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Understanding Determination of place of supply and connected issues in GST

Hello friends, Greetings of the day! In this article, the provisions of the place of supply has been discussed with examples.

♠ GST is destination based consumption tax. Place of supply is that destination where the services or goods are deemed to be consumed.

♠ Determination of place of supply is important to ascertain the tax applicable on a transaction i.e. for determination of a transaction whether it is inter- state or intra – state. Which tax is to be levied (IGST or CGST and SGST/UTGST) will depend on whether a particular transaction is an Inter-state supply or Intra-state supply. Hence, every transaction will have to go through the test of provisions relating to the place of supply in order to determine which tax is to be levied.

Place of Supply and GST Applicability:

For domestic transactions: When location of supplier and place of supply is in 2 different states or Union Territories (UTs) or one in state and other in a UT then the transaction shall be inter-state supply chargeable to IGST. (Sec 7(1) of the IGST Act, 2017).

  • When the location of supplier and place of supply is in the same states or UTs then it will be intra-state supply subject to CGST/SGST/UTGST.

For international transactions: When the supplier is located in India and the place of supply is outside India. This will also be treated as inter-state supply and subject to IGST. However, the same may be export of goods or services provided the definition of export of goods and services given in Sec 2(5) and Sec 2(6) respectively is satisfied. Once it qualifies as export of goods/ services then the same will be treated as zero-rated supply as per Sec 16 of the IGST Act thereby not chargeable to GST provided export made under the cover of Bond or Letter of Undertaking following the procedure stated in Rule 96A of the CGST Rules,2017.

For example: Goods sold outside India to a foreign buyer, place of supply will be outside India and as such inter-state supply as the location of supplier in India and place of supply outside India. Thus, chargeable to IGST. Exports being zero rated supplies not subject to IGST provided the condition of furnishing the bond/LUT as required by Rule 96A of the CGST Rules, 2017 is satisfied.

A. Place of supply of goods in other than import/export case:

a. Place of supply where movement of goods is involved [Sec 10(1)(a)]

  • As per Section 10(1) (a) of IGST Act, 2017, place of supply where movement of goods is involved then place of supply of such goods shall be the location where movement of goods terminates for delivery to the recipient.

(Movement of goods terminate for delivery means the place where goods are delivered)

For example- Supplier sends goods from Karnataka to Gujarat then the place of supply is Gujarat being the place where the goods are delivered.

  • Movement of goods can be by the supplier or by the recipient after having disclosed the destination of their movement. For example: Sun Ltd., Mumbai supplying goods to Star Limited, Ahmedabad. Star Ltd. will take delivery of goods from Sun Ltd.’s factory and transport it at its own to Ahmedabad. Here, the movement of goods is made by recipient to its destination. Such destination would be the location where movement of goods terminates for delivery to the recipient. Therefore, place of supply shall be Ahmedabad, Gujarat. Hence, IGST chargeable.
  • If in the above, example if Star Limited instead of transporting the goods to Ahmedabad intends to send it its agent in Mumbai. In such a case, place of supply will be Mumbai as the movement of goods terminates at Mumbai itself. Sun Ltd. to charge CGST and SGST, Maharashtra. Star Ltd. won’t be able to claim ITC of CGST and SGST as it has no registration in Maharashtra,

b. Place of supply when the goods are delivered to a person on the direction of a third person [Sec 10(1)(b):

  • As per Section 10(1) (b) of the IGST Act, 2017, if movement is at the instance of the third person to a recipient (by way of instruction or transfer of documents of title to goods or otherwise), the place of supply will be principal place of business of third person.

For example: Sunshine Limited, Nagpur raised an invoice to Sunset Limited, Jaipur and delivering goods to Sunsilk Limited, Vadodara on the direction of Sunset Limited. Here, supplier Sunshine Limited will bill to Sunset Limited and ship to Sunsilk Limited.

Infact, this transaction will involve two supplies. First supply between Sunshine and Sunset whereas second supply (deemed supply) between Sunset and Sunsilk.

First Supply – Sunshine and Sunset:

  • Place of supply shall be the location of third person directing delivery of goods to be made to some other person other than him. Therefore, place of supply is Jaipur.
  • Sunshine to charge IGST on invoice raised to Sunset.

Second Supply- Sunset and Sunsilk

  • Place of supply shall be the place where delivery of goods terminate. Therefore, place of supply is Vadodara as the goods are delivered by Sunshine to Sunsilk at Vadodara on the direction of Sunshine off course.
  • Sunset to charge IGST on invoice raised to Sunsilk.

