Goods are being delivered across the nation, due to which the application of taxation might vary. The transactions concerning billing to/shipping to are a crucial aspect for a business as they help the enterprises identify the different tax rates to be applied for goods and delivered across the nation and the same state.
Bill-to/ship-to e-commerce transactions and place of supply
A bill to/ship to transaction is a daily business practice. The very transactions will be in relation with the location of the supply of goods that is delivered by the seller under the instructions of the third party. Such transactions will entail the involvement of three different parties who are 1) SELLER, 2) THIRD PARTY instrument, and 3) RECIPIENT.
Section 10 Subsection 1B of the IGST act assist in identifying the place of supply in the case of Bill to/ship to transactions. Suppose the goods are being delivered to the recipient via the supplier, or there are any other persons under the instructions of a third party. In that case, where the business is conducted is said to be that of a third party and not the recipient. This will be applied to the cases where instructions are given before or during the products’ movement. However, it must be given after the products have been moved completely. It implies that there will be two kinds of supplies involved in this transaction.
- Firstly, the transaction in the first part is done between the third-party and the supplier. In this case, the invoices for the goods are being directed from the plier to the third party.
- Secondly, the case of the second part of the transaction is in between the ultimate recipient of the good and the third-party. Therefore, the invoices of the third parties will be received by the recipient.
CGST the has been charged to the ones who will be receiving the goods that will be inclined towards business location.
Note: The bill-to or ship-to rules and regulations must be applied to the services where only party is billing the services. However, it is supplied to another recipient.
The regulatory framework governing place of supply in bill-to/ship-to transactions
As per section 10 subsection 1 of the IGST act, determining the place of supply of goods apart from those imported in or exported out of India is being done under the following process. Also, in section 10 of section 1 of IGST, the place of the supply shall be identified on the following basis if it is within the country.
The place of supply is the location where there is transmission of the movement of goods: in case the supply involves the goods movement, whether from the suppliers or the recipients and or by any other person, the place of the supply of goods will be the goods the location of the good where there is the termination of the movement of goods for delivery to the recipient stated under the section 10 subsection one a of the IGST act.
Goods that are delivered on direction of the third person: in cases where the goods are being delivered to recipient by the supplier or any other person on the third person’s direction, whether it is acting as an agent or something else prior or during the goods movement either by the process of transfer of the document of title to the goods or any other document, it is necessary that the third person stated here under has the received the goods and such goods. Place of supply will be the primary place of conducting business of such individual under section 10 subsection 1B of the IGST act.
This will also cover the sale in transit that takes place by the transfer of the document of title. The following clause will also cover the situation with the goods being sent to the job worker on the instructions provided by the principal.
Place of supply is delivery to the recipient when goods are not being moved: in cases where the supply is not involved with the goods movement, whether by the recipient or the supplier, the place of supply will be the location of the good at the time of the delivery to the recipient under the section 10 subsection C of IGST act.
Place of supply in case of assembly or installation: in case where the goods are being installed or assembled, the place of supply must be the place of such assembly or installation under section 10 subsection 1D of the IGST act.
Place of supply when the goods are supplied on board of conveyance: where the supplier goods is on terms of the board of a conveyance that includes an aircraft, motor vehicle vessel or a train. The place of supply will be the location where the goods are taken on board under section 10 of section 1E of the IGST act.
Residual provisions: it is the case where the place of the supply of the goods is not being determined in payers’ terms. It is also determined in a way that is prescribed under section 10 of section 2 of the IGST act.
Compliance obligations for e-commerce businesses
The obligation to comply with the e-commerce business is conducted using the e-way bill system where the registered person who is filing the GST or the enrolled transporter is entitled to generate a bill digitally when the movement of goods takes place and the value exceeds ₹50,000 in relation with the supply or for any other reasons, then supply or for the inward supply from a person who is unregistered. It has been made mandatory for these inter supplies to generate e-way bills from 1st April 2018 and the case of inter-state supplies. It has been mandated from 25th April 2018 in certain states such as Madhya Pradesh, Meghalaya and many more. An e-way bill must be generated prior to the shipping of goods, and it must include the goods detail, the consignor transporter, as the recipient.
