Place of supply, Goods and Services Tax - GST

[Kaustubh Karandikar]

XYZ is registered with GST in Maharashtra. XYZ is supplying the goods to PQR who is the buyer of the goods. PQR is registered with GST in Maharashtra. XYZ issuing invoice to PQR on ex – works basis and handing over the goods at factory gate in Maharashtra. In the invoice, XYZ is mentioning PQR as buyer but consignee is not mentioned even though XYZ is aware that PQR will be in turn supplying the goods to a customer outside Maharashtra. As per the recent ruling of the ‘Authority of Advance Ruling, Telangana’ in the case of ‘Penna Cement Industries’, manufacturer of cement, makes inter-State sales of cement on ex- factory/work basis. The question before the AAR was, when they make ex-factory sales from their plant, delivery terminates at their factory gate itself and therefore, CGST and SGST should be charged on such type of supplies. As per AAR Ruling, IGST is chargeable on ex-factory inter-State supplies. However, in my view, in the case of Penna Cement, the customer was located in different state which had lifted the delivery on ex – factory basis from another state and therefore IGST is chargeable. However, in my example given above, XYZ and PQR both are in same state i.e. Maharashtra and therefore even though PQR is taking the delivery ex – factory and even though PQR is ultimately selling the goods to a customer in different state, since XYZ and PQR both are in Maharashtra, XYZ need to charge CGST + SGST. Guidance of the experts please on my views.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

When XYZ and PQR are situated in the same state only CGST and SGST is payable on the supply made by XYZ to PQR. At the time of supply even if XYZ know that PQR is going to supply the goods purchased from XYZ to another customer located outside Maharashtra XYZ has to charge CGST and SGST since the supply takes place within the state. It is for PQR to charge IGST when he supplies the goods to a customer out side Maharashtra. This is my opinion.

[KASTURI SETHI]

In my view, CGST + SGST applicable. As per Section 2(93), “recipient” of supply of goods or services or both, means -

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration

PQR is recipient. XYZ has nothing to do with PQR's buyer.

[Kashish Gupta]

Dear Kaustubh Karandikar Ji,

As per sub-section (1) of Section 7 of the Integrated Goods and Service Tax Act, 2017 (IGST Act,2017) which states that-

“(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in––

two different States;

two different Union territories; or

a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or commerce.”

Section 8 of the IGST Act, 2017 cites as follows-

“(1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:

Provided that the following supply of goods shall not be treated as intra-State supply, namely:––

supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

goods imported into the territory of India till they cross the customs frontiers of India; or

supplies made to a tourist referred to in section 15.”

Section 10 (1) (a) IGST Act, 2017 regarding movement of goods states as under-

“where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;’

In the above said provisions, the place of supply shall be the location of the goods at the time of which the movement of goods terminates for delivery to the recipient. Even, if the movement of goods is being done by the supplier himself and if the recipient is of other state, IGST shall be charged. In pursuance of Re: M/s. Penna Cement Industries Limited ruled by AAR Telangana, stated that in the case of ex-factory inter-State sales affected by the applicant, the goods are made available by the supplier to the recipient at the factory gate, but this is not the point where movement terminates since the recipient subsequently assumes the charge for transportation of the goods up to the destination in another state. Thus, the termination of the movement of goods evidently takes place at the location (in a different state) to which the goods are consigned/destined and such movement is effected by the recipient or by any other person, such as transporter authorized by the recipient.

In FAQ dated 15-12-2018 issued by CBIC, an example has been given in regard of the place of supply-

“A person from Gujarat comes to Mumbai and purchases goods. He declared his Gujarat GSTIN, arranges transport himself, and takes goods to Gujarat. The place of supply would be Gujarat in this case.”

From this example, we can understand that goods which involve movement, if the movement has been done by the Recipient, the Supplier shall presume that goods have been brought by the Recipient in his state according to provided GSTIN. The supplier shall charge IGST if the GSTIN pertains to other states.

As per Section 10 (1)(b) of the IGST Act, 2017-

“where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.”

This sub-section deals with cases of “bill to, ship to” movement wherein supply is shipped to at any other location and invoice is billed to any other location, may be in same State or different. It has been provided that in such cases place of supply shall be the location of bill to party.

To conclude -In the present case, the transaction does not fall under Section 10(1)(b) of the IGST Act, 2017. Further, the address of recipient on records as well as GSTIN thereof is in the State where the supplier is located. Therefore, the present case is a case of intra-state supply as the ‘location of supplier’ and the ‘place of supply’ fall under same states.

[Kaustubh Karandikar]

Thanks to all for your details and reasoned reply on my query on 'Place of Supply'