Illustration: Bill to/Ship to transactions when bill to party outside India:

  • Lovely Exports, Jaipur received an order from Easybuy Inc, Netherlands to deliver 100 cell phones to its subsidiary Salephone India, Bangalore.
  • In this case, on application of Sec 10(1)(b), place of supply is Netherlands. The question here arises that will this chargeable to tax or exports as place of supply is outside India.
  • Transaction b/w Lovely Exports and Easybuy- As per Sec 2(5)-“ export of goods” means taking out goods a place outside India. In our case, as goods are not moving out of India hence it cannot be termed as exports.
  • Section 7(5)(a) states that supply of goods or services or both when the supplier is located in India and the place of supply is outside India shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce. Hence, as per the above provision the transaction b/w Lovely Exports and Easybuy chargeable to IGST.
  • Transactions b/w Easybuy Inc and Salephone India: This transaction cannot be treated as import of goods because as per Sec 2(10) “import of goods” means bringing goods into India from a place outside India. In our case, no goods brought into India from outside India.
  • This transaction will be covered under section 7(5)(c) which states that supply of goods or services in the taxable territory not being an intra-state supply and not covered elsewhere in section 7 shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce.
  • In the present case, the supply of goods is in taxable territory i.e. in Bangalore. It is not an intra-state supply as supplier Easybuy Inc (person directing Lovely Exports to deliver to Salephone India) is located outside India. Since, such a case is nowhere else covered in Sec 7 the transaction by virtue of Sec 7(5) shall be treated as inter-state and as such chargeable to IGST.
  • Hence, IGST to be paid by Salephone India under reverse charge mechanism.

c. Place of supply when there is no movement of goods [Sec 10(1)(c)]:

  • As per Sec 10(1)(c), where the supply does not involve movement of goods, whether, by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient
  • This section has the role to play when goods are of such nature which does not require any movement. For example- Indus Towers, New Delhi sold its pre-installed transmission tower located in Pune to Vodafone India, Mumbai. In this case, the location of the supplier is New Delhi, but place of supply will be Pune being the place goods are available for delivery. Such transaction will be inter-state supply chargeable to IGST.

d. Place of Supply in case of assembly or installation of goods at site [Sec 10(1)(d)]:

  • As per Sec 10(1)(d), the place of supply of goods in case of assembly or installation of goods will be the place of installation or assembly.

e. Place of supply in case goods supplied on board a conveyance [Sec 10(1)(e):

  • As per Sec 10(1)(e), where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.
  • For example: Sale of canned foods by IRCTC, New Delhi in train on New Delhi- Mumbai route. Food supplied from Kota (Raj.) stall of IRCTC at Ratlam (MP). Place of supply is Rajasthan, IGST chargeable.

B. Place of Supply in case of exports and imports (Sec 11):

  • In case of import of goods, the place of supply of goods imported into India shall be the location of the importer. Import of goods has been defined in Sec 2(11) which states that bringing goods into India from a place outside India. Import of goods shall be chargeable to IGST in addition to Basic customs duty.
  • In case of exports of goods, the place of supply of goods exported from India shall be the location outside India. Export of goods has been defined in Sec 2(5) which states that taking goods out of India to a place outside India. Export of goods shall be treated as zero rated supplies and not taxable provided exports made under Letter of Undertaking/Bond as per Rule 96A of the CGST Rules, 2017. Otherwise, exports also chargeable to IGST which can be claimed refund subsequently under Sec 54 of the CGST Act, 2017.

Taxation of High Seas Sales of imported goods:

  • High Seas Sales is a transaction whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. Doubts arised whether original importer as well as the buyer purchasing on high seas both liable to pay IGST. In this regard, circular no.33/2017-Cus dated 01.01.2018 issued to clarify that IGST on High Sea Sale transactions of imported goods shall be levied and collected only at the time of importation i.e. the buyer of high seas sale shall only be liable to pay IGST at the time of clearance of imported gods. High seas seller (original importer) won’t be liable to pay IGST.
  • Buyer shall pay IGST on the final purchase value as per last High Sea Transaction envisaging all margins earned by all persons who made High Sea Sales of such goods.

