The place of supply for export sometimes differs from the physical location of the goods or services. Depending on the nature and circumstances of the supply, the place of supply may vary from the origin or destination of the goods or services. Therefore, the supplier and the recipient must understand the place of supply determination for export supplies and how it affects their tax obligations and compliance requirements.
This blog will explain the export supply location determination process and how to apply it to different export supplies. We will also discuss some common issues and challenges regarding supply determination for export supplies and how to resolve them.
Understanding Place of Supply
The place of supply is an essential concept under GST, as it determines whether a transaction is intra-state or inter-state, and accordingly, the applicable tax rate and the revenue allocation among the states. The place of supply for export supplies is generally the recipient’s location of the goods or services, as GST is a destination-based tax.
Determining place of supply for export transactions
The recipient’s location of the goods or services typically determines export transactions. However, when information about the recipient’s zone is not readily available, the place of supply is designated as the location of the supplier of the goods or services. This approach ensures a systematic determination of the place of supply, facilitating smooth and accurate implementation in export scenarios. It establishes a clear protocol for tax jurisdiction, contributing to the efficiency and compliance of export transactions.
Factors influencing place of supply for export supplies
Nature of Goods or Services:
The type of goods or services involved in an export transaction can significantly influence the determination of the place of supply. Different regulations may apply based on whether the export involves tangible goods, intangible services, or a combination.
Mode of Delivery or Transportation:
The chosen mode of delivery or transportation is another crucial factor. Whether goods are shipped by sea, air, land, or a combination of these modes can impact the determination of the place of supply.
Involvement of a Third Party:
If a third party is involved in the export transaction, it can add complexity to determining the place of supply. Clear documentation and understanding of the roles of all parties involved are crucial.
Location of the Special Economic Zone (SEZ) Unit or Developer:
In cases where export transactions involve entities within a Special Economic Zone (SEZ), the specific location of the SEZ unit or developer becomes a pertinent factor. SEZs often have distinct regulations and tax incentives, and the place of supply considerations may differ when dealing with transactions originating from or involving these designated zones.
Guidelines for identifying place of supply in exports
- If the export entails the movement of goods, whether by the supplier, recipient, or any other person, the place of supply is the location of the goods when the movement concludes for delivery to the recipient.
- In cases where the export involves the delivery of goods by the supplier to the recipient at the direction of a third party, the place of supply is the principal place of business of the third party. This includes scenarios where the transfer of titles or documents facilitates the delivery.
- If the export comprises the supply of goods where they are assembled or installed at a specific site, the place of supply is the location of such installation or assembly.
- When the export involves the supply of goods on board a conveyance, such as a vessel, aircraft, train, or motor vehicle, the place of supply is where the goods are taken on board.
- For the export of services, the place of supply is the recipient’s location. However, if the recipient’s site is unavailable, the place of supply defaults to the service provider’s location.
- In cases of export involving services related to immovable property, such as architectural, engineering, or construction services, the place of supply is the location of the immovable property.
- If the export pertains to services related to events like admission, organisation, or participation, the place of supply is where the event occurs.
- For the export of services provided by a banking company, financial institution, or non-banking financial company to account holders, the place of supply is the service provider’s location.
- If the export involves the supply of services by way of the transportation of goods, including mail or courier services, the place of supply is the destination of the goods.
- In cases of export involving the supply of services by way of transportation of passengers, the place of supply is where the passenger embarks on the conveyance for a continuous journey.
- For the export of services by way of OIDAR, the place of supply is the location of the recipient of services.
- Suppose the export involves goods or services to a Special Economic Zone (SEZ) unit or developer. In that case, the place of supply is the location of the SEZ unit or developer.
- For exports involving goods or services notified as deemed exports by the Central Government, the place of supply is the location of the recipient of goods or services.
Legal Consideration for determining place of supply for exports
Legal aspects influencing the determination of the place of supply for exports are rooted in the regulations outlined by the IGST Act, 2017 and the corresponding rules and notifications. According to the IGST Act, the export of goods is characterised by taking interests out of India to a destination outside the country. Simultaneously, the export of services is defined as the provision of any service where the supplier operates in India, the recipient is situated outside India, the place of supply is beyond Indian borders, and payment is received in convertible foreign exchange or Indian rupees (as permitted by RBI). These legal stipulations are crucial in establishing the parameters for determining the place of supply in export transactions.
Also Read: What Is An Export Supply?
The place of supply is a crucial concept in the taxation of export supplies, as it affects the supplier’s and recipient’s tax liability and compliance obligations. The place of supply is determined by applying the export supply location determination process, which may differ from country to country and from supply to supply. The process requires the supplier or the recipient to consider various factors and criteria and to provide sufficient proof of the place of supply. The strategy aims to ensure that the export supply is taxed in the appropriate jurisdiction and to avoid double taxation or non-taxation of the supply.
Frequently Asked Questions(FAQs)
What is the meaning of Deemed Exports under GST?
Deemed Exports, as per GST, refer to specific categories of supplies of goods that are treated as exports even if the goods are not taken outside India.
Who can claim a refund for Deemed Exports under GST?
A refund of tax paid on Deemed Exports can be claimed by either the supplier of goods or the recipient, subject to certain conditions.