The Conundrum of Place of Supply in Token Transactions

Where Is GST Applicable? A Section-by-Section Examination of the IGST Act, 2017

1. Introduction: The Significance of 'Place of Supply' in Tokenized Assets

"Place of Supply" (POS) is more than just a technical concept under India's GST framework; it determines three crucial compliance questions:

1. Is it better to pay IGST (inter-state) or CGST+SGST (intra-state)?

2. Which state government gets the money?

3. Is a supply taxed domestically or does it fall under the category of "export of service" (zero-rated)?

When a POS determination is incorrect, CGST+SGST is paid instead of IGST (or vice versa). This error cannot always be fixed through ITC adjustment and may necessitate a refund claim under Section 77 of the CGST Act or Section 19 of the IGST Act. Erroneous POS can result in crores of misallocated tax in intricate multi-state SM REIT transactions.

At least five separate taxable services are part of the SM REIT ecosystem, and each may be subject to a different POS rule:

• The SM REIT trust is charged the Investment Manager's fund/property management fee.
• The SPV is billed for property management services in order to oversee the underlying property.
• The FOP operator charges a platform/technology fee.
• Legal and financial advisors charge an advisory/structuring fee.
• Services obtained from foreign companies or NRI investors (import of services).

With particular reference to the statutory text, this article determines the appropriate POS by applying the pertinent sections of the IGST Act, 2017 to each of these five services.

2. Statutory Framework: Sections 12 and 13 of the IGST Act, 2017

2.1 Section 12 - Indian Suppliers and Recipients

According to Section 12(1) of the IGST Act, 2017:

"(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India."

The General Default Rule, Section 12(2), stipulates:

"(2) The place of supply of services, except the services specified in sub-sections (3) to (14) - (a) made to a registered person shall be the location of such person; (b) made to any person other than a registered person shall be - (i) the location of the recipient where the address on record exists; and (ii) the location of the supplier of services in other cases."

The Immovable Property Rule, found in Section 12(3), is essential to tokenized real estate transactions since it states:

"(3) The place of supply of services - (a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work - shall be the location at which the immovable property or boat or vessel is located or intended to be located."

Key Principle: The general norm in Section 12(2) is superseded by Section 12(3). When a service is "directly in relation to an immovable property," the POS is the property's location rather than the recipient's or supplier's.

2.2 Section 13 - One Party Outside India

According to Section 13(1) of the IGST Act, 2017:

"(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India."

Section 13(2) of the General Default Rule stipulates:

"(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services."

The immovable property rule for cross-border transfers, found in Section 13(4), states:

"(4) The place of supply of services supplied directly in relation to an immovable property, including services of architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work shall be the location where the immovable property is located or intended to be located."

2.3 Section 13(8)(b) - The Intermediary Rule [Now Omitted]

In the past, intermediary services were subject to a specific POS rule under Section 13(8)(b) of the IGST Act, which fixed the POS at the supplier's location (in India), independent of the recipient's location. Several High Courts heard challenges to this highly contentious clause.

Important Update - Finance Act 2026: As of March 30, 2026, the Finance Act, 2026 has removed Section 13(8)(b) of the IGST Act, 2017. The basic default norm of Section 13(2) now applies to intermediary services: POS is the recipient's location. This significant modification immediately impacts FOP platforms that facilitate transactions for international and NRI investors.

3. Place of Supply - Five Services in the SM REIT Ecosystem Analysed

3.1 Fund Management Fee for Investment Managers

Fact Pattern:

The SM REIT trust is charged a quarterly fee (% of AUM) by an Investment Manager registered in Maharashtra. The state of Maharashtra is where the SM REIT trust is registered. Investors are dispersed throughout India.

Applicable POS Rule:

Section 12 is applicable because the SM REIT trust (recipient) and the Investment Manager (supplier) are both located in India. The service is a fund/portfolio management service and is not "directly in relation to an immovable property" - hence it does not fit into any of the specific categories listed in Sections 12(3) to 12(14).

Consequently, the General Default Rule, Section 12(2)(a), is applicable:

"The place of supply of services made to a registered person shall be the location of such person."

POS Determination: Maharashtra is where the SM REIT trust (recipient) is located. The tax is intra-state. GST applicable: CGST + Maharashtra SGST.

