Bill-to or ship-to transactions are significant during the supply of goods nationwide. Therefore, the laws and regulations encircling such transactions are complicated as well. Thus, the case studies provided will assist you in understanding how the place of supply in this regard will be identified.
Legal provisions governing place of supply in bill-to/ship-to transactions
The governing legislation of Bill-to or ship-to transactions is the Goods and Service Tax Act of 2017. The key provisions laid down are detailed here under:
- Section 10 (1) clause b of IGST act: As per this provision, the bill-to or ship-to transaction will get it to the place of supply that is in connection to the recipient’s location who has given the direction of the delivery of the goods.
- Section 12 (8) IGST act: As per this provision, the place of supply for the services provided is directly related in connection with the goods movement. For the bill-to or ship-to transactions were services are to be offered involved. The section discussed works in consideration with section 10 clause b.
Determining the place of supply:
- Firstly, you have to identify the supplier who is entitled to provide the directions for the goods delivery.
- Secondly, the location of the supply needs to be verified, which implies to the place of supply of the leading supplier.
- Finally, there are some exceptions in relation to goods nature as well as the different services and the specific laws and regulations.
- It is crucial to identify the correct place of supply to apply the rate of tax which is appropriate. It will ensure that one has come in terms with the regulations.
- Any errors while determining the place of supply will pave the path towards fees and penalties.
Case studies and practical examples of place of supply determination
For e-commerce transactions:
|Place of supply
|Mr Tarun from Kolkata has ordered a smartphone from an e-commerce website which needs to be delivered to Mr Mohan in Bangalore.
|In this case, the place of supply is Bangalore, where Mr Mohan will be receiving the smartphone.
|The section 10 Subsection 1 clause b states that the location is to be deemed as the place of supply of the goods where the recipient has been given the direction for the goods delivery.
Services provided to a customer at the location:
|Place of supply
|Mr Gupta, who is a marketing consultant from Pune, travelled to Delhi in order to provide his clients located in Delhi to provide consulting services.
|In this case, the place of supply is Delhi since the services are provided in Delhi itself.
|It has been laid out in section 12 subsection 2 and clause a of the IGST act that the place where the services are provided is the place of supply of the services.
B2B transactions supported with transportation:
|Place of supply
|XYZ Limited, Located in Chennai, sells goods to ABC Ltd located in Gujarat. XYZ Ltd has arranged for the transportation of the goods from Chennai to Gujarat.
|In this situation, the place of supply will be Gujarat since it is the place where the goods are being received by the company ABC Limited.
|As per section 10 subsection 1 clause b. The place of supply for goods is being determined. However, the place of supply for this transportation is being determined under section 12 sub-section 8 since both the services are in terms of the goods movement. Therefore, the recipient’s location is being considered for both cases.
Some real-life examples:
- You have purchased a book from an e-commerce website that is located in a different state from where you live. In that scenario, the address where the book is to be delivered is a place of supply, and thus, will have to pay an IGST on such purchases.
- You have hired a taxi to commute from your residential location to a location within your city. In this case, the place of supply is within your city; therefore, you will have to pay CGST as well as SGST for the taxi expenses.
- You have subscribed to some online streaming services that are based in a foreign land. In this case, the place of supply will be the country where you reside, and you will be charged an IGST on the subscription fee.
- You have attended a conference in a state where you are not located. Hence, in this case, the place of supply will be the state where the conference is taking place. It will thus make you liable to pay SGST as well as CGST on the fee of registration.
- You have rented a car from an organisation that is located in a different state then where you reside. In this case, the place of supply of the city to be considered will be where you have taken the car, and the IGST will be applicable to the rental charges.
Understanding the implications of judicial decisions on the place of supply
Impact on tax liability:
The existing laws to be clarified by the court: The rulings of the court will provide a clear picture of the provisions within the taxation laws that will ensure that one has been able to consistently apply and prevent any kind of disputes in terms of the place of supply.
Dynamics of rate of tax: Based on the judgement of the court, the determination of the place of supply can be changed, which will lead to the application of different kinds of laws, such as SGST, IGST, and CGST, which will thus impact on the overall liability of tax for the business.