C. Place of supply of services

  • Determination of place of supply in case of services can be broadly divided into 2 parts:
    • Where the location of supplier and recipient is in India (Sec 12)
    • Where either of service provider or receiver is located outside India (Sec13)
  • For a few services only the place of supply varies depending upon the case that whether both service provider and receiver is located in India OR one of them is located outside India. For most of the services, place of supply remains same irrespective of location of service provider and receiver.

C1: Determination of place of supply when the location of service provider and receiver is in India:

a. General Rule

  • Place of supply of services except for the specified services in sec 12(3) to 12(14) shall be the location of registered person if made to a registered person. In case the same supplied to unregistered person then the location of the recipient where the address on record exists OR the location of the supplier of service if the address of unregistered recipient not available on the records of supplier.
  • Location of supplier in general means the principal place of business of the supplier.

b. Specific Rules:

i) Immovable Property [Sec 12(3)]:

  • Place of supply if services 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 located or intended to be located.
  • Place of supply of service by way of accommodation in an immovable property including a house boat or any other vessel shall also be location of such immovable property.

Issue1: Immovable Property service and loss of ITC:

  • As stated above, place of supply of services in relating to immovable property shall be the location of immovable property. Let’s take an example, Easylife Limited, Noida a real estate company intends to redevelop a housing society in Mumbai. In this regard, it procured services of a Architect Mr. Ravi based at Mumbai.
  • Place of supply in this case would be Mumbai as immovable property is located in Mumbai. Therefore, Mr. Ravi will charge CGST and SGST, Maharashtra to Easylife.
  • Here, Easylife won’t be able to take credit of CG & SG charged by Maharashtra as it has no registration in Maharashtra. The same would become cost.
  • Hon’ble Delhi High Court while hearing writ petition filed in the case of D. Pauls Travels & Tours Ltd. directed to examine anomalies arising from mandate of registration in every State & Union Territory to avail Input Tax Credit (ITC) in case of inter-state supplies of goods / services. However, till date the issue has not been taken up by GST council.

Issue2: Hotel Accommodation Services provided to employees of Special Economic Zone (SEZ) units employees:

  • As we know that services provided to SEZ units for their authorized operations are treated as zero-rated supplies under Sec 16 of the IGST Act read along with Rule 46 of the CGST Rules, 2017, thus, not chargeable to GST provided the service provider supplies the services under the cover of Bond/LUT.
  • Sec 7(5)(a) of the IGST Act states that supply of goods or services to SEZ unit shall be treated as inter-state supply chargeable to IGST.
  • Karnataka Authority for Advance Ruling (AAR) in the case of Gogte Infrastructure Development Corporation Ltd. held that Hotel Accommodation & Restaurant services being provided by the Applicant, within the premises of the hotel, to the employees & guests of SEZ units, cannot be treated as supply to SEZ units because the service cannot be said to have been used for authorized operations of the SEZ unit.
  • The place of supply of said service is the location of hotel, therefore, chargeable to CGST & SGST for the same being a case of intra-state supply.
  • However, the ruling may be challenged on the ground that SEZ employees are availing hotel accommodation services in the course of furtherance of SEZ business operations. Further, there is no express restriction that services for authorized operations cannot be consumed outside SEZ area. Going by this, the service will be inter-state supply and zero-rated supply not chargeable to IGST provided the Hotel supply the service under the cover of Bond/LUT .Even when Hotel supply without filing Bond/LUT then the SEZ unit may utilize the ITC of IGST while paying off its other output liability (in respect of supplies made to DTA units) .

ii) Services of restaurant and catering, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery will be the location where these services are actually performed. [Sec 12 (4)]

iii) Training and Performance Appraisal Services: [Sec 12(5)]

  • If provided to a registered person, place of supply shall be the location of registered person
  • If provided to other than registered person, place of supply shall be the location where such services are performed.

iv) Admission or entry to an event and services ancillary to organization of such events or amusement park: [Sec 12(6) & (7)]

  • Place of supply shall be the place where such artistic, cultural, entertainment etc. event held.
  • Place of supply in respect of services ancillary to organization of such events shall be the location of registered person (in case service recipient is registered) otherwise the place where event actually held (in case the service recipient is unregistered). However, in case of unregistered service recipient if the event held outside India then place of supply shall be the location of such unregistered service recipient.
  • Further, when the event is held in more than 2 states/UTs and a lumpsum amount is charged for supply of services ancillary to organizing of such event, the place of supply of such services shall be taken as being in each of the respective States or Union territories in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.

v) Transportation of goods, including by mail or courier: [Sec 12(8)]

  • Place of supply of services by way of transportation of goods including by way of mail or courier if provided to registered person shall be the location of such person. In case provided to unregistered person then place of supply shall be the place where goods are handed over for their transportation.
  • By way of Notification No. 2/2018- Central Tax (Rate) the services provided by way of transportation of goods by an aircraft or vessel from Indian customs clearance station to a place outside India has been exempted. The said exemption shall be available from Jan 25, 2018 to September 30, 2018. This exemption not available if goods are exported by road/railways.

