Article 366 (12A) of the Constitution of India defines Goods and Services Tax (“GST”) as “any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption.” According to the definition, supply of both goods and services are taxable events, which inculcate within itself events like manufacturing, sale, purchase, etc. on which GST is levied upon.
From the above definition, it can be inferred that the State where the consumption of goods and services takes place has the right to collect GST. The provisions of GST under the Central Goods and Services Tax Act, 2017 (“CGST Act”), Integrated Goods and Services Tax Act, 2017 (“IGST Act”) and similar state enactments revolve around the concept of place of supply.
Under Article 246A of the Constitution, the Central and State Governments have both been granted simultaneous powers to collect GST on supply of goods, or services, or both within the state i.e. Intra-State supply. Additionally, the Parliament is also conferred with the additional power to make laws regarding levy of GST on Inter-State supply.
Place of supply essentially refers to the parameter for determining whether the supply of goods or services or both would be categorized under Inter-State, Intra-State or composite transaction. Accordingly, GST would be collected by either the Central and State Government for Intra-State supply, or by the Central Government for Inter-State supply.
This Blog shall briefly discuss the concept of place of supply in GST and its relevance on levy of GST on taxable supplies.
NEED TO DETERMINE PLACE OF SUPPLY
The determination of place of supply is very important for every party involved in the transaction, to understand whether GST would be payable as CGST and SGST, or as IGST. The term “supply” under GST can be understood by the following parameters which work as a helping hand in classifying a transaction:
- Supply of goods or services or both;
- Supply made for a consideration;
- Supply made in the course/furtherance of business; and
- The supply should be a taxable supply (supply of anything other than goods and services does not attract GST).
Place of supply plays a crucial role so as to ensure that the taxpayers do not incorrectly classify an Inter-State supply as Intra-State, or vice versa, which would cause unnecessary hardships to the taxpayer pursuant to Section 70 of the CGST Act and Section 19 of the IGST Act.
PLACE OF SUPPLY OF GOODS
The first parameter of place of supply of goods is the location where the goods are delivered. Resultantly, the place of supply of goods is the place where ownership of goods is being transferred. In case where there is no movement of goods, the place of supply will be the location of goods at the time of delivery to the recipient.
For instance, in case of selling of goods in supermarket, the place of supply is considered as the supermarket as the ownership changes there itself. Contrastingly, if a supplier in Ahmedabad supplies equipment to a buyer in Madhya Pradesh, and the equipment is installed in the factory of the buyer in Hyderabad, the place of supply would be Hyderabad.
PLACE OF SUPPLY OF SERVICES
Similar to the parameter for determination of place of supply of goods, the place of supply of services shall be the location of service recipient. In case where any unregistered buyer avails the supply of services, then the location of service provider will be the primary place of supply.
There are specific rules provided for determining the place of supply of services rendered in the case of:
|Services Rendered||Place of Supply|
|Restaurant & Catering Services||Location of the Restaurant|
|Personal Grooming||Location where the services are being provided|
|Fitness and Beauty Treatment||Location where the services are being provided (Gym, Salon, etc.)|
|Healthcare Services for Cosmetic and Plastic Surgery only||Location where such surgery took place|
|Transportation Services||Location where the passenger starts the conveyance for journey|
|Banking and Financial services||Address of the recipient as per the records of service provider|
|Services related to immovable property such as architecture, engineering, interior designer, etc.||Location at which such immovable property is located|
PROVISIONS OF THE IGST ACT
Section 8 of the IGST Act provides for the Intra-State supply of goods and services. When the location of the supplier and place of the supply of goods and services, i.e., address of recipient, are in same State or Union Territory, it is considered to be Intra-State supply.
The place of supply is the key factor determining the nature of transaction. The GST to be levied upon the goods and services will be CGST + SGST in the case of place of supply being a State, and CGST + UTGST in the case of it being a Union Territory.
The transaction and movement of goods and services between two different States, or two different Union Territories, or a State and a Union Territory is known as Inter-State supply under Section 7 of the IGST Act.
The bringing of goods and services from the supplier situated outside India is known as import of goods and services as per Section 2(10) and (11) of the IGST Act. The place of supply of service will be in India as the recipient is located in India. Thus, import of goods and services to India is considered as Inter-State supply.
Section 2(5) and (6) of the IGST Act provide for the meaning of export of goods and services. In an export, the supplier of goods or services is located in India but the recipient is outside India. The payment for the goods/service will be converted from foreign currency. Thus, the place of supply shall be recipient’s location and it will fall under Inter-State supply with IGST applicable on such supplies.
In the case of Lalitha Muraleedharan v. Range Forest Officer, Marayoor and Ors. [W.A. Nos. 2417 & 2425 of 2019], the taxpayer was involved in the business of manufacturing of natural oils for food and aromatic chemicals from an industry located in Special Economic Zone (SEZ). He participated in a government bid where upon successful bidding, the taxpayer was asked to pay appliable IGST and all other taxes.
Being aggrieved, the taxpayer approached the Kerala High Court and it was held “that GST is payable based on the location where goods or services both are being consumed.” The Court opined that:
“a transaction could not be treated as an intra-state transaction in case such transaction either originates or terminates in SEZ. Section 10(1) provides that the place of supply of goods shall be the location where the movement of such goods terminates for delivery to the recipient in case of supply involving the movement of goods.”
Based on the findings, the High Court directed the taxpayer to comply with the conditions pertaining to the movement of goods and exempted him from IGST in order to ensure that there is no diversion in the movement of goods resulting in tax evasion. This ruling is beneficial since it clarifies the principles of place of supply in the situation of goods transportation, which is one of the prerequisites for evaluating the applicability of GST.
In Material Recycling Association of India v. Union of India [WP (S) (Civil) No. 487/2020], the Gujarat High Court held that Section 13(8)(b) read with Section 2(13) of the IGST is not ultra vires or unconstitutional in any manner, as it is framed by the Parliament in accordance with Article 246(2) of the Constitution.
However, the High Court held that the grievance of the Petitioner under Section 13(8)(b) of the IGST Act should be addressed by the Government in a suitable manner and in consonance with the CGST Act and IGST Act.
The analysis of place of supply plays a vital role in understanding the applicability of GST on any taxable supply. GST is paid according to the nature of place of supply, either under Intra-State or Inter-State supply.
If the supply is Intra-State, CGST+SGST would be levied, and if the supply is Inter-State, IGST would be levied. If due to any reason GST is paid under the wrong head, that is, was to be paid as IGST but paid as CGST and SGST, owing to incorrect determination, there is no mechanism under the GST to reconcile such errors and take remedial steps.
Such a taxpayer’s only solution would be to pay the GST in the proper account and receive a refund for the tax paid in the incorrect account. As a result, it is critical for taxpayers to correctly assess the type of the supply and pay GST as applicable.
-Team AMLEGALS, assisted by Mr. Aum Purohit (Intern)
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