The place of supply is a crucial concept in the GST era, as it determines the jurisdiction and rate of tax applicable to a transaction. However, the place of supply is only sometimes straightforward, especially when there is a variation in the buyer’s address and the recipient of the goods or services. This is known as the Bill to / Ship to scenario, where the invoice is issued to one person (Bill to), but the delivery is made to another person (Ship to) in the direction of the former. In such cases, the GST law provides different rules for Bill to / Ship to transactions to determine the place of supply, depending on whether the transaction involves goods or services. This article will explore the address variation and site of supply rules and understand the regulations for Bill to / Ship in place of supply.
Understanding Bill to/Ship to Transactions
The “Bill to ship to transactions” practice is a common trade and day-to-day business strategy. This approach is beneficial when suppliers need help maintaining adequate inventory or finding it economically impractical to acquire goods at their location before delivering them to the recipient. In such instances, involving a third party to ship the goods directly to the customer becomes a viable solution.
Illustrative Example: Bill to/Ship to Transactions in Action
Taking a closer look at a practical example, M/s. A, an electronic goods dealer in Delhi, receives an order from M/s. B is located in Uttar Pradesh. The order involves the supply of 50 tables with explicit instructions to dispatch the goods to M/s. C in Haryana.
This scenario unfolds through two distinct transactions:
Between M/s. A and M/s. B, where M/s. A serves as the supplier and M/s. B acts as the buyer. M/s. A issues an invoice for the transaction to M/s. B and, following the provided instructions, ships the laptops to M/s. C in Haryana.
Between M/s. B and M/s. C, where M/s. B becomes the supplier and M/s. C assumes the buyer’s role. M/s. B generates an invoice for the transaction, subsequently endorsing the e-way bill favouring M/s. C as part of the shipping process.
Rules governing place of supply with Bill to / Ship to
Examining Legal guidelines for determining the place of supply in such scenarios, Section 10(1)(b) of the IGST Act specifically addresses the influence of Bill to/Ship to transactions on determining the place of supply. This determination occurs before or during the movement of goods, involving the transfer of documents or other means. In such cases, the final recipient is presumed to be located in a different state. Consequently, the supply is categorised as inter-state, even if the goods are delivered within the same state as directed by the customer (third party).
Determining the place of supply for goods is critical in classifying transactions as interstate or intrastate, subsequently influencing the applicable tax levies. In cases where the supplier delivers goods to the recipient under the direction of a third person, it is considered that the third person has received the goods. In such instances, the place of supply is deemed the principal place of business of the said third person.
Claiming Input Tax Credit:
In bill to ship to transactions under Section 10(1)(b) of the IGST Act, the third person, under whose instructions goods are supplied to the recipient, can avail of Input Tax Credit (ITC) for the GST charged by the supplier. Subsequently, they can apply GST charges to the final recipient.
E-Way Bill Procedure:
According to GST regulations, an E-Way Bill Number must be generated for any goods in transit. In scenarios involving Bill-to and Ship-to transactions, where there are two invoices, the physical movement of goods occurs only once. Therefore, the E-Way bill must be generated just once and can be based on either of the two invoices.
Importance of Accurate Place of Supply Determination:
Incorrectly classifying the supply as interstate or intrastate, and vice versa, may lead to hardships for the taxpayer under Section 70 of the CGST Act and Section 19 of the IGST Act.
In misclassification cases, the taxpayer must pay the correct tax and interest for any delay based on the revised or corrected classification.
Understanding Tax Incidence:
Precise determination of the place of supply is essential for comprehending tax incidence.
If incorrect taxes have been paid due to misclassification, the taxpayer must initiate the process of claiming a refund.
The place of supply rules for Bill to / Ship to scenarios differ for goods and services and depend on whether the intermediary and the recipient are in the same state. The compliance requirements for the place of supply with Bill to / Ship to are also complex, as they involve multiple parties, invoices, and e-way bills. Therefore, understanding the rules for billing to / Ship to in place of supply is vital for taxpayers to comply with the GST law and avoid any penalties or disputes.
Frequently Asked Questions (FAQs)
Are services covered under bill-to-ship-to transactions?
Bill-to-ship-to provisions also apply to services where they are billed to one party but supplied to another recipient.
Does the bill-to-ship-to provision apply to branches of the bill-to-party?
If X is a branch of Y, the provisions of bill-to-ship-to transactions still apply. However, if X functions as an additional place of business for Y within the same state, the transaction is invoiced only to Y.
How are e-Way bills issued in bill-to-ship-to transactions?
E-Way bills have sections for Billing-to and Ship-to addresses. The domicile of the respective parties is entered, and tax components are recorded based on the billing-to-party invoice.
How are bill-to-ship-to transactions treated under e-invoicing?
E-invoicing for bill-to-ship-to transactions follows Section 10(1)(b) provisions. Two e-invoices are raised: one by the supplier to the third party and the second by the third party to the ultimate recipient, following the same procedure as lifting a standard e-invoice.
How is ITC input tax credit claimed under bill-to-ship-to transactions?
Two different tax invoices are issued in bill-to-ship-to transactions. The bill-to parties of both invoices can claim input tax credits, and the ultimate recipient receives the input tax credit for the supply.