For Instance: Goods exported through Air India from Air Cargo Complex, Hyderabad Airport by M/s Intas Pharma Limited, Hyderabad. Since, service receiver is registered person as per above provision place of supply is Hyderabad making the transaction taxable. However, by way of exemption as per Notification No. 2/2018 as above the said transaction is exempted upto Sep 30, 2018.

vi) Passenger transportation service: [Sec 12(9)]

  • Place of supply of services by way of transportation of passengers if provided to registered person shall be the location of such person. In case provided to unregistered person then place of supply shall be the place where the passenger embarks (onboard) on the conveyance for a continuous journey.

vii) Services provided on board a conveyance: [Sec 12(10)]

  • Place of supply of services provided on board a conveyance (i.e. while travelling in bus, train car, aircraft etc.) shall be the first scheduled departure location of that conveyance for the journey.

viii) Telecommunication services: [Sec 12(11)]

  • In case of services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna, be the location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services.

For Instance: You Broadband, Ahmedabad is providing Internet Telecommunication Services to a subscriber in Ahmedabad from the leased lines installed in Mumbai. Place of supply shall be Mumbai, IGST chargeable.

  • In case of mobile connection for telecommunication and internet services provided on post-paid basis, be the location of billing address of the recipient of services on the record of the supplier of services;
  • In case of prepaid services for mobile/dish antenna etc. place of supply shall be the address of agent/distributor selling such prepaid vouchers on the records of supplier (Telecom co./Dish TV service provider). If such seller not on records of supplier then place of supply in respect of prepaid vouchers sol by him shall be the place where such vouchers are sold. For Instance: Airtel customer of Delhi circle went to Mumbai and recharges his mobile at Mumbai from a local retailer there. Place of supply shall be Mumbai being the place where voucher was sold. CGST and SGST applicable on such transaction.
  • In case of prepaid services where payment is made by online mode (via internet banking, mobile wallets), place of supply shall be the location of the recipient of services on the record of the supplier of services shall be the place of supply of such services.

ix) Banking & Financial Services and Stock Broking: [Sec 12(12)]

  • The place of supply of banking and other financial services, including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services.
  • If the location of service receiver not able then place of supply shall be the location of the supplier of services.

x) Insurance Services: [Sec 12(13)]

  • Place of supply shall be location of service receiver if provided to a registered person otherwise place of supply shall be the location of the recipient of services on the records of the supplier of services.

xi) Common Advertisement for Central and State Govts./UTs: [Sec 12(14)]

  • Place of supply shall be the treated in each state in proportion to the amount attributable to services provided by way of dissemination in the respective States or Union territories as may be determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.’
  • For example: An advertisement released by Ministry of Women & Children Health Development – “Beti Bachao, Beti Padahao”. Hello Publicity, New Delhi was hired to advertise the same in various places across India in all the states. As per the contract, states and UTs will bear the 75% costs equally whereas Centre will bear remaining 25%. Hello Publicity to charge CGST and SGST to Central Govt. as Central Govt. located in New Delhi whereas to charge IGST to other govts./UTs as place of supply will be in each state in proportion to the share attributable to them as per the terms of contract.

C2. Determination of place of supply of services where either the location of supplier or location of receiver is outside India: (Sec 13)

General Rule:

  • Place of supply unless otherwise transaction covered by specific rule shall be the location of service receiver. If the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.

Specific Rule:

a) Services by way of work performed on goods: [Sec 13(3)(a)]

  • Place of supply shall be the place where goods are made to supplier of services. In case when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:

For Instance: Computer repaired by connecting remotely, place of supply shall be the location of computer (place where computer kept) where it is being repaired remotely.

