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Place of Supply of Goods under GST

C. B. Thakar, Advocate

Introduction

‘One Nation One Tax’ - The new system for indirect tax – GST, is now set to commence in India. For quite
a long time it has generated public debate and its shape was eagerly awaited by all stakeholders. Now
the parliament has passed the laws required by the Centre, and, the States are in the process of doing so.
At present, the Central Goods and Services Tax (CGST), Union Territory Goods & Services Tax Act (UGST),
State Goods and Services Tax (SGST) for many States and Integrated Goods and Services Tax (IGST)
Acts are available.

On going through the provisions contained in these Acts, it appears that the laws are drafted by
incorporating provisions from different existing Acts, which are being subsumed in GST like Excise,
Service Tax and State VAT etc. Therefore, for the trading class, some of the provisions are very new and
they feel that the system will be a bit complicated along with too much time-consuming compliance
requirements. However, it is said that any new law has such teething problems, which may get resolved in
the days to come as well as due to steps taken by the Government to resolve such issues by necessary
modifications and clarifications from time to time. We expect the same, in relation to GST.

Situs of sale

So far as indirect tax on goods is concerned the basic requirement is to identify the place where tax is to
be discharged.

For sale transactions of goods, there are various ingredients connected with same like, place of buyer,
place of preparing invoice, place of payment, place of actual despatch, place of transfer of ownership in
goods etc.

In the old days, (prior to incorporation of Central Sales Tax Act) the States used to levy tax on sale
transaction on the basis of ‘nexus theory’. In other words, taking nexus of any one ingredient happening in
their State, tax was sought to be levied in that state. A simple example can be that a seller in Maharashtra
sells goods to buyer in Delhi. Maharashtra Government used to levy tax on said sale transaction in
Maharashtra as the seller and the goods were located in their State. The Delhi Government would try to
levy tax on said transaction on the ground that actual sale i.e. transfer of ownership took place in their
State. Thus on one transaction, more than one State could lay their claim of tax.

This created chaos and trading community was required to face multi-state tax on one sale transaction.

Central Sales Tax Act (CST Act)

To avoid the above confusion and unwarranted multi-state levy, the Central Sales Tax Act, 1956 was
enacted. One of the main objects of the Act was to determine place of sale i.e. situs of sale. Section 4(2)
of CST Act reads as under:

“S.4. When is a sale or purchase of goods said to take place outside a State.—

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(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in
accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to
have taken place outside all other States.

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the
State –

(a) in the case of specific or ascertained goods, at the time of the contract of sale is made; and

(b) in the case of unascertained or future goods, at the time of their appropriation to contract of sale by
the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.

Explanation.- Where there is a single contract of sale or purchase of goods situated at more places than
one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the
goods at each places.”

Thus, the ‘place of ‘sale’ was linked with physical ascertainment of goods towards sale. By the above
provision, it was laid down as to which state the sale will be deemed to have taken place and once it was
held to be taking place in one particular state, it was to be outside all other States. This brought finality to
place of sale and this gave much required relief to the trading community. The nature of transaction
whether interstate or intra state can be decided based on movement of goods. However, it cannot be
taxable in more than one State. Till today, the system has worked satisfactorily.

GST/IGST Act/SGST Act

The above Acts are collectively referred to as “GST laws/GST” in this article.

Under GST, the concept of ‘sale’ is replaced by ‘supply’ which is a broad term and includes supply of
goods as well as services.

There are several incidences by which “supply” can take place and “sale” is one of them.

So far as supply of goods is concerned, unlike the CST Act, there is no direct provision about situs of
supply of goods. However, the supply of goods may be intra-state or inter-state. The tax will be attracted
accordingly. If it is held to be intra-state, it will be liable to CGST/SGST and if it is held to be inter-state, it
will be liable to IGST. Situs of supply is required to be determined to find out the State from which the
supply is made and then to decide its nature i.e. whether intra state or interstate.

Under GST, the provisions to determine the nature of interstate/intra state supplies are contained in IGST
Act.

Relevant Provisions of IGST Act

Section 7 defines the nature of interstate supply.

Section 8 defines the nature of intra state supply.

The nature of supply, as to whether intra state or interstate, depends upon location of supplier and place
of supply. If both fall in same state, it will be intra state and if in different states, it will be interstate.

The aspects related to the above are discussed subsequently in this article.

Section 9 specifically deals with supplies in territorial waters. It is provided that when the location of
supplier or place of supply is in territorial waters, the supply should be deemed to be in the Coastal State
or Union Territory where the nearest point of the appropriate baseline is located. The further
categorisation as to intra state or interstate should be determined taking into consideration above
position of place of location of supplier and place of supply.

