GST is all set to float its wings across India, and it is a high time that we start adapting to its rules and provisions. Under GST, special attention is given to the reporting structure of all transactions, irrespective of the fact that it is of goods or for services. There are three types of taxes under GST, CGST, SGST and IGST. All these taxes are leviable whenever there is a movement of goods or services.
Movement of goods and services can be of 2 types:
- Within the State i.e. Intra-State
- Between Two States i.e. Inter-State
Intra-State movement attracts CGST and SGST whereas Inter-State movement attracts IGST.
In order to determine the levy of taxes based on Place of Supply, following two things are considered:
Location of Supplier: It is the registered place of business of the supplier
Place Of Supply: It is the registered place of business of the recipient
In this article, we’ll cover the importance of place of supply, time of supply and value of supply. We’ll dig deeper into place of supply rules and various aspects around it.
Understanding Place of Supply in GST
To determine the actual nature of the movement of goods and services, it is imperative to understand the “place of supply” of such goods or services. It plays a pivotal role in identifying whether CGST & SGST or IGST will be levied on any transaction.
Place of supply of goods and services have been given separate provisions. The location of the supplier and the place of supply together define the nature of the transaction. The registered place of business of the supplier is the location of the supplier, and the registered place of the recipient is the place of supply.
Place of supply rules for Goods
1) Where the supply involves a movement of goods, the place of supply shall be determined by the location of the goods at the time of final delivery.
For e.g. A manufacturer in Kolkata, West Bengal, has an order from a customer in Surat, Gujarat. The manufacturer directs his branch in Mumbai, Maharashtra to ship the goods to Surat. In this case, place of supply shall be Surat, Gujarat and thus entails an inter-state movement of goods and will attract levy of IGST.
2) Where the supply involves a movement of goods, on the direction of a third party, whether as an agent or otherwise, the place of supply shall be the principle place of business of such third party, irrespective of the place of delivery of goods.
For e.g. A dealer in Mumbai, Maharashtra sells products to a customer in Delhi. Delhi-based customer directs the Mumbai seller to send the materials to Kolkata-based customer. Although the place of delivery is Kolkata, since Delhi-based seller had directed such movement, then the place of supply shall be the principle place of business, i.e. Delhi and thus, charge IGST on such movement.
3) Where the supply does not involve any movement of goods, then place of supply shall be the location of such goods at the time of final delivery.
For e.g. A Ltd has its registered office in Hyderabad, Telangana, opens a branch in Bengaluru, Karnataka, and purchases workstations from B Ltd. Whose office is in Bengaluru, Karnataka. Even though the same is, a supply of goods but there is no movement of goods. Since the movement is intra-state, it will attract CGST and SGST.
4) Where the supply includes installation of goods at site, then place of supply shall be the place of such installation.
For e.g. Installation of telephone towers or lift in an office building.
5) Where the goods are being supplied on board a vehicle, vessel, aircraft, or a train, i.e. on board a conveyance, then place of supply shall be the first location at which the goods are boarded.
For e.g. Howrah to New Delhi Rajdhani starts its journey from Howrah, West Bengal and passes through many states before ending its journey in New Delhi. The food served on board the train shall be considered as supply of goods. Thus, place of supply shall be Howrah since it is the first location of the goods.
6) Any other cases not covered above will be determined further as per recommendations from the GST council (yet to be finalised)
The above rules are defined for goods. The place of supply of services is separate and specific in nature. They go as follows.
Place of supply rules for Services
- For an immovable property: Where such immovable property is located or supposed to be located
- Where both service provider and recipient are required to be physically present: Location of the service provided
- In case of an event: The location where such event was held or amusement park is located
- Ancillary activities to the events: If the person is registered, then his location or if the person is unregistered, then the place where the event was held
Note: Where the event is to be held across many States, then place of supply shall be treated as all the States in which such services are being provided on a proportionate basis as per the terms of the contract. Where no such contract exists, then on a reasonable basis or as may further be prescribed.