There are sometimes decisions made by the court that will be applicable retrospectively, which will affect the assessment of tax for the historical transactions, and this will trigger additional refunds as well as liabilities.
Impact on the requirement of compliance:
In case there are newer interpretations of the decision made by the court. It may necessitate some adjustments in compliance procedures or record-keeping processes in order to ensure that the rules have been adhered to.
There could be a rise in scrutiny from the side of the tax authority following the significant pronouncement of the court that will allow the businesses to tackle any kind of audit or investigation that might take place.
If there are complex taxation policies, some professional GST advisor could take care of those.
Impact on business operations:
In case there is a change in the place of supply, it might require the companies to restructure the supply chain, which will thus optimise the efficiency of tax being paid by reducing the tax liability.
As a result, the companies may need to adjust their strategies to price the goods which is due to the change in the rate of tax as well as the cost of compliance
The contracts with the suppliers and the customers need to be reviewed and changed, which will reflect on the change of the place of supply and the implications of tax related to it.
Applying legal principles to complex bill-to/ship-to scenarios
Step 1: You will have to identify the relevant framework of law encircling the transactions
Determine the applicable rules and regulations as well as the tax rate. You will have to familiarise yourself with section 10 sub-section 1, clause b, and section 12 sub-section 8 of the IGST act. Also, if there are some exceptions in terms of rules and regulations, those must be clarified.
Step 2: The transaction details must be analysed thoroughly
The parties involved in the transaction must be identified, and then the nature of the goods and services provided must be determined. The location of delivery as well as the flow of goods, must be analysed also. If there is any kind of contractual agreement in relation to the ownership, those might be identified as well.
Step 3: Application of rules and regulations
You must identify the leading supplier who will be providing the directions of delivery. In order to do so, the location of the leading supplier must be determined. The changes in transactions and any kind of exceptions within the law must be considered as well.
Step 4: The place of supply must be determined appropriately
The location of the place of supply must be identified considering that the different applicable rates of tax must be identified as well.
Step 5: Compliance and documentation required
All the important transactions must be documented which includes the contract agreements and addresses of the bill-to or ship-to transactions. Proper accounting of the taxes based on the place of supply must be identified as well. One must also ensure that the tax regulations have been complied with.
Staying informed about the evolving legal landscape of place of supply
There are formal sources and informal channels that one can use to stay informed about the dynamics of the legal landscape of the place of supply.
- For formal sources, one can consider the websites launched by the government, which includes CBIC in India. Also, you can consider the notifications and updates provided by some of the other authorities. Subscribe to some tax journals and publications, which will provide you with the rates of tax as well as the rules regarding place of supply. Legal databases might also be considered where the courts’ judgement might be provided, which will help you a lot when determining the place of supply.
- In terms of informal sources, you can subscribe to some industry circulars and forums, which will provide the GST rates in and determine the place of supply. Also, tax professionals will assist you in complying with the GST. Finally, there are online forums where the changes in the GST will be informed.
However, those online forms might not be wholly accurate. Hence, one might instead consider consulting formal sources.
It is essential for everyone to stay updated on the changes in the tax rates in India and other rules and regulations. Since the place of supply determination is a hectic process and might be confusing one can quickly consult tax professionals or be mindful about the changes that take place.
What is the difference between addresses in relation with bill-to or ship-to transactions?
The address where the invoice is being sent and the payment is being expected is the bill-to address. Whereas, the location where the goods are being delivered is the ship-to address.
How to determine the place of supply in the bill-to or ship-to transactions?
The location which is provided by the recipient as a direction to deliver goods is the place of supply. There are certain exceptions in relation with the services or goods are niche.
Can you tell me the implications of the determining the place of supply appropriately?
To ensure the compliance as well as avoid any sort of penalties the correct rate of tax should be applied.
How to stay updated on the changes in the legal landscape of the place of supply?
Follow government issued circulars, websites, tax journals, and many more.
What are few of the resources to be referred to learning the place of supply?
Section 10 and 12, tax journals and database, and CBIC.