transporters go down near customers factory under cover of invoice showing as billing to customer who has placed order & LR showing custtomer as consignee. The customer picks up the material from transporters godown invoice wise as billed by supplier. Hence the delivery to customer is under cover of invoice made by supplier and no further documentation is made for delivery from transporters go down. The customer issues C form to supplier which is produced by supplier in course of his assessment to back up his claim of inter-state sale at concessional rate of 2%.
This being the factual matrix with minor variations across industries for just in time inventory management by large OEM customers it needs to be evaluated as to what would be the position under revised GST Law.
The question to be resolved in the context of above factual matrix are as under:
1. Whether supply made by the supplier through transporter’s godown to the customer is in continuation of supply? Or
2. Whether the supply made to transporter’s godown is to be treated as stock transfer & further supply from transporters godown as intra-state sale by supplier & registration to be obtained by supplier of transporter godown as place of business.
In order to evaluate we need to understand provisions of Sec.2(5), 2(74 ), 2(85), 2(94), Schedule V of MGST Law and to determine whether supply is intra-state or inter-state provisions of sec.7 of IGST Act.
Sec.2(5) defines an agent to mean a person, including a ………………………………………………………………………………….., by whatever name called, who carries on the business of supply or receipt of goods or services on behalf of another, whether disclosed or not.
Sec.2(74) defines Place of Business to include –
(a) A place from where the business is ordinarily carried on and includes a warehouse, a godown or any other place where a taxable person, provides or receives goods and/or services or
(b) Clause ( b) not considered as not relevant to discussion or
(c) A place where taxable person is engaged in business through an agent, by whatever name called.
Sec.2(85) defines removal in relation to goods to mean:
(a) Dispatch of goods for delivery by the supplier thereof or by any other person acting on behalf of such supplier or
(b) Clause ( b) not considered as not relevant to the discussion.
Sec.2(94) defines supplier to mean a person supplying goods and/or services and includes an agent acting on behalf of such supplier.
As per Schedule V every supplier shall be liable to be registered in the state from where he makes a taxable supply of goods and / or services . As per clause 6(viii) persons who supply goods and / or services on behalf of other taxable persons whether as an agent or otherwise , is required to obtain registration
Sec.7(2) of IGST Act determines place of supply of goods states where supply involves movement , whether by supplier or the receipient or by any other person , place of supply of goods shall be the location of goods at the time at which the movement of goods terminates for delivery to the recipient.
In view of above can we come to a conclusion that supply billed to customer & delivered through transporters godown is a supply in continuation of supply & that the movement of goods terminate for delivery to the recipient when delivery of same is made to recipient in terms of customers order. Further one should remember that principles formulated to determine inter-state supply will not be applicable under GST as charging event under GST is supply & not sale as under CST Act.
The better view would be that supply by the supplier to transporter godown is a stock transfer which would attarct IGST. The supplier would have to take registration for transporters godown and charge intra- state GST on supplies from transporters godown. For IGST charged on stock transfer invoice credit can be taken which can be set-off against intra-state billings from transporters godown. No doubt this would involve additional compliances to be complied by the supplier in terms of valuation for stock transfers & return filing requirements. However this is a safer course as compared to earlier option where democlies sword will always be hanging interms of local authorities raising the issue & treating the supply from transporters godown as leviable to intra-state sale and demanding local tax which may not be recoverable from customer as he has been billed on IGST basis and paid for same.