Benevolent Clarifications in Place of Supply provisions which will affect your ITC and refund of GST

1. Refund in case of Transportation of goods where either location of supplier or location of recipient is outside India

Place of Supply(POS) of service of transportation of goods, including through mail and courier as specified in Sec 13(9) has been omitted w.e.f. 1-10-2023, in cases where location of supplier of services or location of recipient of services is outside India.

POS - Before amendment

Meaning thus that in case of goods being exported, place of supply of export freight (Air/Ocean Freight) will be export location where the goods are destined, irrespective of the fact whether the recipient is registered or unregistered or whether location of recipient is known or unknown.

After amendment w.e.f. 1-10-2023, POS will be determined as per R-13(2) of CGST Rules, 2017 as clarified in Circular No. 203/15/2023-GST dt. 27-10-2023

Hence, after 1-10-2023, in case of export freight (Air/Ocean Freight), place of supply will be the location of the supplier in case the location of recipient is not available, making it a case of intra-state supply.Refund of tax amount will not be allowed in such cases even if other conditions of export of services are fulfilled.

2. ITC in case of Advertising through hoardings and bill-boards

Supply of space or supply of rights to use the space on the hoardings/structures belonging to vendor when such space is given for displaying advertisement is being discussed under this heading.

Place of supply of service in such casesshall be governed by the provisions of section 12(3)(a) of IGST Act i.e. it will be covered under renting of immovable property and such a supply will always be liable to CGST+SGST and the recipient will be eligible to take ITC only when he and supplier are situated in the same state.

On the other hand, advertising services may be provided by a supplier, to a recipient on the terms that

a) Supplier either owns such bill board/hoarding or takes it on rent from another supplier and
b) heId responsible for display of advertisement,

The scenario will become one in which the supplier of servicesis an agent of the main person supplying service of advertising on hoarding and bill-boards and as per Sec 2(105) of CGST Act, 2017 “Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;

This situation can be depicted diagrammatically as -

So, my interpretation of law is that since supplier includes an agent acting as such on behalf of such supplier and thus agent in this case will also issue invoice of renting of immovable property as per Sec 12(3)(a) and such a supply will always be liable to CGST+SGST and final recipient will be eligible to take ITC only when he and supplier are situated in the same state.

But CBIC has clarified otherwise in its Circular No. 203/15/2023-GST dt. 27-10-2023, and said that such services will be classified as advertising services and place of supply will be determined in terms of Sec 12(2) of the IGST Act, 2017.

We already know that CBIC circulars are binding on the government and thus, it is in taxpayer’s interest to take the benefit of CBIC’s benevolence.

3. ITC in case of Co-location services

A business/company who avails the co-location services primarily seek security and upkeep of its server/s, storage and network hardware; operating systems, system software and may require to interact with the system through a web-based interface for the hosting of its websites or other applications and operation of the servers.

Such services not only involves providing of a physical space for server/network hardware along with air conditioning, security service, fire protection system and power supply but it also involves the supply of various services by the supplier related to hosting and information technology infrastructure services like network connectivity, backup facility, firewall services, and monitoring and surveillance service for ensuring continuous operations of the servers and related hardware, etc. which are essential for the recipient business/company to interact with the system through a web based interface relating to the hosting and operation of the servers.

It has been clarified by CBIC in its circular No. 203/15/2023-GST dated 27-10-2023 that such services are covered under the default place of supply provision i.e. sub-section (2) of Section 12 of the IGST Act.Thus, location of recipient of co-location service will be the place of supply. Meaning thereby that even if the recipient is in different state than that of the supplier, the recipient will be entitled to ITC.

Positions might have looked different had the CBIC clubbed these services under Sec 12(3) i.e. services of renting of immovable property, in which case the recipient would have been entitled to his credit only if the location of recipient and location of supplier are in the same state.

However, CBIC has further clarified that in cases where the agreement between the supplier and the recipient is restricted to providing physical space on rent along with basic infrastructure, without components of Hosting and Information Technology (IT) Infrastructure provisioning services and the further responsibility of upkeep, running, monitoring and surveillance, etc. of the servers and related hardware is of recipient of services only, then the said supply of services shall be considered as the supply of the service of renting of immovable property. Accordingly, the place of supply of these services shall be determined by the provisions of clause (a) of sub-section (3) of Section 12 of the IGST Act which is the location where the immovable property is located.

So, the businesses should be smart to avoid such kind of agreements in order to take benefit of this circular.