GST Update on requirement of separate registration for execution of contract in another state

This update discusses a recent advance ruling regarding GST registration requirements for executing contracts in a different state. The AAR Karnataka ruled that a separate GST registration is not required in Karnataka if the applicant has no fixed establishment there. The ruling also clarified that 'bill to ship to' transactions, where goods are purchased in one state for delivery in another, are subject to CGST/SGST of the purchase state, but the applicant may charge IGST to the service receiver in the delivery state. However, failing to register separately could lead to a loss of input tax credit on services like works contracts supplied within that state.

The present update intends to discuss the recent advance ruling given by AAR Karnataka in the case of M/s T & D Electricals. In earlier update, we had discussed the decision pronounced by AAR Rajasthan in case of same assessee wherein the application was rejected and the applicant was asked to file advance ruling before AAR Karnataka. The applicant had filed advance ruling before AAR Rajasthan as it was registered in Rajasthan. The present advance ruling filed before AAR Karnataka involved three questions- first about the requirement of registration for executing a contract in Karnataka, second regarding leviability of tax if goods are purchased from dealer in Rajasthan for delivery in Karnataka and lastly the documents required to be accompanied with transporter of goods. The answer to first two questions was given but the answer to the third question was not given on the premise that it is not covered by the scope of advance ruling under section 97(2) of the CGST Act, 2017.

As regards the question regarding liability to take registration in the State of Karnataka is concerned, it was held that since the applicant does not has any fixed establishment in the State of Karnataka, there is no need to take separate registration in the State of Karnataka. As regards the second question wherein the applicant also inquired that in case if separate registration is not required to be taken in Karnataka,  whether the goods purchased from the dealer in Rajasthan with ship to in Karnataka would attract CGST and SGST of Rajasthan or IGST? It was held by the AAR that the case would be considered as “bill to ship to model” governed by section 10(1)(b) of the CGST Act, 2017 which states that the principal place of buyer would be the place of supply of goods. Therefore, the supplier and buyer both situated in Rajasthan, the dealer of Rajasthan would charge CGST and SGST of Rajasthan. However, the applicant would charge IGST from the service receiver in Karnataka. Similarly, if the goods were purchased by the applicant from dealer in Karnataka, the transaction would again be of “bill to ship to model” governed by section 10(1)(b) of the CGST Act, wherein it would be considered as inter state transaction liable to IGST.  

The advance ruling denied to comment on the third question as the same being beyond the scope of section 97(2) of the CGST Act, 2017.

Although, the AAR ruled that there is no need to take separate registration by the applicant but not taking registration may lead to loss of input tax credit in case the applicant avails the services of sub-contractor. The sub-contractor providing services in relation to works contract would be of Karnataka and would be charging CGST and SGST of Karnataka as the place of supply in case of erection/installation services with respect to immovable property will be the place where at which the immovable property (construction site) is located, as per Section 12(3)(a) of IGST Act 2017. Therefore, in such cases the applicant who is registered only in the state of Rajasthan shall not be eligible to take the ITC of the CGST & SGST Karnataka charged on the tax invoice issued by the sub-contractor. In that case the applicant need to be cautious enough not to avail services wherein place of supply and location of supplier is in the State of Karnataka as in such cases there will be loss of input tax credit which would form cost to the applicant.