Introduction & Meaning - Place of Supply - GST Law and Procedure [January, 2019] - GST

Chapter - One Introduction Meaning - Place of Supply The introduction of Goods and Services Tax is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and the States will be replaced by one tax called the Goods and Services Tax (GST). GST is a multi-stage value added tax levied on the consumption of goods or services or both. A Dual GST model has been adopted in view of the federal structure of our country. Centre and States will simultaneously levy GST on every supply of goods or services or both which, takes place within a State or Union Territory. Thus, there shall be two components of GST: (i) Central tax (CGST), Levied collected under the authority of CGST Act, 2017 passed by the Parliament. (ii) State tax (SGST), Levied collected under the authority of SGST Act, 2017 passed by respective State. Why the third tax in the name of IGST? Before discussing the IGST Model and its features, it is important to understand how inter-State trade or commerce is being regulated in the present indirect tax system. It is significant to note that presently the Central Sales Tax Act, 1956 regulates the inter-State trade or commerce (hereinafter referred to as CST ), the authority for which is constitutionally derived from Article 269 of the Constitution. Further, as per Article 286 of the Constitution of India, no State can levy sales tax on any sales or purchase of goods that takes place outside the State or in the course of the import of the goods into, or export of the goods out of the territory of India. Only the Parliament can levy tax on such a transaction. The Central Sales Tax Act was enacted in 1956 to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. The Act also provides for the levy and collection of taxes on sales of goods in the course of inter-State trade. The IGST model would remove all these deficiencies. 1. Services, usually being intangible pose problems w.r.t determination of place of supply mainly due to following factors:- The manner of delivery of a service could be altered easily. For supplying a service, a fixed location of service provider is not mandatory and even the service recipient may receive service while on the move. like services used any place, any time (cloud services). Service provider, service receiver and the service provided may not be ascertainable or may easily be suppressed as nothing tangible moves and there would hardly be any trail. Sometime the same element may flow to more than one location, like Construction or other services in respect of a railway line, a national highway or a bridge on a river which originate in one State and end in the other State. Copyright for distribution and exhibition of film could be assigned for many states in a single transaction or an advertisement or a programme is broadcasted across the country at the same time. etc. 2. The Central Sales Tax Act, 1956 suffers from the following shortcomings. CST is collected and retained by the origin State, which is an aberration. Any indirect tax, by definition, is a consumption tax, the incidence of which, is borne by the consumer. Logically, the tax must accrue to the destination State having jurisdiction over the consumer. Input Tax Credit (hereinafter referred to as ITC) of CST is not allowed to the buyer which, results in cascading of tax (tax on tax) in the supply chain. Various accounting forms are required to be filed in CST viz., C Form, E1, E2, F, I, J Forms etc. which add to the compliance cost of the business and impedes the free flow of trade. Another negative feature of CST is the opportunity for arbitrage because of the huge difference between tax rates under VAT and CST being levied on intra - State sales and inter State sales respectively. 3. Others IGST is a mechanism to monitor the inter-State trade of goods and services and ensure that the SGST component accrues to the consumer State. It would maintain the integrity of ITC chain in inter State supplies. The IGST rate would broadly be equal to CGST rate plus SGST rate. IGST would be levied by the Central Government on all inter-State transactions of taxable goods or services. Place of supply (i) Places of supply provisions have been framed for goods and services, keeping in mind the destination/consumption principle. In other words, the place of supply is based on the place of consumption of goods or services. As goods are tangible, the determination of their place of supply, based on the consumption principle, is not difficult. Generally, the place of delivery of goods becomes the place of supply. However, the services being intangible in nature, it is not easy to determine the exact place where services are acquired, enjoyed and consumed. In respect of certain categories of services, the place of supply is determined with reference to a proxy. (ii) A distinction has been made between B2B (Business to Business) B2C (Business to Consumer) transactions, as B2B transactions are wash transactions since the ITC is availed by the registered person (recipient) and no real revenue accrues to the Government (iii) Separate provisions for the supply of goods and services have been made for the determination of their place of supply. Separate provisions for the determination of the place of supply in respect of domestic supplies and cross border supplies have been framed. Provisions for determination of place of supply in GST Law Basis the above guiding principles, Chapter V of the IGST Act [Sections 10 to 13] prescribes the provisions relating to place of supply of goods and services in domestic as well as cross-border transactions. The provisions prescribe both general and specific rules to determine place of supply of goods and services in various circumstances. The determination of place of supply and the location of the supplier is essential to ascertain the nature of supply, i.e. whether a supply is intra-State or inter- State. If an inter-State transaction is wrongly treated as intra-State or vice-versa and tax paid accordingly, the correct tax will need to be paid and refund claimed for tax wrongly paid. Though no interest is levied in such a case, procedural requirements increase and working capital gets blocked where the amount involved is huge. Hence, determining correct place of supply is of paramount importance Cross-utilisation of credit The input tax credit of IGST can be for the payment of IGST, CGST, SGST. The input tax credit of CGST SGST can be for the payment of IGST. Nature of Supply It is very important to determine the nature of supply whether it is inter-State or intra-State, as the kind of tax to be paid (IGST or CGST+SGST) depends on that. Thus, the nature of the supply depends on the location of the supplier and the place of supply. Both these terms have been defined in the IGST Act. (i) Inter- State Supply Subject to the place of supply provisions, where the location of the supplier and the place of supply are in: Two different States; or Two different Union territories; or A State and a Union Territory. Such supplies shall be treated as the supply of goods or services in the course of inter-State trade or commerce. Supply of goods or services or both from one State or Union Territory to another State or Union Territory Import of goods or services or both till they the cross customs frontier Export of goods or services or both Supply of goods or services or both to/by SEZ Supplies to international tourists Any other supply in the taxable territory which is not intra - State supply (ii) Intra - State supply It has been defined as any supply where the location of the supplier and the place of supply are in the same State or Union Territory. Supply of goods within the State or Union Territory. Supply of services within the State or Union Territory