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As per above provisions, the Taxable person is required to First determine place of supply of goods. If
such place of supply creates a situation that the location of supplier is in one state and the place of
supply is in different State, there will be interstate supply. If both are in same state, there will be intra state
supply.

There is no definition of “location of supplier”. However, place of supply is to be determined as per

section 10 reproduced below.

“10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India,
shall be as under,––

(a) 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;

(b) 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;

(c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the
place of supply shall be the location of such goods at the time of the delivery to the recipient;

(d) where the goods are assembled or installed at site, the place of supply shall be the place of such
installation or assembly;

(e) where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor
vehicle, the place of supply shall be the location at which such goods are taken on board.

(2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in
such manner as may be prescribed.”

Analysis of Section 10

One of the critical issues to decide nature of supply transaction will be to decide place of supply. Section
10 provides clue to find the place of supply. There will be in all five situations envisaged by section 10(1).
All are required to be interpreted harmoniously.

(a) Situation contemplated by section 10(1)(a)- Goods involving movement

This section is applicable where the supply involves movement of goods. Since it refers to ‘supply
involves movement’, it is understood that the situation is required to be seen per supply transaction. The
nature of goods, whether capable of movement or not etc., is not relevant. The position can be seen with
simple examples:-

A machinery as installed in factory is for sale by auction. The term of ‘auction’ is that it will be supplied on
“as is where is basis”. Under this situation, it can be said that movement is not involved in supply.

In the same example, if condition appears that the recipient should move the goods to its factory, then it
can be said that movement is involved in supply transaction. Section 10(1)(a) appears to cover the
second example.

The movement may be available from written contract/purchase order or any such other relevant
documents.

If not in written form then it can be inferred from intention of parties. In normal cases the supply of goods
will be deemed to involve movement as the recipient is expected to take goods to its place.
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However, for clarity of nature of transaction, it will be advisable that parties mention about movement of
goods in the contract document.

Once the goods involve movement, the next step will be to decide place of supply. As per the said section,
the place of supply will be the location of goods at the time at which the movement of goods terminates
for delivery to recipient.

It is a settled law that the provisions should be interpreted in its plain language. Reference can be made
to the judgment of Hon. Supreme Court in case of M/s. Polestar Electronic P. Ltd. (41 STC 409)(SC),
where in the Hon. Supreme Court has observed as under about interpretation of provision:-

“A statutory enactment must ordinarily be construed according to the plain natural meaning of its
language and no words should be added, altered or modified unless it is plainly necessary to do so in
order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally
irreconcilable with the rest of the statute. This rule of literal construction is firmly established and it has
received judicial recognition in numerous cases.”

Applying the above principle, the place of supply will be where the movement terminates for delivery to
recipient.

The essential fact will be to decide when the movement terminates. If any express term in documents,
the issue can be decided accordingly. If no express term in contract, the delivery point can be decided on
inference and intention of parties and relevant facts. There can be different situations about termination
of delivery. For example, the supply is ex-work. When such is the position, the delivery can be said to have
terminated at place of work/godown, shop of the supplier. This will be place of supply in above
transaction. Obviously, location of supplier and place of supply being same, it will be considered to be
intra-state transaction attracting CGST/SGST.

The other situation will be that the delivery is home delivery to recipient. In such a case, the supplier will
carry goods to godown/shop of recipient and delivery will terminate at such place. If the location of
supplier and place of supply are in different states, it will be interstate sale, attracting IGST.

There can be many other situations arising on facts of the case. Suppose a supplier in Maharashtra has
agreed to deliver goods to recipient at its godown in Karnataka. In between, there is a breakdown of
transport vehicle, before crossing Maharashtra border. The parties renegotiate and it is agreed that
recipient will take delivery at breakdown point (which is within Maharashtra) and will carry goods on its
own to Karnataka. Here, though initially the transaction appeared to be inter-state (delivery point to be in
Karnataka), due to change in terms, the delivery will be deemed to terminate within Maharashtra and the
transaction will be intra state transaction.

It is felt that the parties should make delivery termination point/place clear in the documents, to avoid any
confusion in future.

The above analysis shows that the principle of seamless credit is not fulfilled. If a trader of Karnataka
acquires any goods within Maharashtra, where delivery terminates within Maharashtra, the supplier will
charge CGST/SGST. Even if the goods are taken to Karnataka and consumed there, still no ITC will be
eligible to trader of Karnataka and the ITC will lapse. There will also be cascading effect, though GST is
meant for avoiding the same.