Trap to Avoid: Many Investment Managers mistakenly apply the immovable property rule (Section 12(3)) to their management fee, claiming that the SM REIT is the ultimate property owner. This is incorrect. Section 12(2)(a) is the correct norm - the Investment Manager's remuneration is for fund management services TO THE TRUST, not a service "directly in relation to immovable property."

3.2 Property Management Services - Charged to the SPV

Fact Pattern:

An SPV incorporated in Haryana owns a commercial office in Delhi that receives daily property management services (maintenance, tenant relations, rent collection) from a Property Management Company (PMC) registered in Delhi.

Applicable POS Rule:

According to Section 12(3)(a) of the IGST Act, this service is "directly in relation to an immovable property":

"The place of supply of services directly in relation to an immovable property...shall be the location at which the immovable property is located."

POS Determination: Delhi is the location of the immovable property. GST applicable: CGST + Delhi SGST. The property is located in Delhi even though the SPV (recipient) is in Haryana.

Compliance Implication: In order to charge Delhi CGST + SGST, the PMC needs to be registered in Delhi. Intra-state supply occurs when the property is located in Delhi and the PMC is only registered there. Even though the property is the POS anchor, inter-state supply (IGST) applies if the PMC is in Mumbai and oversees a Delhi property.

Multi-State SM REIT Issue: An SM REIT with properties in Delhi, Mumbai, Bengaluru, and Hyderabad must have separate GST registrations (or its PMC needs registrations) in EVERY state where the properties are located - failing which, the POS rule under Section 12(3) cannot be correctly complied with. This is an industry-wide live compliance failure.

3.3 FOP Platform / Technology Fee

Fact Pattern:

At the time of unit subscription, investors pay a one-time platform fee to a FOP operator (now registered with SEBI as SM REIT Investment Manager). Investors are registered in several states. Bengaluru is where the platform is operated.

Applicable POS Rule:

Investors can benefit from this service. The service's nature is crucial:

• Section 12(2)(a) applies if investors are registered persons (companies, firms) - POS is the location of each registered investor.
• If investors are unregistered individuals (retail investors), Section 12(2)(b)(i) is applicable - POS is the recipient's location where the address on file is present.
• Section 12(2)(b)(ii) - POS = supplier location (Bengaluru) - in the event that the investor's address is not on file.

Critical Complication: Every investor's state becomes a different point of sale (POS) when a platform charges thousands of investors in 28 states a single platform fee. The platform would have to file returns in 28 states, making SGST compliance almost impossible. The correct solutions are:

4. If the platform facilitates the supply of services, register as an e-commerce operator.

5. For inter-state supplies to registered investors in other states, apply IGST.

6. Ensure state-wise address capture for unregistered investors in accordance with CBIC Circular No. 242/36/2024-GST dated 31.12.2024, which requires the supplier to record the State name of the recipient on the invoice.

"...in such cases of taxable online supplies of services to unregistered recipients, registered suppliers are required to mention the State name of the recipient on the invoice, irrespective of the value of such supply, and declare the place of supply of such services as the State of the recipient as per the provisions of clause (i) of section 12(2)(b) of IGST Act." - CBIC Circular No. 242/36/2024-GST dated 31.12.2024

3.4 Advisory, Legal, and Structuring Fees to SM REIT Entities

Fact Pattern:

The Maharashtra-registered SM REIT trust receives advice on investor agreements, SEBI compliance, and property acquisition structuring from a Delhi-based law firm. The SM REIT trust is levied a fee.

Applicable POS Rule:

No particular POS rule in Sections 12(3) to 12(14) applies to legal and professional services. The General Default Rule, Section 12(2)(a), is applicable:

"The place of supply of services made to a registered person shall be the location of such person."

POS Determination: Maharashtra is the location of the SM REIT trust (recipient). GST applicable: IGST (inter-state supply, since the supplier is in Delhi and the recipient is in Maharashtra). The SM REIT trust is eligible for ITC in exchange for IGST paid.

Note: Because Section 12(2)(a) applies rather than Section 12(3), the POS is still Maharashtra (the registered recipient's location) - even if the legal advice refers to a property in Delhi. Legal services are professional advisory services, not "directly in relation to an immovable property" in the strict sense. The CBIC FAQ on Place of Supply (Chapter 5, para. 4.3) affirmed this distinction.