- Transportation of goods: If the recipient is registered, then his location and if unregistered, then location of the goods from where they started for being delivered
- Passenger Transportation: If the recipient is registered, then his location and if unregistered, then location from where the passenger embarks on his journey
- Supply of services on board a conveyance, vehicle, vessel, train or aircraft: The first point of departure for that journey
- Telecommunication Services :-
- Fixed leased line, Internet leased line, cable or dish antenna: Place of installation
- Postpaid Mobile or Internet Connection: Billing Address of the recipient of service
- Prepaid Mobile or Internet Connection: Location where such pre-payment was made or vouchers are sold
Note: When such a recharge is made through Internet Banking or E-Wallets, then the place of supply of service shall be the address of the recipient as on the record with the service provider.
- Banking or Financial Institutions to account holders: Location of the recipient of the services as per record of the provider
- Banking or Financial Institutions to non-account holders: Location of the supplier of service
- Insurance: If the person is registered, then his location or if the person is unregistered, then the location of the recipient as per records of the service provider.
- Restaurant, catering, personal grooming, beauty treatment, fitness and health services, cosmetic or plastic surgery: Location where the service is provided
In all the above cases, where the location of the recipient cannot be identified, which is generally the fixed establishment or registered office of the recipient, then the usual place of residence of the recipient shall be treated as the location of receipt.
Understanding the Importance of Bill To-Ship To w.r.t. above provisions
When there are 3 parties involved in a transaction, then the place of supply plays a crucial part in determining which of the parties will pay tax. This is similar to point 2 above, where goods are moved from one place to the other on the direction of a third party, then the place of supply shall be the principle place of business of that third party.
Wherever the third party exists, accordingly, the inter-state and intra-state sale can be adjudged and taxed.
Time of Supply
Once you have determined what to tax, whether CGST, SGST or IGST, then it is time to identify the “when to tax.” It is another critical point in payment of taxes and regularizing the returns. Different rules and provisions have been created for notifying the time at which tax becomes due.
For determining the time of supply in case of goods and services,
- The date of issuance of invoice or,
- Date of receipt of payment
Whichever is earlier.
Further, for item (b) above, the date of receipt of payment shall be,
- The date of credit in bank account or,
- Date at which the receiver actually entered the payment in his books of accounts
Whichever is earlier.
Where the amount received is in excess of the invoice, and then time of supply shall be treated from the date of issuance of invoice for that extra amount.
For e.g. Maruti Enterprises issued invoice to Telga Informatics on 30th May 2017. Telga made a payment to Maruti on 2nd June 2017 and further, Maruti credited the entry in their books on 3rd June 2017. In the above example, time of supply shall be 30th May 2017.
Further, in case of reverse charge, things are a little bit different for goods and services. The time of supply shall be earlier of the following:
- Date of payment or
- Date of receipt of goods or
- Date immediately 30 days from the date of issue of invoice in case of goods (60 days in case of services)
If is still not possible to determine the correct date from the above options, then time of supply shall be the date at which recipient makes an entry in his books of accounts.
Similarly, to determine the time of supply in case of receipt vouchers, it shall be,
- The date on which the voucher is issued or
- If the above cannot be ascertained, then the date on which the voucher is redeemed.
In all other cases, where it is not possible to determine the time of supply with the help of above provisions, then the time of supply shall be either date of filing periodical returns or payment of CGST/SGST as the case may be.
Value of Supply
After determining what and when of GST, it is time to determine “How much” of GST is to be paid.
The value of supply has been defined as the “transaction value” of the goods and services transacted between un-related parties. The value of supply shall include the following:
- Basic consideration for the goods and services
- Any taxes, cess, duties, fees and charges under any Act
- Any amount payable by the supplier for the recipient
- All ancillary or incidental expenses like packing, commission, etc.
- Subsidies, not Central or State Government subsidies
- Interest, penalty or late fee charged for delayed payment
- Any discounts that are given for the supply of goods and services, which were not known earlier.
Other discounts, which are linked to specific invoices or were agreed upon at the time of entering into a contract, shall be allowed as a deduction from transaction value.
Thus, after ravaging through all the above provisions, it is clear for a taxpayer to identify when to pay tax, how much tax is to be paid and who will finally bear the tax burden. As such, place of supply, time of supply and the value of supply, knit together, determine the total tax liability that needs to be cleared as per schedule.
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