Understanding the Place of Supply for Goods Under GST
This article explains the critical concept of 'place of supply' for goods under India's GST regime, which dictates whether a transaction is intrastate or interstate, thereby determining the applicable tax (CGST/SGST or IGST). It elaborates on various scenarios, including situations with and without goods movement, supplies on conveyances, and the specifics for imports and exports. Through clear examples, the guide illustrates how the place of supply is ascertained in diverse commercial situations, providing a comprehensive overview of this fundamental GST provision.
Goods and Services Tax (GST) operates on a destination-based principle, which means the tax is levied at the point of consumption rather than at the origin. Consequently, the state where goods or services are ultimately consumed has the right to collect GST. Therefore, identifying the correct place of supply is a fundamental aspect of GST, as it determines whether a transaction is classified as intrastate or interstate. This classification, in turn, dictates whether Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Integrated Goods and Services Tax (IGST) will be applied. For further information on these tax components, refer to our article on SGST, CGST & IGST.
Determining Place of Supply with Goods Movement
When goods are supplied with an associated movement, the place of supply is identified as follows:
| Supply Type | Place of Supply |
|---|---|
| Involves movement of goods, whether initiated by the supplier, buyer, or any other party | The location of the goods when their movement concludes for delivery to the recipient. |
| Goods are delivered by the seller to a buyer based on instructions from a third party (who may or may not be an agent), either before or during the movement of goods, through transfer of title, documents, or other means | It is presumed that the third party has received the goods; hence, the place of supply for these goods will be the primary business location of that third party. |
Example 1: Intra-state Sales
If Mr. Raj from Mumbai, Maharashtra, sells 10 television sets to Mr. Vijay in Nagpur, Maharashtra, the place of supply is Nagpur, Maharashtra. As this is within the same state, CGST and SGST will be charged.
Example 2: Inter-state Sales
When Mr. Raj from Mumbai, Maharashtra, sells 30 television sets to Mr. Vinod in Bangalore, Karnataka, the place of supply is Bangalore, Karnataka. Since this involves different states, IGST will be applied.
Example 3: Delivery to a Third Party per Instructions
Anand in Lucknow buys goods from Mr. Raj in Mumbai, Maharashtra. Anand requests Mr. Raj to send the goods to Nagpur, Maharashtra. In this scenario, it is assumed that Anand, the buyer in Lucknow, has received the goods. Therefore, IGST will be charged, and the place of supply is Lucknow (Uttar Pradesh).
Example 4: Recipient Collects Goods from Ex-Factory
Mr. Raj from Mumbai, Maharashtra, receives an order for 100 television sets from Sales Heaven Ltd. in Chennai, Tamil Nadu. Sales Heaven Ltd. arranges its own transport to collect the TV sets from Mr. Raj's factory. The place of supply is Chennai, Tamil Nadu, and IGST will be charged. Even though the goods are collected ex-factory in Maharashtra by the recipient, the movement of goods concludes for delivery at Chennai, Tamil Nadu. Regardless of who arranges the movement, the place of supply is where the goods' movement terminates for delivery to the recipient, making IGST applicable.
Example 5: E-commerce Sale
Mr. Raj from Mumbai, Maharashtra, orders a mobile phone from Amazon to be delivered as a gift to his mother in Lucknow, Uttar Pradesh. M/s ABC (an online seller registered in Gujarat) processes and dispatches the mobile, and Amazon bills Mr. Raj. Similar to Example 3, it is presumed that Mr. Raj, the buyer in Mumbai, has received the goods. Thus, IGST will be charged, and the place of supply is Mumbai, Maharashtra.
Place of Supply Without Goods Movement
When goods are supplied without any physical movement, the place of supply is determined differently:
| Supply Type | Place of Supply |
|---|---|
| No movement of goods by either the supplier or the recipient | The location of the goods at the time of their delivery to the recipient (i.e., when ownership is transferred). |
| Goods are assembled or installed at a specific site | The place where the installation or assembly occurs. |
Example 1: No Movement of Goods
Sales Heaven Ltd. (Chennai) opens a new showroom in Bangalore. They purchase a building for the showroom from ABC Realtors (Bangalore), which includes pre-installed workstations. The place of supply is Bangalore, with CGST and SGST being applicable. Since there is no movement of the workstations, the place of supply is their location at the time of delivery to the receiver. (Note: The purchase of a building itself is not subject to GST; however, rent for commercial space does attract GST.)