3.5 Services Involving NRI / Foreign Investors - Cross-Border Dimension

Fact Pattern:

Through the FEMA-permitted investment channel, a Dubai-based NRI investor subscribes to SM REIT units. All unit holders, including this NRI, receive investor relations services from the Investment Manager in Mumbai. The NRI is situated outside of India.

Applicable POS Rule:

Section 13, not Section 12, of the IGST Act is applicable because one party (the NRI investor) is not in India.

The General Default for cross-border services, Section 13(2), stipulates:

"The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services."

POS Determination: Dubai (outside India) is the recipient's location (NRI). POS is outside India. According to Section 2(6) of the IGST Act, this supply can be considered an "Export of Service," provided:

7. The supplier - an Investment Manager in Mumbai - is based in India.

8. The recipient is located outside of India (NRI in Dubai) - YES.

9. The place of supply is outside of India (Section 13(2) → location of recipient) - YES.

10. Payment received in convertible foreign exchange - verification required.

11. The supplier and the recipient are not merely establishments of the same person - YES.

Post-Finance Act 2026 - Intermediary Rule Change: Prior to March 30, 2026, Section 13(8)(b) would have fixed the POS in India and prevented export qualification if the Investment Manager was regarded as an "intermediary" facilitating transactions between investors and the REIT. This obstacle is eliminated by the Finance Act, 2026's deletion of Section 13(8)(b). Investment Managers facilitating NRI participation in SM REITs may now treat fees charged to NRI investors as zero-rated exports - a major commercial benefit.

4. Master POS Table - SM REIT / Token Ecosystem

5. Five High-Risk POS Disputes in Token Transactions - Practitioner's Alert

Dispute 1: Is Investment Management 'Directly in Relation to Immovable Property'?

The GST Department may contend that the Investment Manager's fee is a service "directly in relation to immovable property" because the SM REIT's underlying asset is real estate - making Section 12(3) the relevant provision (POS = location of each property, which may span multiple states).

Author's View: We should oppose this argument. Section 12(3) requires the service to be "directly" related to real estate. Investor communications, regulatory compliance, distribution management, and portfolio control are examples of fund management activities that are not "directly" related to real estate. These are financial services provided to the trust entity. The property is not the subject of the service, but rather the underlying asset. A useful analogy for this argument is the Supreme Court's ruling in Safari Retreats (2024) on ITC for construction expenditures (interpreting 'in relation to').

Dispute 2: Which State Receives the SGST on Multi-State Property?

Five states are home to properties owned by an SM REIT. The SM REIT trust is charged a single consolidated fee by its Investment Manager, which is registered in one state. Under Section 12(2)(a), POS is the location of the SM REIT trust. Even though properties in four different states contribute to the income, SGST only flows to the trust's state.

Issue: On services that eventually pertain to properties under their jurisdiction, the other four states do not receive SGST revenue. In the context of SM REITs, CBIC has not addressed this revenue distribution issue. The Section 12(2)(a) default (POS = location of trust) should take precedence until a particular circular is published.

Dispute 3: Does Section 2(13) Classify the FOP Platform as an 'Intermediary'?

According to Section 2(13) of the IGST Act, 2017:

"'Intermediary' means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities between two or more persons but does not include a person who supplies such goods or services or both or securities on his own account."

The question is whether the FOP platform provides services "on its own account" or does it "arrange or facilitate" the issuance of securities (SM REIT units) between investors and the REIT.

Author's View: A SEBI-registered SM REIT Investment Manager provides fund management services on its own account - it does more than just facilitate the exchange of units. It is the principal service provider. As a result, it should not be categorized as an "intermediary." The Finance Act, 2026's deletion of Section 13(8)(b) has reduced the practical significance of this classification dispute for domestic transactions - but it still matters for cross-border fee arrangements.

Dispute 4: Is the Smart Contract Fee a 'Service' with a Determinable POS?

The question of whether smart contract execution itself qualifies as a "service" subject to GST emerges when a blockchain-based token platform employs smart contracts to automatically distribute rental returns to investors. What is the POS if that is the case?

