GST Council has released revised draft of Model GST law on November 26, 2016 wherein key changes has been introduced in Place of Supply Rules.The earlier version of draft GST law was silent on place of supply rules related to Imports, Exports & SEZ units. The new version tries to clarify & brings in provisions of Imports & Exports separately. Further IGST law has made a special reference to Special Economic Zone units & SEZ developers & clarifies that any transaction entered in by or with SEZ shall be considered as Inter State transactions.Changes has also been made in specific clauses of Place of Supply Rules & few new rules has been inserted for both Goods & Services.
In this article we shall discuss the main highlights of changes introduced in Place of Supply Rules for Goods & Services
1. PLACE OF SUPPLY FOR GOODS
“S5 Place of Supply of Goods”is now “S7 Place of Supply of goods other than supply of goods imported into, or exported from India”, which clearly shows the intention of the government to separate Imports & Exports from other domestic transactions and hence a new section – Sec 8“Place of Supply of goods imported into, or exported from India” has been inserted to set out specific rule for Imports & Exports.
The below table will help to understand the place of supply in cases of goods
2. PLACE OF SUPPLY FOR SERVICES
“S6 Place of Supply of Services” is now “S9 Place of Supply of services where the location of supplier of service and the location of the recipient of service is in India”, this again shows the clear intention to separate the Import & Export from domestic transactions and a separate section has been introduced for Imports & exports “S 10– Place of supply of services where the location of the supplier or the location of the recipient is outside India”. The specific rules are listed below in the enclosed excel as Annexure-1 for other than Imports & Exports.
Major relief giving introductions for domestic transactions are as below:
IMMOVABLE PROPERTY– Here the words “Directly in relation to” has been inserted which clearly means that not any & every kind of transaction in relation to Immovable property shall be chargeable to tax, it shall be only the transactions which have direct relation with the immovable property will be subject to GST.
Further, where services being provided by supplier for a property located / intended to be located outside India or more than 1 state in India, the Place of Supply shall be the Location of Service Recipient for the former &proportionately in each such state for the latter basis the contract or some other reasonable basis in absence of contract.
ORGANIZING EVENTS / CONFERENCES / SPONSORSHIP – The situation where the event is held outside India has been added, where the location of Service Recipient shall be the Place of Supply. Earlier version was silent on this aspect.
TELECOMMUNICATION SERVICES– For Fixed landlines & leased circuits the contracts are usually for providing services by the operator in more than 1 state, the new version clarifies such situations. The place of supply in case where the services are being provided in more than 1 state shall be proportionately in each such state basis the contract or any other reasonable basis in absence of such contract.
A major relief comes herein case Prepaid Connections, prior to the new version the Place of Supply for prepaid connections was the place where such pre-payment is received or such vouchers are sold, hence the same was a big challenge for mobile operators to track down the transactions at the root level.
In the new version of model GST Law, a new clause has been inserted,i.e where the connections are being sold through selling agent or a re-seller or a distributor of SIM card or recharge voucher the place of Supply shall be the address of such selling agent / re-seller / distributor as per the record of supplier at the time of supply.
The new version also clarifies for payments made through electronic mode to mobile operators this includes online recharges as well, here the place of supply shall be the registered address of service recipient available with the supplier.
The major task here with the Mobile operators is to ensure that they have updated addresses of all the service recipients, in cases where the location of service recipient is not available the location of supplier shall be the place of supply by default.
The new inserted “S 10– Place of supply of services where the location of the supplier or the location of the recipient is outside India” talks about the cases for Imports & Exports, here few of the rules of S9 have been picked up as it is or with minor modifications, the same can be referred from the below enclosed excel “Annex-2“. I shall here talk about the cases which have been introduced for the first time in the revised draft law.
SERVICES WHERE PHYSICAL PRESENCE OF GOODS / ACTUAL RECIPIENT OR HIS AGENT IS REQUIRED – This clause clarifies cases where physical presence of goods / actual recipient is necessary. E.g. goods sent outside India for some testing, repairs, lab analysis etc.Earlier version was silent on such situations. This clause is on the same lines of existing Rule 4 of Place of Provision of Service Rules i.e. the place where actual services are performed shall be the place of provision of service where the goods are required to be made physically available.
As per the new draft law also the actual place of performance of service shall be the place of Supply.
Thus if a good is being sent outside India the place of supply shall be outside India the place of supply shall be outside India.
However, if a service is provided through a remote location then the place of supply shall be the location where actually goods are placed. Therefore in cases of IT services provided through a remote location the actual place where servers are placed shall be the location of Place of Supply.
Similarly where the actual presence of recipient / his agent is required with the supplier for the supply of the service, the location where such services are performed shall be the place of supply. Eg: surgery done abroad.
ONLINE INFORMATION AND DATA BASE ACCESS OR RETRIEVAL SERVICES “OIDAR”– It is in this version of draft law OIDAR services has been introduced. Here the general rule is Location of Service Recipient shall be the place of supply.
However, with the increasing trend of usage of OIDAR services, increasing set ups for tax evasion & considering the complicated nature of such services across globe law makers has set forth deciding conditions in form of a deeming clause as per which a person shall be deemed to be in taxable territory even if the location of Recipient is outside India. Thus if any two of the below non contradictory conditions are satisfied the place of supply shall be deemed to be in taxable territory:
1. Location of address presented by the recipient of service via internet is in taxable territory.
2. Cr / Dr card / Store value / Charge card / Smart card / any other card by which the recipient of service settles payment has been issued in the taxable territory.
3. Billing address of recipient of service is in the taxable territory
4. IP address of the device used by the recipient of service is in the taxable territory
5. Bank of recipient of service in which the account used for payment is maintained is in the taxable territory;
6. Country code of the subscriber identity module (SIM) card used by the recipient of service is of taxable territory;
7. the location of the fixed land line through which the service is received by the recipient is in taxable territory.
The last & the most important is sub clause 13 which gives power to CG to notify any description of service or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service in order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules. This shall serve as tax wand in the hands of CG.
Note: – Reliance & reference has been made on revised draft IGST Law, the contents are subject to change upon the release of the Final GST Law.