In our existing taxing system taxes are paid in the State from where the sales are made and are collected and retained by the same State. However under the GST the whole scenario will change and new destination based taxation will come into picture where taxes will be retained by the states consuming the goods and not by the states from where supplies (sales) are made. The basic idea behind destination/ consumption based taxation is that the State where the population is more consuming higher volume of goods/ services gets more tax which in turn will make them self-dependent reducing their dependency upon the central government.
Under GST regime Place of Supply (Destination of goods) is of prime importance which will determine whether a transaction is Inter-state or Intra-state and tax will be charged accordingly.
So where 'Location of Supplier' and 'Place of Supply of goods' are in the same State/UT it will be Intra-state supply and CGST & SGST will be charged. Where 'Location of Supplier' and 'Place of Supply of goods' are in different states/ UT's or in one State and a UT the same will be inter-state supply and IGST will be leviable.
Section 10 & 11 of the IGST Act, 2017 deals with the place of supply provisions related to goods.
Place of Supply of goods other than goods imported/ exported:
These can be divided into two parts:
Where supply involves movement of goods:
Clause (a) of Section 10(1) provides that where the supply involves movement of goods the Place of supply shall be the location of the goods where the movement terminates for delivery. The movement can either be made by supplier or recipient or any other person. The same can be explained by following example:
X located in Delhi places order on Y in Punjab to deliver certain goods in Delhi. Y arranges for the transport and sends the goods to Delhi. Now the Place of Supply will be Delhi where the movement terminates for delivery and as Location of Supplier and Place of Supply are in different states X will charge IGST on the transaction.
Clause (b) of the Section provides that where the goods are delivered to a recipient or any other person on the direction of third person who may be an agent, before or during movement of goods either by way of transfer of documents of title or otherwise, it shall be deemed that the third person has received the goods and place of supply shall be the principal place of business of such person.
So as per clause (b) of Section 10(1) the place of supply shall be deemed to be the office of the person who has directed to deliver such goods. Now the place where the movement of goods got terminated will not be important the location of 3rd person will be the place of Supply. Now let's understand this with an example:
X in Delhi places order on Y in Delhi to deliver certain goods to Z in Punjab. Now Y arranges for delivery of goods from Delhi to Punjab and delivers the goods to Z on directions of X i.e. 3rd person. Here though the movement of the goods terminates in Punjab but as per clause (b) the Place of Supply will be the location of the 3rd person i.e. Delhi and as location of supplier and place of supply are in the same state it will be intra-state supply.
Let's take another example-X in Delhi places order on Y in Punjab to deliver goods to Z in Punjab. No even if the Y & Z are in same state and said goods are delivered within the State of Punjab the Place of Supply as per clause (b) shall be the location of 3rd person i.e. location of X Delhi and as Location of Supplier and Place of Supply will be in different state the supply will be inter-state and IGST will be charged.
Where supply does not involves movement of goods:
Clause (c) of the Section provides that where supply does not involve movement of goods the place of supply shall be the location of such goods at the time of delivery to the recipient. So where the supply does not involve movement of goods the place of supply shall be the location of such goods irrespective of the location of seller or buyer.
Now this will be troublesome for some trades where the business models are such were the buyer goes to the premises of the seller and buy the goods. Now as per clause (c) the Place of Supply will be the location of such goods irrespective of the location of buyer or seller.
Let's understand this with an example - X from Punjab goes to Y's factory in Delhi and purchases certain goods. Now as no movement of goods is involved as per clause (c) the Place of supply will be the location of such goods i.e. Delhi. As the location of supplier and place of supply will be in the same state so it will be intra-state supply and Y will charge CGST & SGST instead of IGST.
Now as X is not registered in Delhi he will not get credit of the same and it will not be viable for him to purchase such goods. So this clause will force traders to make every transaction FOR instead of ex-works so that Place of Supply changes from Delhi to Punjab which will make the transaction as inter-state and the credit of IGST will be available to Punjab dealer.
Clause (d) provides that where goods are assembled or installed at a site the place of supply shall be the place of such installation or assembly.
So where X in Mumbai orders Y in Mumbai to install machinery at his site in Delhi. The Place of Supply shall be Delhi i.e. the installation site and Y will charge IGST as the Location of Supplier and Place of Supply are in a different state.
Clause (e) provides that where goods are supplied in a train or aircraft or vessel to the passengers the place of supply shall be the place from where the goods are taken on board. So while going from Delhi to Mumbai in a train if u require a bed roll/ food at say Bhopal which was loaded in the train at Delhi the place of supply shall be Delhi i.e the place of loading and not Bhopal where goods were supplied.
Place of Supply of goods imported/ exported:
When goods are imported into India the place of supply shall be the location of the Importer. As per Section 7(2) of the IGST Act import of goods into India is being treated as supply in the course of Inter-state trade or commerce leviable to IGST.
When goods are exported outside India the place of supply shall be the location outside India. Tax on such exports and refunds thereon is dealt with in Section 16 of IGST Act.