Place of Supply of Goods and Service (POS): Brief Analysis

GST is a destination-based tax, levied at each stage of the supply chain, from the manufacturer to the consumer. It is applied to the value addition at each stage, allowing for the seamless flow of credits and reducing the tax burden on the end consumer. It helps create a common market in India with a uniform taxation system and curb tax evasion in the country. The laws for GST are far more stringent compared to the erstwhile indirect tax laws. This article delves into the concept of POS for both goods and services, highlighting its significance and the rules governing its determination.

The basic principle of GST is that it should effectively tax the consumption of such supplies at the destination thereof or as the case may be at the point of consumption.

Place of supply for services is based on consumption. Determining correct place of supply is crucial for accurate taxation. Key factors include location of service provider and recipient. Transactions can be domestic (intra-state or inter-state) or international

Place of supply provision determines the place i.e. taxable jurisdiction where the tax should reach. The place of supply determines whether a transaction is intra-State or interstate. In other words, the place of supply determines whether a transaction is intra-state, inter-state, or import-export. This in turn determines which taxes apply: a combination of central (CGST) and state (SGST) taxes, or an integrated tax (IGST), with or without additional duties. Separate rules for determining the place of supply in respect of B2B and B2C transactions

Place of supply of Goods:-

The place of supply of goods shall be the location of the goods at the time of delivery to the recipient or at the time at which the movement of goods terminates for delivery to the recipient.

The place of supply where the goods are supplied on board a conveyance, such as a vessel, an aircraft, a train or a motor vehicle shall be the location at which such goods are taken on board.

For instance, if goods are taken on board at Vadodara, Gujarat on Rajdhani Express from Mumbai to Delhi, the place of supply shall be Vadodara, Gujarat.

The place of supply of goods imported into India shall be the location of the importer and the place of supply of goods exported from India shall be the location outside India.

Place of supply of Services:-

However, in respect of services, the place of supply of Services shall be the location of the first scheduled point of departure of that conveyance for the journey. For example, in India “Enjoy on wheels” is a train which runs from Jaipur to Kanyakumari and provides entertainment services. For outward journey the place of supply will be Jaipur (First point of departure and for return journey it will be Kanyakumari.

The second example is a person travelling from Mumbai to Ranchi by Air, watches a movie on board by making the payment. The place of supply will be Mumbai, the place of departure of the conveyance

The place of supply in case of assembly or installation of goods at site will be the place of such installation or assembly.

The place of supply of services is the location of recipient of service.

Any service provided directly in relation to an immovable property including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or coordination of construction shall be the location at which the immovable property is situated.

In case of an event, if the recipient of service is registered, the place of supply of services for organizing the event shall be the location of such recipient. However, if the recipient is not registered, the place of supply shall be the place where event is held.

The place of supply of services by way of transportation of goods, including mail or courier, shall be the location of registered recipient. However, if the recipient is not registered, the place of supply shall be the place where the goods are handed over for their transportation.

Where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.

The place of supply of service in respect of goods that are required to be made physically available by the recipient of service to the supplier of service shall be the location where the services are actually performed.

For example, if a manufacturer located in Vadodara gets a Machine Pump repaired from a repair service provider located in Mumbai, by sending the Pump to the repairer’s location in Mumbai and receives back the Pump after repairs, in such cases the place of supply would be Mumbai, where the repair service was performed.

If the services are performed from a remote location using electronic means on goods, the place of supply shall be the location where the goods are actually located at the time of supply of services.

For example, if a manufacturer located in Mumbai wants to get the issues in the software of a CNC machine installed at the factory in Mumbai resolved and the Engineer providing the repair service located in Delhi repairs the software resolves the issue by sitting in Delhi, then in such cases, the place of supply of this service would be Mumbai, the place where the machine is located.

For OIDAR services the place of supply will be the location of recipient of services. For the purpose of determining place of supply, the location of recipient of service shall be deemed to be in the taxable territory if any two of the following seven non-contradictory conditions are satisfied, namely:-

(a) the location of address presented by the recipient of services through internet is in the taxable territory;

(b) the credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory;

(c) the billing address of the recipient of services is in the taxable territory;

(d) the internet protocol address of the device used by the recipient of services is in the taxable territory;

(e) the bank of the recipient of services in which the account used for payment is maintained is in the taxable territory;

(f) the country code of the subscriber identity module card used by the recipient of services is of taxable territory;

(g) the location of the fixed land line through which the service is received by the recipient is in the taxable territory.

In the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process, the place of supply shall be the location of recipient of services.

For example, a person located in U.S.A sends a machine for repairs by a service provider located in Bengaluru. The service provider has to comply with all the procedures related to import of such machine into India. After carrying out the repairs the said service provider sends the machine back to the sender of the machine located in U.S.A, by following export procedure. As the repairs were carried out in Bengaluru and this machine was not put into any use in Bengaluru but returned to the person located in U.S.A, the place of supply in this case would be U.S.A, as per second proviso to sub-clause (a) to Clause (3) of Section 13 of CGST Act, 2017.

Conclusions:- Accurate determination of place of supply is important for businesses to determine the accurate incidence 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 70 of CGST Act. Where wrong taxes have been paid on the basis of the wrong classification, a refund will have to be claimed by the taxpayer. The taxpayer will have to pay the correct tax along with interest for the delay on the basis of revised/correct classification. Also, correct determination of place of supply will help us in knowing the incidence of tax. As if the place of supply is determined as a place outside India, then tax will not have to be paid on that transaction.