The purpose of an e-way bill is for the goods supply and non-supply transition such as import and export returning of quotes, sales that have been made on the basis of approval, knocked down supply goods that are used for personal consumption and many more.
Who is responsible for generating the e-way bill?
Each and every registered person who could be a transporter, consignee, recipient or consignor is mandated to generate an E bill. If air, rail or road are the choice of transportation of the goods. A situation where an unregistered person who is supplying to a recipient is registered. In this case, the recipient must follow the procedure as the supplier is not a registered person. The transporter must generate the bill if the consigning the consignor is not able to generate any kind of e-way bill, despite the goods being handed over to the transporter for the conveyance by road, it must be remembered that the consignor is able to authorise the courier agency, e-commerce operator or the transporter to fill the e-way bills part a section on their behalf.
What are the documents that are required for the transportation of goods?
- Delivery challan
- Bill of supply
- Transporter ID
- Transport document number
- And bill copy/eBay bill number
The exhibitions can be enjoyed during the issuance of eBay bills when the GST of the shipment of goods is exempted if the consignment value is less than ₹50,000.
Impact of place of supply on taxability and compliance
The interstate transaction implies to the supply of goods from a location to another location that is in a same state. Hence, if some is selling a product from Karnataka to another location in Karnataka then it is an interstate transaction.
If the supplier and the buyer both are in different states then the sale is an interest-rate transaction, and only IGST shall be applied. For instance, if the delivery of goods or services is made by a registered supplier based in Jharkhand to a buyer who is located in Orissa, then it will be considered to be an interstate. The buyer must pay the transaction fee and IGST.
If either the seller or the buyer is a foreign entity, then the transaction will be treated as an export or import. The export or import is also treated similarly to the interstate supply, and IGST will be applied to it. There are sometimes circumstances where a seller is a foreign entity who is elected to a buyer as long as the goods are only for the consumption of the buyer and not for resale, the transaction will not occur under the GST.
Ensuring accurate determination of place of supply in bill-to/ship-to transactions
Maintaining proper documentation: the invoices issued with the correct place of supply and the tax rates that can be applied must be recorded properly. The e-way bills must be generated accurately and the shipping and the billing address must be mentioned. All the relevant documents must be kept track of, which will assist in determining the place of supply.
Internal control implementation: The businesses must develop an internal process that will ensure that it is accurate and consistent with the rules of the place of supply. If there are employees working for the company, then the employees must be made to understand of the relevant rules and regulations surrounding the place of supply and taxation as well. Conducting on a regular basis to identify the problems in the invoices will help the company find out the errors, thereby resolving them appropriately.
Consulting a tax professional: it could be a tricky task and tough to find out the place of supply and apply the relevant taxation. Therefore, it will be easier for businesses to contact GST professionals for the company to set up appropriate processes, guiding them about the place of supply and the rate of tax applied to the situation.
GST filing in case of transferring goods within or across different states requires an understanding of the place of supply, e-way bill and other necessary sources. Therefore, understanding the rules and regulations requires an individual to understand the situation where the place of supply can be determined, and it must be put into practice so businesses can easily file the necessary SGST, CGST, and IGST.
What is bill-to or ship-to transactions?
These are transactions that occur when the shipping address and the billing address are different.
How to determine the place of supply?
Firstly, find out the principal place of the business and then find the place where the goods are being delivered.
What are the compliance obligations in the case of e-commerce businesses?
You must generate an e-way bill if you are movement of goods value exceeds ₹50,000.
How is taxation affected by the place of supply?
If there is interstate supply, then CGST as well as SGST has been applied. In the case of interstate supply then, the IGST is applied, and there is no GST approval for export.
How the exact determination of the place of supply is possible?
Firstly, maintain a proper documentation process, and impose internal controls and necessary tax provisions.