Example 2: Installing Goods
Strong Iron & Steel Ltd. (Jharkhand) contracts M/s SAAS Constructions (West Bengal) to build a blast furnace at their Jharkhand steel plant. The place of supply is Jharkhand, incurring CGST and SGST. Although M/s SAAS is based in West Bengal, the blast furnace is installed on-site in Jharkhand, making it the place of supply. (Note: M/s SAAS must register in Jharkhand to undertake this contract. They can opt for registration as a casual taxable person, valid for 90 days, extendable by another 90 days with a valid reason.)
Here's a summary for goods assembled or installed at a site:
| Particulars | Location of Supplier | Location of Recipient (Registered Office) | Site of Assembly/Installation | Place of Supply | GST |
|---|---|---|---|---|---|
| Goods are assembled or installed at site | West Bengal | Orissa | Jharkhand | Jharkhand | CGST+SGST (Jharkhand) |
| Goods are assembled or installed at site | Jharkhand | Jharkhand | Jharkhand | Jharkhand | CGST+SGST (Jharkhand) |
| Goods are assembled or installed at site | Jharkhand | Jharkhand | Orissa | Orissa | CGST+SGST (Orissa) |
| Goods are assembled or installed at site | Jharkhand | Jharkhand | Tamil Nadu | Tamil Nadu | CGST+SGST (Tamil Nadu) |
| Goods are assembled or installed at site | Jharkhand | Tamil Nadu | Jharkhand | Jharkhand | CGST+SGST (Jharkhand) |
Place of Supply for Goods on a Conveyance
When goods are supplied while on a vessel, train, aircraft, or motor vehicle, the place of supply is determined as follows:
| Supply Type | Place of Supply |
|---|---|
| Goods are on board a conveyance such as a vessel, train, aircraft, or motor vehicle | The location where the goods were originally loaded onto the conveyance. |
Example 1: Plane Travel
Mr. Ajay is flying from Mumbai to Delhi and buys coffee and snacks during the flight. The airline is registered in both Mumbai and Delhi. The place of supply is Mumbai because the food items were loaded onto the plane in Mumbai. Thus, CGST and SGST will be charged.
Example 2: Plane Travel for Business
Mr. Ajay, traveling from Mumbai to Chennai for his company Ram Gopal and Sons (registered in Bangalore), purchases lunch on the plane. The airline is registered in Mumbai and Chennai. The place of supply is Mumbai, as the food items were loaded in Mumbai. CGST and SGST will be charged, irrespective of where the buyer's company is registered. In many instances, CGST and SGST are applied because most airlines operate nationwide and are registered in all states.
Example 3: Train Travel
Mr. Vinod travels to Mumbai by train, boarding in Vadodara (Gujarat). He buys lunch on board, which was loaded in Delhi, where the train began its journey. The place of supply is Delhi, and CGST and UTGST will be charged. The Indian Railways, having a pan-India presence, is registered in all states, and the buyer's registration location does not affect this determination.
If the place of supply cannot be determined for any reason, Parliament will establish it based on the recommendations of the GST Council.
Place of Supply for Imports and Exports
The place of supply for goods involved in international trade is defined as:
- For goods imported into India: the importer's location.
- For goods exported from India: a location outside India.
| Supply Type | Place of Supply | GST |
|---|---|---|
| Goods imported into India | Location of the importer | Always IGST is charged for imports. |
| Goods exported from India | Location outside India | GST on exports is eligible for a refund. |
When an Indian entity issues an invoice in a foreign currency, GST can also be charged in that foreign currency. However, the invoice must also display the Indian Rupee (INR) conversion rate and the corresponding INR values. For instance, if an invoice is raised in US Dollars (USD), GST can be charged in USD, provided the USD to INR conversion ratio and INR invoice values are also presented.
Example 1: Import
Ms. Malini imports school bags from China for her shop, which is registered in Mumbai. The place of supply is Mumbai, and IGST is applicable.
Example 2: Export
Ms. Anita from Kolkata exports Indian perfumes to the UK. The place of supply is the UK, and GST is exempted for such exports.