  • However, the above provision not applicable to goods which are temporarily imported into India for repairs and are exported after repairs without being put to any other use in India, then that which is required for such repairs. Therefore, for such a case general rule shall apply which will take place of supply out of India i.e. being the location of service receiver thus not taxable subject to the satisfaction of condition of export of services as stated in Sec 2(6) of the IGST Act. Sec 2(6) defines export of service which require satisfaction of 6 conditions to render a service as export of service.

b) Services which require physical presence of service receiver or a person acting on behalf of service receiver: (Performance based services) [Sec 13(3)(b)]

  • Like Beauty treatment, fitness etc.
  • POS determination exactly similar to Sec 12(4)

c) Services supplied directly in relation to immovable property: [Sec 13(4)]

  • POS determination exactly similar to Sec 12(3)

d) Service by way of admission to events etc.

  • POS determination exactly similar to Sec 12(6) & (7)

Where performance based services, services directly in relation to immovable property and services by way of admission to events (as per preceding provisions above) is supplied at more than one location, including a location in the taxable territory, its place of supply shall be the location in the taxable territory. [Sec 13(6)]

e) Banking & Financial, Intermediary and hiring of means of transport: [Sec 13(8)]

  • Services supplied by banking company to account holders ( where accounts means account bearing interest to the depositor and includes NRE/NRO accounts which means current account, loan accounts not covered here)
  • Intermediary services (i.e. services taken from agents etc.)
  • Services by way of hiring of means of transport excluding aircraft and vessel upto 1 month
  • For the above 3 type of services, place of supply shall be the location of service provider. Therefore, even when services consumed outside India, the same will be chargeable to GST and won’t be exports of service as place of supply is outside India.

f) Transportation of goods other than by mail or courier: [Sec 13(9)]

  • Place of supply in respect of transportation of goods other than by mail/courier shall be the destination of goods.
  • For transportation of goods by mail/courier place of supply shall be the location of service receiver.
  • It is pertinent to note that if the location of both service provider and receiver is in India then place of supply is the location of service receiver for transportation of goods whether by mail or courier or by other mode.(Please see Sec 12(8) discussed above in article)

g) Passenger transportation:

  • POS determination exactly similar to Sec 12(9).

h) Supply of service on board a conveyance:

  • POS determination exactly similar to Sec 12(10).

i) Online information and database access or retrieval services:

  • The place of supply of online information and database access or retrieval services shall be the location of the recipient of services.
  • The location of person receiving such services shall be deemed in taxable territory if any of the two following conditions are satisfied:

1. The credit card or debit card or any mode of payment through which payment has been made by receiver has been issued in India.

2.The billing address of recipient is in India

3. The IP address of the recipient of services is in India

4. The bank of the recipient of services in which the account used for payment is maintained is in India.

5. The country code of the subscriber identity module card used by the recipient of services is of taxable territory

6. The location of the fixed land line through which the service is received by the recipient is in the taxable territory.

Special Provision for Payment of Tax by a Supplier of Online Information and Database Access and Retrieval (OIDAR) Services (Sec 14)

  • On supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services.
  • However, when the above services are facilitated by an intermediary located in the non-taxable then such intermediary shall be treated as service receiver and shall be liable to pay tax under Reverse Charge Mechanism.
  • Such intermediary ,however, when satisfying the following 4 conditions shall not be treated as service receiver as above:

i) the invoice or customer’s bill or receipt issued or made available by such intermediary taking part in the supply clearly identifies the service in question and its supplier in non-taxable territory;

ii) the intermediary involved in the supply does collects or processes payment in any manner nor is responsible for the payment between the non-taxable online recipient and the supplier of such services;

iii) the intermediary involved in the supply not responsible for delivery

iv) the general terms and conditions of the supply are not set by the intermediary involved in the supply but by the supplier of services.

  • The supplier or intermediary whoever liable to obtain registration shall make an application for registration as per the registration rules. Further, such intermediary or supplier shall be represented by a person located in India for the purpose of tax compliances.

With this we finish off the article. Thanks a lot for reading!!

Your queries and suggestions are most welcomed. Author may be reached out at saurabhchokhra92@gmail.com

Role of GST Rate for Transportation

View Comments (1)

  • Sir, very elaborate article. In Lovely Exports, Jaipur -Easybuy Inc, Netherlands-Salephone India, Bangalore transaction, i could not understand as to why .Salephone India has to pay IGST under RCM? RCM notification is only applicable to import of services. Whether the such IGST is to be paid on account of supplies received from unregistered persons in terms of Section 9(4) which is anyhow not in operational. Please clarify sir. Further, how the IGST paid by M/s Lovely Exports would be available as ITC to overseas party first and the subsequently to India buyer?

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