GST is a tax that is based on the destination. The tax is based on the supply at the destination. The place of supply of POS determines the destination of the supply and helps us to know the jurisdiction of the tax.
In today’s article, we will try to understand the role of state codes in determining the place of supply. You see, GST and POS are directly proportional to each other. Unless the POS is found out, the GST will be given to the wrong country, state, or union territory.
Without further ado, let us delve into the post.
How do you determine the place of supply?
There are some place of supply rules according to section 10 of the IGST Act, regarding the place of supply of goods in domestic transactions. We will be reading them to get a clear picture of the place of supply of goods:
Movement of goods
The movement of goods is where the goods are transported from one location to another. Here, the place of supply or POS is the location of the recipient where the goods are delivered. For example, if the seller is from Gujarat, and is selling products to a buyer in Madhya Pradesh.
As we can see, the products are transported from Gujarat to Madhya Pradesh, and then for the supply of goods IGST is applied. The reason for that is it is an inter-state transaction.
No movement of goods
In some cases, there is no movement of goods. Here, the place of supply of the goods becomes the location of the products delivered to the recipient. For instance, a buyer from one state goes to another state to purchase the goods.
The products or goods have not been moved from one state to another. So, the place of supply of goods is the state from where the buyer has purchased the goods. In this case, the type of transaction is intra-state supply, and both CGST and SGST are applied.
Goods sent to the third party
In some cases, the goods are sent to a third party at their request. In this sense, the supplier delivers the products at the request of the third party to the buyer. It is done on their behalf to the recipient.
In this kind of transaction, the place of supply of goods is the location of the third party. For example, a third-party seller can request the supplier to provide a buyer, who is based in another state with the products on their behalf.
It becomes an inter-state transaction in most cases.
Installation of goods at a site
In this case, the goods are provided at a site. Here, the place of supply is the place where such goods are installed. Let us say, that a buyer from Maharashtra orders a product from a seller who is based in Delhi.
The seller installs the product at the premises of the buyer who is based in Maharashtra. So, the place of supply is Maharashtra. The IGST is applied as it is obvious this is an inter-state transaction.
Goods supplied on a conveyance
The goods are supplied using a conveyance like a vehicle, train, or aircraft. The place of supply or POS is the place where the goods are taken on board. For example, if a train is used to provide food for the journey from Delhi to Ranchi.
The train receives the food parcels from Lucknow. So, in this case, the place of supply of goods will be Lucknow, UP.
While most of the goods are tangible, you can easily determine their place of supply consumption. However, in the case of services, several challenges need to be addressed to know the place of supply.
Some of the difficulties have been mentioned below:
- The billing address of a customer using a telecom service can be altered without anybody knowing about it.
- The receiver of the service, the service provider, and the actual service provided may not be accurate in most cases, as there is no movement of tangible items.
- Besides, having a fixed location for the service provider is not necessary for both the supplier and the recipient of the service.
The different elements that are involved in a service are used for determining the place of supply of the service. It is important to note that these elements give more precise results than other methods for finding out the place of supply.
Some of the elements used for finding out the place of supply of service include the following:
- The accurate location of the service provider.
- The proper location where the activity happens.
- The location where the service is consumed or given.
- The place where the benefit goes to or the individual to whom the actual benefit goes.
These elements are the proxies that can be used to determine the actual place of supply of services.
What is the place of supply within the state?
The place of supply within a state or other states happens when there is movement of goods or products. The place of supply within the state is taken as the destination where the goods or the products are finally given.
When the seller transports the goods or the products to the billing address of the buyer, it is the principal place of business. However, there are certain scenarios where the place of supply of goods can’t be found.
In this case, the place of supply can be found such that, it can be prescribed. Likewise, some of you may ask, how is the GST applied for goods that are delivered in the same state but the billing address in another state?
Firstly, it is known as a ‘bill to ship to’ consignment. According to the provisions given in IGST Act – section 10(3), the place of supply of the goods are delivered to a person on behalf of a third party is the location.
