Interstate or Intrastate Supplies? Immaterial for Supplies Covered by Reverse Charge Provisions under Goods and Service Tax (GST)
GST is a consumption / destination based tax wherein tax revenue should go to the state where goods/services have been consumed. In technical term such state is determined based on provisions of place of supply (POS) elaborated in Section 10, 11, 12 & 13 of the IGST Law. General rule for determining place of supply are:
For goods – location where the movement of goods terminate for delivery and
For services – location of the recipient.
Location of the supplier is another aspect which is evaluated to determine whether it’s an interstate supply or an intrastate supply. If location of the supplier and place of supply is in:
different state – it’s a interstate supply and
same state – it’s a intrastate supply
and accordingly IGST or CGST+SGST is paid respectively on such supplies (Section 7 and 8 of the IGST Law).
Section 9(3) of the CGST Law provides that Government will specify categories of supplies, tax on which shall be paid on reverse charge basis by the recipient (addressed as RCM supplies) and provisions of this act shall apply to such recipient as if he is the person liable for paying tax in relation to such supply.
Now with the above provisions in place the obvious question arises is whether one needs to at all look at the location of the supplier for cases where tax is payable under reverse charge as:
– taxes needs to be paid under reverse charge by the recipient as per section 9(3) by raising an invoice on himself.
– such recipient may not be registered in the state of supplier of service (in case of interstate supplies) thus it becomes practically impossible for the recipient to pay taxes in the other state.
– this tax revenue will, in all cases, go to the state in which recipient is located thus eliminating the need to categories this as interstate or intrastate supply.
ABC Ltd. of Maharashtra (not registered in Gujarat) takes transportation service from VAL Logistics, Gujarat for transportation of goods from Maharashtra factory of ABC Ltd. to customer located in Karnataka. Assuming transportation is notified as supplies covered under reverse charged under section 9(3) of the GST Law:
– ABC Ltd. will have to pay GST on such transportation service under RCM,
– ABC ltd. of Maharashtra will pay GST under RCM on such transportation supplies in the state of Maharashtra (not registered in Gujarat, thus no question of paying in Gujarat).
– GST revenue on such supplies viz. transportation service, will in all cases accrue to the state of Maharashtra as the service is done in Maharashtra (goods picked up from Maharashtra)
Looking at the provisions of the GST law and the practicality of the case it can be concluded that in case of supplies covered by RCM one is not required to categories the supplies in interstate or intrastate and pay taxes as if it’s a intrastate supplies.