(b) Section 10(1)(b)- “Bill to ship to” model

This section is not worded very happily. It appears that the above section is meant to cover cases where
more than two parties are involved before termination of delivery (bill to ship to model). In existing law
such transactions are identified as sale by transfer of documents and hence have special status as per
provisions of section 6(2) of the CST Act, 1956.

If section 10(1)(b) is dissected for proper interpretation it shows following position:

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“Where the goods are delivered by the supplier to a recipient

or any other person

on the direction of third person

whether acting as agent or otherwise

before or during movement of goods

either by way of transfer of documents of title to 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.”

The section contemplates delivery to recipient or any other person as per direction of third person.

The reference to third person is not comprehensible.

Normally, the owner or would be owner of goods who has power to give direction. In my opinion, the
recipient is the correct person to give direction to supplier. What is locus standi of third person to give
direction is not clear from section and hence, there is ambiguity in the provision.

The term ‘recipient’ is defined in section 2(93) of CGST Act as under:

“(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;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are
delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is
rendered, and any reference to a person to whom a supply is made shall be construed as a reference to
the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation
to the goods or services or both supplied.”

Thus the person who is going to pay consideration is the recipient. Only buyer of goods can be liable to
pay consideration and therefore, buyer can be recipient. While placing order on supplier or afterwards,
such buyer can give direction to deliver goods to third person and the place of supply could be decided
accordingly. Instead of above logical situation, the section refers to “third person” for even delivery to
recipient and provides to consider principal place of business of third person as place of supply.

It is felt that in the present form, the above section does not serve any purpose.

Following pictorial example can be seen to ascertain the position as per literal meaning of section 10(1)
(b).

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In this case, C will be third person. As per plain
reading of section, C should give direction to
Supplier. It appears to be unrealistic but for
the sake of discussion, it is assumed that C
gives direction. In this case, the place of
supply will be principal place of C and it being
in Tamil Nadu, for A the sale to B will be
interstate supply.

However, there is no clue to decide place of

supply when B bills to C. There is no third
person to give direction to B and therefore
section 10(1)(b) cannot apply for transaction
between B and C. Similar will be the position in
all further supply transactions in chain like from C to D etc.

Thus, section 10(1)(b) gives illogical and unexpected results in present form.

There is another view that one should interpret the section in a workable manner. Under such view it is
suggested that the third person should be considered to be recipient and the position should be analysed
accordingly.

For example, in above diagram, ‘B’ will give direction to ‘A’ to delivery to ‘C’. The place of supply will be the
principal place of business of ‘C’ i.e. Tamil Nadu and the transaction between ‘A’ and ‘B’ will be liable
under IGST. The further transaction between ‘B’ to ‘C’ will also be IGST as in this supply transaction, ‘B’ is
supplier and ‘C’ recipient have principal places of business in different States. Thus every transaction will
be required to be seen separately. This appears to be workable interpretation of section 10(1)(b).
However, though the above view is practical and certainly gives desired meaning one cannot ignore the
plain language and even adjudicating authority may not agree to above workable interpretation. It is
reported that the authorities are going to issue certain guidelines about place of supply. We hope the
above confusion in section is clarified to remove the ambiguity, which will guide traders for deciding
correct nature of transaction.

In both the above sections 10(1)(a)/(b), one more aspect is about location of supplier. Suppose the place
of business of supplier is in Delhi but goods are located in Maharashtra and supplied to recipient of
Maharashtra, the issue will arise as to in which state the liability will arise for supplier?

Above difficulties are being faced as neither situs of sale is provided nor “location of supplier” is defined.

It is expected that all such issues will be clarified at the earliest for ease of business.

With the above pending issues of interpretation, the section 10(1)(b) lays down that place of supply is
principal place of business of third person. There is no connection with actual place of delivery of goods
or termination of delivery.

Unlike under CST Act, under this section there is no continuation of nature of transaction during one
movement by transfer of documents of title to goods. Under the CST Act, all transactions effected during
one interstate movement of goods will remain inter-state sales till movement terminates, irrespective of
addresses of parties etc. Under GST, every transaction will be different and one transaction may be inter-
state, the next one can be intra state, depending upon location of supplier and place of supply. The issue
of seamless credit may also get affected due to nature of transaction being different at each stage.

(c) Section 10(1)(c) – Not involving movement

Section 10(1)(c) - appears to be supplementary to section 10(1)(a)/(b). This section seems to take care
where no movement is involved in the given supply transaction. The example is already given above.

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In such a case, the transaction will always be intra-state attracting CGST/SGST.