The billing address is taken as a central criterion in finding out the supply of whether it is an intra or inter-state. Sometimes it also becomes the responsibility of the third person to understand the taxing of the transaction between the seller and the buyer.
What is the provision of GST relating to the determination of the place of goods supplied?
The provision of GST relating to the determination of the place of the goods supplied is that it should tax the consumption at the destination. It simply means that the destination where the supply has taken place is taxable.
The tangible products don’t determine the place of consumption. Some of the services that are tangible with the place of supply depend on some of the factors that include:
- A telecom service package can sometimes be changed from a pre-paid to a post-paid package. But the billing address can be still the same. Likewise, the billing address can be changed, and the repair of software can be done through online as well. In the banking sector, the customers had to visit the branch to get things done, but today, can log on to the official website and complete the work from anywhere.
- A service provider does not have to decide on a fixed location. Sometimes, the recipient can get the service on the go. Moreover, the destination of the billing or the billing address can be altered if required.
- We can take the example of the construction of a bridge that originates from one state and then ends in another state. The length of the bridge has to be taken into consideration. Usually, the length may vary. It won’t be equal or the same for both states. Airlines issue seasonal tickets, that contain 10 tickets that can be used for travel purposes between two cities in India. Travellers can make use of the tickets to travel between the cities of their choice.
It is interesting to note that the services are evolving and may pose newer challenges to the state codes in determining the place of supply. You can see that 20 years ago, there were no online banking, online transactions, and booking systems available.
What is the place and supply in GST?
As we read above, the main aim of understanding the POS or place of supply is to know where the GST has to be charged or levied. When the GST is levied, then the revenue that is generated is shared by the state, and central governments, wherever applicable.
When the place of supply is outside the taxable territory (outside India), it is classified as the export subject. That means, the buyer can claim refunds as and when they want to. This is provided in the ITC/ IGST on such supply.
The wrong POS given will result in the wrong category of the supply, and eventually lead to the wrong state or UT receiving the revenue. Of course, the mistake can be rectified by ensuring that the right tax is paid (Sec 77 of CGST ACT & SEC 19 of IGST ACT).
The place of supply under GST can be divided into the following categories:
- The place of supply of services.
- The location of the supplier and recipient in India.
- Where the location of the supplier and recipient is out of India.
- Place of supply in case of Imports/exports.
|Place of Supply
|Whether location of supplier and the place of supply are in the same State
|Intra-State (CGST& Puducherry GST)
|Intra-State (CGST + UTGST)
|Daman & Diu
|Intra-State (CGST + Goa GST)
|Location of Supplier of Services
|where a supply is made from a place of business for which registration has been obtained
|the location of such place of business;
|where a supply is made from a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere
|the location of such fixed establishment;
|where a supply is made from more than one establishment, whether the place of business or fixed establishment
|the location of the establishment most directly concerned with the provision of the supply
|in absence of such places
|the location of the usual place of residence of the supplier.
|Location of Supplier of Services
|where a supply is received at a place of business for which registration has been obtained
|the location of such place of business;
|where a supply is received at a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere
|the location of such fixed establishment
|where a supply is received at more than one establishment, whether the place of business or fixed establishment
|the location of the establishment most directly concerned with the receipt of the supply
|in absence of such places
|the location of the usual place of residence of the recipient
Now, there are also cases where the place of supply of goods cannot be determined. In such situations, the place of supply shall be determined in such manner as may be prescribed.
What is the relevance and need for determining place and supply?
According to section 10(1)(a) of the IGST Act, the place of supply of goods is the location of the goods at the time of movement of goods is completed to the recipient. In this sense, once the goods have been delivered to the buyer at a particular location, it is considered a place of supply (POS).
It could be a particular state like Gujarat or Maharashtra. According to the GST state codes, the tax is levied. As we may know the state codes in GST is a destination-based indirect taxation system. So, the POS is vital to know the state, city, or town that the destination state, and GST is payable.
