Practical understanding of Place of supply of Goods in GST

In GST, the concept of a place of supply has been made relevant for the supply of services and also for the supply of goods. In this article, we shall be discussing on provisions relating to the place of supply of goods only with practical examples on it.

Why place of supply plays a major role in GST?

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.

This is because IGST and CGST goes to Central Govt. and SGST goes to state Govt. Also while taking input tax credit it is important to know that you cannot take credit of CGST and SGST against each other.

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.

Prerequisites to understand before Interpreting Place of supply

Section 7

Supply of Goods(Section 7(1))

In the following cases supply of Goods will be treated in the course of Interstate trade or commerce.

This above provision is subject to the provisions of Section 10 which we will discuss after this point.

Supply of Goods in case of Imports (Section 7(2))

- Goods imported into the territory of India
- Till they cross the custom frontiers of India*
- Shall be treated as Supply in the course of Interstate Trade or commerce.

* Custom Frontiers of India: The place where goods were kept or stored before export and the place where goods were kept or stored after import is called Customs Area and crossing of goods through that area is called 'Crossing Customs Frontiers of India'

In other words, once goods cross custom frontiers they become part of imports and treated as supply in the course of Interstate trade or commerce.

Section 8

Supply of Goods(Section 8(1))

In the following cases supply of Goods will be treated in the course of Intrastate trade or commerce.

Proviso: Following supplies will not be treated as Intrastate supply.

1. Supply to or by SEZ developer or unit.
2. Goods imported till they cross custom frontiers.
3. Supplies to a tourist.

Let us understand  Place of supply of Goods now with different Examples.

Place of supply of Goods has been defined in two parts:

1. Supply other than Import and export (Section 10)
2. Supply in case of Import and export (Section 11)

Section 10. Place of Supply of Goods other than Place of Import and Export

1. Movement of Goods(Section 10 (1)(a))

When the goods involve movement of Goods

Place of supply will be where the delivery terminates i.e. goods will not involve further movement of goods.

Example:

1. Supplier Ltd. in Mumbai sells goods to Receiver Ltd. in Gujarat. Supplier Ltd. delivers the goods to Receiver Ltd. to his warehouse in Jodhpur.

Place of supply will be Jodhpur and IGST would be levied.

2. Supplier Ltd. in Mumbai sells goods to Receiver Ltd. in Gujarat. Supplier Ltd. delivers the goods to Receiver Ltd. to his warehouse in Mumbai.

Place of supply will be Mumbai and CGST and SGST would be levied.

2. Delivery to a party on the direction of third person(Section 10 (1)(b))

When goods are delivered to a party on the direction of a third person the place of supply will be the location of such third person and not where the delivery terminates.

Example:

1. Supplier Ltd located in Maharashtra receives an order from Receiver Ltd. also located in Maharashtra. The order is for the supply of Bed, with an instruction to ship the Bed to New Receiver Ltd., located in Tamil Nadu. New Receiver Ltd. is a customer of Receiver Ltd..

Here, Receiver 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., Maharashtra. Accordingly, Supplier Ltd charges CGST and SGST on billing to Receiver Ltd.

The second part of the transaction between Receiver Ltd and New Receiver Ltd will also be interstate, and IGST will be charged.

2. Supplier Ltd located in Maharashtra receives an order from Oliver Queen Receiver Ltd. located in New York. The order is for the supply of Bed to New Receiver Ltd., located in Maharashtra.

First part were we need to check if the transactions between Supplier Ltd. and Oliver Queen Receiver Ltd. is export ?

As per Section 2(5),"Export of Goods" means taking goods out of India to a place outside India.

As per Section 16, export of goods is a "zero rated supply" and no tax will be levied.

In the above case goods are not taken outside India which keeps the supply outside the definition of Exports.

As per Section 7(5)(a) in case of 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 in the case above the supplier Ltd. is located in India and Place of supply, New York is outside India which means the transaction between Supplier Ltd. and Oliver Queen Ltd. is Inter-state and will attract IGST.

Second part of transaction between Oliver Queen Receiver Ltd. and New Receiver Ltd. be considered Import?

According to Section 2(11) 'import of goods' means bringing goods into India from a place outside India.

As per the above definition this transaction will not be considered Import.

As per section 7(5)(c) which states that supply of goods or services or both 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.

Transaction between Oliver Queen Receiver Ltd. and New Receiver Ltd. is also an Inter-state transaction and IGST will have to be paid by New Receiver Ltd under reverse charge mechanism (Section 5(4))

3. No movement of Goods (Section 10 (1)(c)):

When goods are of such nature which does not require any movement, place of supply shall be the location of such goods.

Example 1

Supplier Ltd. registered in Maharashtra sold its pre-installed machines located at Haryana to Receiver Ltd. registered in Gujarat. In this case, goods are of nature where they are pre-installed and cannot be moved, place of supply will be Haryana. Hence, IGST will be levied.

Example 2

Supplier Ltd. registered in Maharashtra sold its products to Receiver Ltd. registered in Gujarat who agreed to take the delivery from the factory of Supplier Ltd. located in Bandra, Mumbai.

In this case, location of supplier is Maharashtra and Receiver ltd. is Gujarat but since the Receiver Ltd. agreed to take the delivery from the factory of Supplier in Bandra which is in Maharashtra Itself, place of supply will be Maharashtra where the delivery ends. This transaction will attract CGST and SGST.

4. Goods are assembled and installed at site (Section 10 (1)(d)):

Where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly.

Example 1

Receiver Ltd. registered in Maharashtra opens a new office in Jodhpur. It purchases 10 Computers to be installed at its Jodhpur office from Supplier Ltd. in Maharashtra.

In this case, the location of the supplier is Maharashtra, but the place of supply will be Jodhpur, Rajasthan. Hence, IGST will be levied.

5. Goods supplied on Board (Section 10 (1)(e)):

This provision includes those purchases which are done while traveling on a conveyance.

Example 1

Ms. Thea Queen is traveling on a cruise liner from Mumbai to Goa. She purchases a book from the in-house store in the cruise liner. These books were on-boarded from Mumbai. Registered place of business of the book shop is in Mumbai. Place of supply, in this case, will be Mumbai. This is an intrastate supply, and CGST and SGST will be charged.

The author is a practicing Chartered Accountant with around 6 years of Post qualification experience. Currently working as a partner with RGNL and co., providing consultancy to corporate clients on GST.