(d) Section 10(1)(d) – Installation/assembly

Section 10(1)(d) deals with situation where installation or assembly at site is required. The place of
installation or assembly will be place of supply. An example can be of installation of air conditioner. A
Maharashtra supplier supplies air conditioner to Gujarat recipient and installs it as part of supply
transaction. In such a case, the place of supply will be State of Gujarat. Since the location of supplier and
place of supply is in two different States, transaction will be liable under IGST. However, there is
possibility that, Gujarat authority, considering the goods are brought in Gujarat as branch transfer and
installed in Gujarat may consider it a intra-state state transaction in Gujarat based on above provision of
section 10(1)(d).

This difficulty arises as no connection is provided between movement of goods from Maharashtra and
place of supply, as under CST Act. Section 3(a) of CST Act provides to consider transaction as inter-state
sale if the movement of goods from moving state is linked with ultimate sale in other State.

However, under GST, there is no such inter linking provision. Therefore, even if goods are moved from
Maharashtra for assembly in other State, there is possibility that it may be considered as intra state sale
in assembly state.

The meaning of “assembly” and “installation” may also be a bone of contention. Mere putting the goods
in place like putting fan in hook in ceiling, will amount to installation? There may be such debatable
issues.

To avoid litigation and further adverse contingency it is better the transactions are clearly identified as far
as possible in relevant documents.

(e) Section 10(1)(e) – On board a conveyance

Section 10(1)(e) - deals with situation where goods are supplied on board a conveyance. “Conveyance” is
defined in section 2(34) of CGST Act as under:

(34) “conveyance” includes a vessel, an aircraft and a vehicle;

This clause is a good attempt to resolve the issue being faced presently. In normal course, taxation of
supplier on trains / aircrafts to passengers is a very debatable issue. It requires per state wise detail
about sales taking place in respective states. To resolve such issue, it is provided that the place of supply
will be deemed to be place where such goods are taken on board. For example, the articles are taken on
board the train at Mumbai, which is actually sold to passengers on running train travelling through several
states.

The place of supply for all such supplies will be one i.e. Mumbai and tax will be required to be discharged
accordingly. Whether such supply will be interstate or intra state will further depend upon location of
supplier and the place of supply, decided as above.

Certain issues can still arise under the above clause. For example, the goods are taken on board at
Mumbai on board an aircraft, which is travelling to Delhi. Certain goods are sold out on board the aircraft
which will mean the place of supply for such goods will be Mumbai. After Delhi, suppose the aircraft
moves to Lucknow as different flight say from Delhi to Lucknow and remaining goods are sold on board
the said flight. Whether the place of supply will still remain Mumbai ?

The issue arises as one journey is over and fresh journey starts with original stock. Looking to the
intention of the provision even such goods supplied on board the Lucknow flight, the place of supply
should be Mumbai. However, if a view is taken that the goods were taken on board for particular flight

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and the goods taken on board are for such particular flight, then the place of supply Mumbai will end on
termination of said flight. The next fresh journey will be separate. The issue will again arise about place of
supply. Some clarification on the above issue will be appreciated.

Residuary – Section 10(2)

The Act provided by section 10(2) that where the place of supply cannot be determined with reference to
earlier provisions, then the place of supply should be determined as may prescribed. The prescription
may come by Rules or notification. It can be presumed that the prescription will solve the issues for
remaining situations as well as debatable issues with reference to situations in section 10(1), discussed
above.

Place of supply of goods imported into or exported from India

Section 11 of IGST Act reads as under:

“11. The place of supply of goods,––

(a) imported into India shall be the location of the importer;

(b) exported from India shall be the location outside India.”

This section is specific for import/export supplies.

Place of supply is normally meant to apply to supplies of goods so as to determine nature of supply.
When goods are imported, there is supply by foreign supplier and place of supply will be relevant to said
supplier, if nature of supply is to be determined in its hands. However, normally such situation will not
arise as no tax is contemplated on foreign exporter, who is supplier.

It appears that the above clause about place of supply for imported goods will also equally apply to
importer and the place of supply for importer of goods will be the location of importer. Importer is
required to discharge the IGST on imported goods. For example, importer is in Delhi and the goods are
physically unloaded and cleared at Mumbai Port. The place of supply in such case will be location of
importer and it will be Delhi. The importer in Delhi will be required to pay IGST in Delhi under GSTN of
Delhi.

Section 11 also provides place of supply for export. In case of export the place of supply will be located
outside India. It means in such a case, the place of supply will be place in foreign country where the goods
are exported.

Since Export is zero rated supply, it appears that above provision has no practical effect.

Conclusion

“Place of supply of goods” is a very important aspect of GST. Payment under correct Act i.e. CGST/SGST
or IGST will depend upon the correct determination of place of supply. It will be better if ambiguities
discussed above are clarified by the authorities at the earliest time. I hope the above discussion will be
useful for initiating further thought process on the topic.

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