Understanding the Place of Supply for Bill-to-Ship-to Transactions Under GST

Goods and Services Tax (GST) operates as a destination-based consumption tax. Therefore, accurate identification of the place of supply is crucial for taxpayers, particularly in scenarios where the billing location differs from the actual shipping destination.

Defining Bill-to-Ship-to Transactions

Bill-to-ship-to transactions are frequently observed in commercial activities. These arrangements entail the delivery of goods to a final recipient as directed by an intermediary third party. Such transactions typically include three distinct participants:

• The supplier (original seller)
• The third party (the instructing entity that bills the ultimate recipient)
• The ultimate recipient (the party receiving the goods)

Under Section 10(1)(b) of the Central Goods and Services Tax (CGST) Act, guidelines are provided for establishing the place of supply in bill-to-ship-to arrangements. If a supplier delivers goods to a recipient or another individual at the direction of a third party, the place of supply is considered to be the third party's business location, not the recipient's. This rule applies only if the instructions are given before or during the goods' transportation, but not once the movement is finalized. Consequently, two separate supplies are recognized within this type of transaction:

1. The initial supply occurs between the original supplier and the third party, where the supplier raises an invoice for the goods to the third party.
2. The subsequent supply takes place between the third party and the final recipient, with the third party issuing an invoice to the recipient.

In both instances, the applicable tax (CGST, SGST/UTGST, or IGST) is imposed on the respective recipients of each supply, based on their individual business locations. The subsequent illustrations demonstrate how the place of business is determined under various circumstances.

Place of Supply Scenarios for Bill-to-Ship-to Under GST

The following examples clarify the place of supply for bill-to-ship-to scenarios under GST. In these illustrations:

• X represents the initial supplier.
• Y denotes the final recipient of the goods.
• Z signifies the third party who instructs the supply to Y.

Scenario 1: Interstate Supply for Both Transactions

Consider X, located in Karnataka, receiving instructions from Z, based in Maharashtra, to deliver goods to Y, also in Karnataka.

• For the first supply, between X and Z, the place of supply is Maharashtra. For the second supply, between Z and Y, it is Karnataka.
• As both transactions are interstate supplies, X will issue an invoice to Z, applying IGST. Subsequently, Z will invoice Y, also charging IGST.

Scenario 2: Intrastate Followed by Interstate Supply

If X operates from Karnataka and is directed by Z, also situated in Karnataka, to deliver goods to Y in Telangana.

• The place of supply for the initial transaction between X and Z is Karnataka. The place of supply for the second transaction, between Z and Y, is Telangana.
• Since the first supply between X and Z is an intrastate transaction, X will invoice Z, applying both CGST and Karnataka SGST. Given that the second supply between Z and Y is an interstate transaction, Z will invoice Y, charging IGST.

Scenario 3: Interstate Followed by Intrastate Supply

Supposing X is located in Karnataka and receives instructions from Z, who is in Tamil Nadu, to supply goods to Y, also located in Tamil Nadu.

• The place of supply for the initial transaction between X and Z is Tamil Nadu. The place of supply for the subsequent transaction, between Z and Y, is also Tamil Nadu.
• Because the first supply between X and Z is an interstate transaction, X will invoice Z, charging IGST. Since the second supply between Z and Y is an intrastate transaction, Z will invoice Y, applying both CGST and Tamil Nadu SGST.