‘Place of supply of Goods and Services under GST and relation with revenue distribution between Union and state’

At first we have to know about the definition of ‘Supply’ under GST

Supply is defined to include all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes importation of services for a consideration whether or not in the course or furtherance of business.

‘Supply’ meaning as per Oxford Dictionary

To provide someone or something with something that they need or want, especially in large quantities

‘Supply’ meaning as per Merriam Webster Dictionary

To make (something) available to be used to provide someone or something with (something that is needed or wanted)

Place of supply

‘Supply’ meaning as per Collins Dictionary

If someone supplies you with something that they provide you with it

Supply always linked with Tangible (real and able to be shown or touched)

Here is a question before the forum Whether ‘Supply’ denotes only for ‘Goods’?

Not for ‘Services’?

‘GST’ Destination based Consumption Tax

In the VAT/CST Regime there is a concept of Origin based Tax, Origin based tax is levied where goods or services are produced not where consumed.

Example: – If A in West Bengal produces the goods and sells the goods to B in Bihar, then in such case the tax should be levied and collected in the State of West Bengal and not in the State of Bihar.

Destination based taxation seeks to levy and collect tax on the basis of location of consumption.

Example: – If A in West Bengal produces the goods and sells the goods to B in Bihar, then in such case the tax should be levied and collected in the State of Bihar and not in the State of West Bengal.

Place of supply of goods: The Integrated GST Bill provides separate rules for goods and services to determine the place (state) of their supply. In cases where a good has been physically moved, the place of supply will be the final destination of the good.  In other cases, the place of supply will be where the goods is received by the recipient.

Place of supply of services: Provisions with respect to determining the place of supply of services vary depending upon the nature of services. For example, place of supply for immovable property (such as architects designing a building), will be the location of the immovable property.  Specific provisions have also been made for supply of services such as catering, sporting events, transportation of goods, advertisement, telecommunications, among others.

GST is said to be destination-based or consumption-based tax. Hence, the place of consumption will decide the State that will collect tax. The destination-based taxation is, the producing/selling state gets nothing while the consuming states receive complete share of revenue.

The provisions of section 12 of CGST Act will be applicable in cases of domestic supplies i.e. where the location of supplier of services and the location of the recipient of services is in India. The provisions are as under:-

S.No. Nature of Service Place of Supply
1 Immovable property

related to services, including hotel accommodation

Location at which the immovable property or boat or vessel is located or intended to be located if located outside India: location of the recipient
2 Restaurant and catering services, personal grooming, fitness, beauty treatment and health service Location where the services are actually performed
3 Training and performance appraisal B2B: location of such Registered person
B2C: location where the services are actually performed
4 Admission to an event or amusement park Place where the event is actually held or where the park or the other place is located
5 Organisation of an event B2B: location of such Registered person
B2C: location where the event is actually held if the event is held outside
India: location of the recipient
6 Transportation of goods B2B: location of such Registered person
B2C: location at which such goods are handed over for their transportation
7 Transportation of Passenger B2B: location of such Registered person
B2C: place where the passenger embarks on the conveyance for a continuous journey
8 Services on board a conveyance Location of the first scheduled point of departure of that conveyance for the journey
9 Banking and other financial services Location of the recipient of services on the records of the supplier
Location of the supplier of services if the location of the recipient of services is not available
10 Insurance services B2B: location of such Registered person
B2C: location of the recipient of services on the records of the supplier
11 Telecommunication services Services involving fixed line, circuits, dish etc., and place of supply is the location of such fixed equipment. In case of mobile/Internet post-paid services, it is the location of billing address of the recipient. In case of sale of prepaid voucher, the place of supply is the place of sale of such vouchers. In other cases, it is the address of the recipient in records

For other than above services

S.No. Description of Supply Place of Supply
1 B2B Location of such Registered person
2 B2C (i) location of the recipient where the address on record exists, and
(ii) location of the supplier of services in other cases

There is another Branch of Place of Supply i.e Bill to Ship to Transaction

Before we proceed to understand Bill to-Ship to transaction in GST, we will understand how these transactions are taxed under the VAT/CST regime.

In Bill to -Ship to transactions, there is a first sale and a subsequent sale. In the VAT/CST regime, tax should be levied on both parts of the transaction – on the first sale by ABC Ltd to XYZ Ltd, and the subsequent sale by XYZ Ltd to DEF Ltd. However, in order to avoid tax being calculated multiple times through the course of the transaction, exemptions are provided on subsequent sales. These exemptions however, are subject to the furnishing of the prescribed forms. To get the exemption on the subsequent sale, a declaration Form E1 has to be issued by the first seller, and C-Form has to be issued by the buyer for levy of CST at a reduced rate @ 2%.

Treatment of Bill to – Ship to transactions under GST

In GST, if the goods are supplied by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person

Understand this with an example.

ABC Ltd is a dealer in JCB Machine, located in West Bengal. They receive an order from XYZ Ltd, located in Bihar, to supply 10 JCB, with an instruction to ship the JCB to DEF Ltd, located in Odisha.

In the example, on the instruction from XYZ Ltd, ABC Ltd ships the JCB to DEF Ltd located in Odisha. Here, XYZ Ltd is deemed as the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Bihar. Accordingly, ABC Ltd charges IGST on billing to XYZ Ltd. The second part of transaction between XYZ Ltd and DEF Ltd will also be interstate, and IGST will be charged.

Constitutional Aspect for sharing of Revenue between ‘Union & State’

Article 246 (A) of The Constitution – Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

Place of supply always important aspect for distribution of collected Tax, Both Centre and States will simultaneously levy GST. Tax will be charged on every supply of goods and services for consideration. Centre would levy and collect Central Goods and Services Tax (CGST) and States would levy and collect the State Goods and Service Tax (SGST) on all transactions within a State. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The proceeds of IGST will be apportioned between the States and the Centre based on place where Goods or services  Consumed, under the Article 269A, Further, the CGST collected by the Central Government as well as the Union’s share of IGST as per the provisions of Article 270.

Conflict between Union and State

As per Article 279A, of the Constitution GST Council established and the GST Council will make recommendations to the Union and the States on important issues related to GST,

Articles 268 to 270 taxes are administered by the government to which the tax accrues. IGST does not accrue to the origin states, therefore they cannot administer IGST. the destination state cannot be pre-identified and to administer IGST Thus, Article 258, cannot supersede declaration in Article 269A that IGST be levied and collected by Centre.

Power of the Union to confer powers, etc, on States in certain cases under Article 258, it may happen for instance if any errors regard to assessment under GST Act by the state government officers would go outside the parliamentary oversight through the Comptroller and Auditor General and Public Accounts Committee.

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