- You see, the supply can be intrastate when the location of the supplier, and place of supply are happening in the same state. You have to give both the CGST & SGST.
- Likewise, the supply is interstate when the location of supplier, and place of supply is happening in different states. You have to only pay the IGST.
- Finally, the supply is exported when the location of the supplier is in India and the place of supply is outside India.
We can say that POS is a central concept in GST Laws. As you may also know India follows the dual GST model. Here the Central Government and the State Government can charge the tax on the common tax base.
So, an Indian citizen will have to pay four kinds of tax. They are GST-IGST, UTGST, CGST, and SGST. The IGST and CGST are charged by the Central Government. However, the SGST and UTGST are charged by the State Governments or Union Territory.
The GST that you have to pay for a particular transaction depends on the location of the supplier and the place of supply. If the location of the supplier and place of supply is the same, then it is an intra-state supply, and the tax charged is CGST+SGST/UTGST.
Likewise, when the location of supplier, and place of supply are in two different states, then it becomes an inter-state supply. The tax charged is IGST.
What is the role of supply under GST?
The role of supply under GST is quite simple. The supply has to be taxable for it to attract GST. The taxable supply is actually the supply of goods or services, which can be taxed. Of course, there can be some exemptions to the specified goods or services.
It can be also done for a specified category of persons who are making the supply. Likewise, we may want to understand the definition of goods. Goods or services are a kind of movable property other than money.
However, they can include actionable claims and things attached to a land. These can be agreed to be severed when the supply is done. Likewise, services means, other than goods, and securities but activities related to using money in any other mode, from one form to another form, for which a separate fee is charged.
For instance, a transfer of goods would be a supply of goods. However, the transfer of rights in goods without transferring the title is taken as services. It can be in money or kind. The good news is that the subsidies are being offered by the Central Government or a State Government.
In this case, the person who has made the payment does not matter. That is because the deposit is provided in respect of the supply of goods or services or both. But they can’t be considered as payment.
This is it. We have come to the end of our discussion on the role of GST state code determination in the place of supply. We understood the importance of the place of supply (POS), how do you determine the place of supply, the place of supply within the state, and the provision of GST relating to the determination of the place of goods supplied?
We also read about the place and supply in GST, its relevance and need for determining place and supply, and finally, the role of supply under GST.
Why is the place of supply important?
The place of supply of goods is a crucial element in understanding if the transaction taking place is inter-state, import-export, or intra-state. It helps in knowing the kind of tax that has to be paid including, central (CGST) and state (SGST) taxes, or integrated tax (IGST).
How do you determine the place of supply?
The place of supply is determined by noticing the location of the goods when it is being delivered to the buyer. So, if the products are not moved, during a transaction, the place of supply is assumed as the location of the product during the delivery to the buyer.
What happens when the location of supplier and the place of supply are in two different states?
It is an interesting development, but there is a solution. If the location of the supplier and place of supply is done in different states, it is known as inter-state supply of services. This happens, when the location of the supplier, and the place of supply happen in different States.
How do you identify if supply involves supply of goods and supply of services?
Sometimes, there can be a transfer of right in goods. This may happen without the transfer of title. In that case, it is known as a supply of service. When you are using the transportation services, then you have the right to use the service. However, the ownership rights remain with the transportation company.
What is Supply Under GST?
If a situation arises where the third person has received the goods, the place of supply will be considered as the place of business of the third party. For example, if the place of supply has taken place in Mumbai, Maharashtra, then the same state CGST & SGST is charged.
What is the POS rule in GST?
The POS rule or the place of supply rule in GST states that the place of supply will be treated as international transactions. This is when the location of the service recipient, and when the location of the service recipient is not given, the place of supply is that of the supplier.
What is a state code?
A state code in the GST is a unique code that is given for each state. This way, you can understand the GST state code. It represents regions including provinces, states, and even countries.
How is the GST state code determined?
The GST state code is determined by unique numbers that are serially assigned to every state or UT. The GST state code for Maharashtra is 27, and the GST state code for Karnataka is 29.