Understanding the Place of Supply of Goods in GST

In the Indo framework of Goods and Services Tax, Place of Supply seems to be a very crucial concept. This is useful in discerning whether a transaction is intra-state or inter-state in nature which in turn determines the applicable tax chargeable (CGST/SGST or IGST) in a particular case.

The provisions related to the place of supply do add a very important dimension in improving the capacity of the business to manage the compliance, legal and taxation requirements within reasonable boundaries. In this blog, we propose to examine issues relating to the place of supply of goods under GST Law, place of delivery and receipt of the goods, movement of the goods, supplies or orders involving a third party and other similar circumstances etc.

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The term known as “Place of Supply” explains where the goods will be provided or delivered in GST. Supply Place assists in determining the kind of supply made, that is, whether inter-state supply or intra-state supply is done and also to determine the extent of tax impact. The rules related to the determination of the supply of goods place are mostly found in Section 10 of the IGST Act, 2017.

The place of supply will further change when the sold goods are being shipped or sent to a third party or sold through online selling. The place of supply demarcates the type of supply that is made and therefore the duty rate and the requirements to be performed.

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As a general rule, the place of supply is the destination of the goods. Below are the main types of movements:

Supply is said to be intra-state when the supplier and recipient are both in the same state and there is the movement of goods within the state. The taxes in question in this regard would be CGST and SGST. The term place of supply is defined as the place wherein the customer is supplied the goods.

Example:
Vinod having business in Mumbai (Maharashtra) sells goods to Individual or business in Pune (Maharashtra)
The place of supply would be Maharashtra and same state CGST & SGST would be charged.

Referred to as the inter-state supply, the term applies to any movement of commodities between states. Here as well, the applicable tax is IGST and for delivery of goods, the situs of supply is the place of the recipient's address.

Example:
‍Vinod having business in Bengaluru (Karnataka) sells goods to Individual or business in Chennai (Tamil Nadu).
The place of supply would be Tamil Nadu. Since it's a different place IGST will be charged.

In a situation where goods are delivered to a third party, the place where such goods are used in the course of executing any of that third party’s instructions is the place of supply. This is covered under Section 10(1)(b) of the IGST Act.

Example 1:
​Vinod having business in Hyderabad (Telangana) sells goods to Akash in Delhi but Akash requests to send the goods to Kolkata (West Bengal).
It would be assumed that the goods have been received by Akash in Delhi and IGST will be charged. However, the place of supply would be Delhi.
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Example 2:
‍Vinod having business in Hyderabad (Telangana) sells goods to Akash in Hyderabad (Telangana) but Akash requests to send the goods to Bengaluru (Karnataka).
It would be assumed that the goods have been received by Akash in Telangana and CGST and SGST of same state would be charged irrespective of the goods shipping location.

The practice has been that for e-commerce operations the place of supply is the place of physical delivery of goods. The implications of tax depend on the intra-state supply and inter-state supply. Section 10(1)(c) of the IGST Act governs this principle.

Example:
​Mr. Raj of Mumbai, Maharashtra orders a mobile from Amazon to be delivered to his mother in Lucknow (UP) as a gift. M/s ABC (online seller registered in Gujarat) processes the order and sends the mobile accordingly and Mr. Raj is billed by Amazon. It will be assumed that the buyer in Mumbai has received the goods & IGST will be charged. Place of supply: Mumbai, Maharashtra GST: IGST

If, such as in cases where goods are not moved (for example: goods gradually delivered to the place of the supplier or the place of the recipient) – the place of supply will be determined by Section 10(1)(d) of the IGST Act.

Where goods are directly supplied at the supplier’s premises, the place of supply is where the goods are situated when delivery is obtained.

For example: A buyer goes to the warehouse of the seller situated in Tamil Nadu and `picks’ up the goods. The place of supply is Tamil Nadu.

If however, such recipient is provided with goods but no goods are moved there, the place of supply shall be that place where such recipient has goods supplied to him.

For example: An industrial machine is fitted and commissioned in its owner’s premises but is not taken from its original place. The place of supply is the premises of the factory.

For businesses, understanding the concept of the place of supply under GST is critical in determining the proper tax and complying with the laws governing GST. Business operators are familiar with the place of supply because such understanding assists them in tax and compliance matters regardless of whether the goods are moved intra-state, inter-state, or even delivered via e-commerce.

In as much as most businesses would like to follow the rules under section 10 of the IGST Act, practicality would never allow that. Basic business practice dictates that an economically active entity should always be in a position to apply the right tax rates depending on the characteristics of the transaction in the case of nil, CGST, SGST, or IGST.

In the Goods and Services Tax (GST) context, Place Of Supply assists in determining the kind of supply made, that is, whether inter-state supply or intra-state supply is done and also to determine the extent of tax impact.

Under GST laws, place of supply rules give such a scenario whereby goods or services have been provided as well as the relationship between different types of supplies (Intra-state supplies and inter-state supplies) and related taxes. In the case of goods, the same is addressed under Section 10 of the IGST Act.

According to Section 10 of the IGST Act, the place of supply may be determined by the place of movement of goods, the place where goods are delivered to a third party, and also the supplies which do not involve any movement. The section provides rules for both intra and inter-state transactions.

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Imports: For incoming goods, the point of supply is at the importer and is subject to import GST. There is also Import GST on an IGST basis.

Exports: The place of supply where the goods are shipped or sold is any location which is beyond India. Under GST, Exports are considered as zero-rated supply.

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