Significance of place of supply under GST:
GST is a destination based consumption tax which is a major departure from existing origin based taxation system. Under destination based taxation system broadly tax will accrue to the location/state which is determined as place of supply under GST. Previously article 246 of constitution well defined taxing powers of both centre and state through schedule VII. Now both centre and state have come together on a common platform called GST council which will decides on many issues between centre and state including place of supply.
It is again important to correctly determine the ‘place of supply’ as to whether IGST Act applies to a particular supply or CGST /SGST Acts apply. Any error committed in determining the ‘place of supply’ may result in payment of the wrong tax, that is, CGST / SGST instead of IGST and vice versa.
Glimpse of place of supply in case of goods:
|S. No.||Situation||Place of supply||Relevant section|
|1.||In case where supply involve movement of goods||Location where movement terminates for delivery||Sec 5(2)|
|2.||In case where supply does not involve movement of goods||Location of goods at the time of delivery||Sec 5(3)|
|3.||In case goods are supplied on the instruction of third party||Deemed place of supply is principal place of business of third party||Sec 5(2A)|
|4.||Where the goods are assembled or installed at site||Place of supply shall be the location of such installation or assembly||Sec 5(4)|
|5.||Where the goods are supplied on a board the conveyance such as vessel, aircraft, train or motor vehicle.||Place of supply shall be the location at which such goods are taken on board.||Sec 5(5)|
Place of supply where supply involves movement of goods Sec 5(2):
In case where supplies involve movement of goods by supplier/ recipient/ any other person before the delivery of goods is given place of supply shall be location where movement terminates for delivery to the recipient. Important points which emerges from this discussion is delivery of goods to recipient will be given once movement terminates.
Once delivery in goods is completed further movement has no significance from the point of view of place of supply. The cases where delivery of goods has been completed to recipient before movement of goods this sub section will not be applicable to such kind of situations. Now let’s understand section 5(2) with the help of an example:
In case Mr. X of Haryana has made order for supply of certain goods to his supplier in Delhi. Delivery shall be made by supplier at the godown of Mr. X in Haryana. Place of supply in this case shall be Haryana since the supply involve movement by supplier and movement terminates for delivery in Haryana.
Place of supply where supply does not involve movement of goods Sec 5(3):
The phrase supply does not involve movement of goods does not mean the situation where movement is not required at all but movement of goods is done after the effective delivery of goods is given to the recipient. Normally where the supplier gives the delivery of goods at the location of goods, place of supply shall be the location of goods at the time of delivery to the recipient.
In case Mr. X of Haryana comes to Delhi himself and takes delivery and hire a transporter from there and sends goods to Haryana. Since effective delivery in goods has already been passed at Delhi itself place of supply shall be location of goods where delivery has been given i.e. Delhi in this case.
Place of supply where goods have been delivered on the direction of third person Sec 5(2A):
This sub section has been drafted keeping into mind the “bill to ship to model” most frequently used by various business houses. Under this kind of transaction three parties are involved mainly i.e. supplier of goods, third person who is directing supplier to supply goods and actual recipient of goods. Typically we can call this practice adopted as bill to ship to model where billing is done by Mr. A to Mr. B but goods are supplied to Mr. C on the instance of Mr. B.
Section 5(2A) clearly makes a deeming fiction and place of supply for first leg of transaction shall be the principal place of business of Mr. B. In my opinion the law as on date is silent on the place of supply between B and C for second leg of transaction.
Place of supply where the goods are assembled or installed at site:
Place of supply in this case shall be the place of such installation or assembly of goods. We can understand this concept with the help of an example also.
Illustration 1: In a case where an agreement has been done by Mr. X of Haryana with Mr. Y of Delhi for supply of lift in complete installed form at the premises of Mr. X in Haryana. Place of supply in this case will be Haryana irrespective of delivery of goods at some other place.
Place of supply where the goods are supplied on board a conveyance, such as a vessel, an aircraft, a train or a motor vehicle:
The place of supply in this case shall be the location at which such goods are taken on board i.e. the place where goods are loaded.
Food for thought: In a case where goods have been loaded in Delhi in 100 units and out of it 70 have been supplied during the journey in same flight. Balance 30 units have not been sold and again loaded in another flight of some other route. How place of supply shall be determined for these cases?
All the provisions in this article have been discussed on the basis of model law as issued by empowered committee of state finance ministers. In some cases clarity is missing in law such as section 5(2A) which is talking about 3 party transactions. Some of the points discussed in this article are strictly my personal opinion about law and adequate precaution must be taken before taking any final decision.
Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.
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