Author's View: Since the smart contract is code running on a decentralized blockchain, it probably does not have a supplier in the conventional GST sense. For the execution of smart contracts, there is no discernible "supplier of services" charging compensation. However, the cost of implementing and maintaining the smart contract is a taxable service if the technological platform charges a fee. Section 12(2)(a) (B2B registered recipient) would apply to POS - POS = location of the SM REIT trust. CBIC guidance on this specific question is awaited.

Dispute 5: The Rs 77 Trap - Incorrect IGST vs. CGST+SGST

Due to POS misclassification, a number of SM REIT entities have paid CGST + SGST when IGST was the appropriate tax (or vice versa). The remedy in these situations is provided by Section 77 of the CGST Act and Section 19 of the IGST Act:

"Where a registered person has paid the Central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, he shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed." - Section 77(1) of the CGST Act, 2017

Practitioner's Note: A formal application is required in order to receive a Section 77 refund. Without going through the refund process, the recipient who paid incorrect CGST+SGST cannot simply apply it to future IGST liabilities. SM REIT operators must be aware of this pitfall and make accurate POS determinations at the time of invoicing.

6. POS Compliance Checklist for SM REIT / FOP Stakeholders

For Investment Managers

• For fund management fees, apply Section 12(2)(a) - POS = SM REIT trust location (registered recipient). Do NOT apply Section 12(3).
• For cross-border fee arrangements with NRI investors - post Finance Act 2026, apply Section 13(2) - POS = recipient location (outside India). Assess zero-rated export eligibility.
• In order to provide property management services under Section 12(3), obtain state-by-state GST registration in each state where SPVs own properties.
• To prevent POS classification disputes, issue separate invoices for fund management and property management components.

For FOP Platform Operators

• As required by CBIC Circular No. 242/36/2024-GST dated December 31, 2024, all platform fee invoices must include the investor's State name.
• Apply IGST (inter-state supply) to registered corporate investors in different states. Do NOT apply local SGST.
• For unregistered retail investors - POS = State of the investor's address on record. Allocate IGST accordingly.

For Tax and Legal Advisors

• Professional advisory services to SM REIT trust - POS = location of trust (Section 12(2)(a)) - NOT location of property.
• Valuation services on SM REIT properties - POS = location of property (Section 12(3)) - register in the relevant states.
• For NRI investor advisory - post Finance Act 2026 - POS = outside India (Section 13(2)) - potential zero-rated export.

7. Conclusion

Sections 12 and 13 of the IGST Act, 2017's "Place of Supply" framework were created for a world of straightforward, bilateral, single-location transactions. This framework is pushed to its limits by the SM REIT/FOP ecosystem's multi-party structure, multi-state assets, cross-border investors, and technology-mediated service delivery.

The following are the main conclusions of this analysis:

• Investment Manager fees → Section 12(2)(a) - POS = SM REIT trust location. Depending on the state of registration, either intra-state or inter-state.
• Property management fees → Section 12(3) - POS = property location. State-specific registration is mandatory.
• FOP platform fees to investors → Section 12(2) - POS = each investor's location. State capture on invoices is mandatory per CBIC Circular 242/36/2024.
• Cross-border services to NRI investors → Section 13(2) - POS = outside India. Zero-rated exports now feasible after Section 13(8)(b) omission by Finance Act 2026.
• Legal/advisory services → Section 12(2)(a) - POS = recipient/trust location. Not superseded by Section 12(3).

Similar to CBIC Circular No. 203/15/2023-GST on goods transportation, the author calls on CBIC to publish a specific circular on POS determination for SM REIT/FOP transactions. Until then, the practitioner's watchword must be: identify the service, identify the parties, identify the relevant POS sub-section - and document the reasoning on every invoice.

Disclaimer: For academic and informational purposes solely, the opinions presented here are the author's personal opinions. This article does not offer legal or tax advice. Before taking any of the positions outlined here, readers are urged to obtain independent professional advice. The aforesaid law is effective as of April 2026.

The author is a Delhi-based Advocate and Tax Advisor with more than ten years of experience in GST and Income Tax litigation. He represents clients before the Delhi High Court, ITAT, CIT(A), GST Appellate Authority, and NCLT. Qualifications: BBA LLB, B.Com., CA-Inter (ICAI). He can also be reached at advofinconsulting@gmail.com.