Goods and Services Tax in India has fundamentally transformed the indirect tax system by shifting from an origin-based model to a destination-based framework. In simple terms, GST is levied in the state where goods or services are finally consumed rather than the state where they originate. This principle has removed several layers of complexity that existed in the earlier tax structure where multiple levies such as excise duty, service tax, value added tax, and entry tax were imposed by different authorities.
The central idea behind GST is to create a unified market by ensuring that the same set of rules apply throughout the country. The concept of place of supply is a crucial link in this framework. Every transaction must be examined to identify the place where supply is deemed to occur. This determination ensures that the correct type of GST is applied and the appropriate state receives the revenue share. Without this mechanism, disputes would arise between states, and businesses would face uncertainty in compliance.
Legal Framework for Place of Supply
The rules relating to place of supply are codified in the Integrated Goods and Services Tax Act, 2017. Chapter V of this legislation contains the guiding principles. Section 10 deals with domestic supplies of goods, excluding imports and exports. Section 11 prescribes rules for imported and exported goods. Section 12 lays down provisions for services where both supplier and recipient are located within India. Section 13 covers services where either the supplier or recipient is located outside India. Section 14 provides specific provisions for online information and database access or retrieval services, which require special treatment due to their digital nature.
These statutory provisions were designed after considering various scenarios in trade and commerce. The idea was to create clarity for businesses as well as tax administrators. Because GST applies uniformly across the country, the IGST Act serves as a reference point for both state and central authorities. By understanding the framework of these sections, businesses can determine the applicable tax on their transactions with accuracy.
Importance of Place of Supply
The place of supply rules are not merely legal jargon; they have practical consequences for every business transaction. Whether Integrated GST or a combination of Central GST and State GST applies depends entirely on the outcome of this determination.
If the supplier and place of supply are in different states, the transaction is classified as inter-state. In such cases, Integrated GST is levied. If both are within the same state, the supply is considered intra-state and Central GST along with the respective State GST or Union Territory GST is applicable.
Consider a scenario where a manufacturer in Tamil Nadu sells textile machinery to a buyer in Karnataka. The goods are dispatched from Coimbatore to Bengaluru. Here, the location of the supplier is Tamil Nadu and the place of supply is Karnataka. This creates an inter-state supply, attracting Integrated GST. On the other hand, if the same machinery is supplied to a buyer within Tamil Nadu itself, the transaction becomes intra-state and is subject to Central GST and Tamil Nadu State GST.
Such classification not only determines the type of tax but also impacts the availability of input tax credit. Inaccurate determination of place of supply can result in wrong tax payment, which may require rectification later and even attract penalties.
Location of Supplier of Goods
For goods, determining the location of the supplier is usually straightforward. The location is considered to be the place from which the goods are supplied. Typically, it is the principal place of business mentioned in the GST registration certificate. For instance, if a company registered in Delhi supplies furniture from its Delhi warehouse, the location of the supplier is Delhi.
However, in practical business situations, goods may sometimes be dispatched directly from third-party warehouses or depots situated in different states. For example, a company headquartered in Maharashtra may supply goods from a warehouse in Gujarat to a buyer in Rajasthan. In such a case, the Gujarat warehouse is considered the location of the supplier because that is the place from where the goods are actually supplied. Correct identification is essential to avoid errors in tax application.
Location of Supplier of Services
Determining the location of a supplier of services is more nuanced compared to goods. Section 2(15) of the IGST Act specifies the rules.
If services are supplied from the registered place of business, that location is considered the supplier’s location. If services are supplied from another fixed establishment such as a branch office, then that establishment is taken as the supplier’s location. Where services are supplied from multiple establishments, the one most directly involved in the supply is treated as the relevant location. Finally, if no such place exists, the supplier’s usual place of residence is taken.
For example, a consultancy firm registered in Pune provides advisory services through its Mumbai branch. In this case, the Mumbai branch is treated as the location of the supplier. If the same firm were to provide services from both Pune and Mumbai simultaneously, the establishment most directly concerned with the specific supply would be chosen as the location.
This detailed approach is necessary because services do not have physical movement like goods. Their supply is intangible and could originate from multiple points. The law therefore relies on fixed establishments and the supplier’s residence to provide clarity.
Location of Recipient of Services
The place of supply rules also rely on identifying the location of the recipient. Section 2(14) of the IGST Act provides the guiding principles.
If the services are received at the registered place of business of the recipient, that becomes the location of the recipient. If received at another fixed establishment such as a branch, then that branch is considered the recipient’s location. If services are received at multiple establishments, the one most directly involved with the receipt is treated as the relevant location. In the absence of such establishments, the recipient’s usual place of residence is taken.
For instance, a company headquartered in Chennai receives payroll processing services for its Bengaluru branch. In this situation, the Bengaluru branch is treated as the location of the recipient for that service. This determination becomes important because it influences whether the transaction qualifies as inter-state or intra-state.
Types of Supply
Supplies under GST are classified on two broad bases: geography and the purpose of consumption.
Geographical Classification
Domestic supply refers to transactions where both the supplier and the recipient are located within India. Within domestic supply, the determination of place of supply decides whether the supply is intra-state or inter-state.
Cross-border supply includes import and export transactions. Section 11 governs the place of supply of imported and exported goods. Section 13 governs services where either the supplier or recipient is located outside India. Such transactions are always treated as inter-state.
For example, if an Indian exporter sells garments to a buyer in the United States, the place of supply is outside India and the transaction is considered an export. Similarly, if goods are imported into India, the place of supply is the location of the importer.
Classification Based on Purpose of Recipient
Supplies are also distinguished based on the nature of the recipient. Business-to-business supplies involve transactions between two business entities. In such cases, the recipient can claim input tax credit. On the other hand, business-to-consumer supplies are made to individuals or final consumers who cannot claim input tax credit.
For example, if a corporate office hires an event management company for a conference, the supply is business-to-business. If an individual hires the same company for a wedding, it becomes business-to-consumer.
This distinction has implications for credit flow. In business-to-business transactions, the recipient can set off the GST paid against its own output tax liability. In business-to-consumer transactions, the GST becomes part of the final cost for the consumer.
Illustrative Scenarios of Place of Supply
To understand how the rules apply in practice, consider the following examples.
A trader in Gujarat sells machinery to a buyer in Rajasthan. The goods are transported by road. The place of supply is Rajasthan because that is where the goods are delivered. Since the supplier is in Gujarat and the place of supply is in Rajasthan, this is an inter-state supply attracting Integrated GST.
A restaurant in Delhi provides catering services for a corporate office also located in Delhi. Both supplier and recipient are in the same state, so this is an intra-state supply attracting Central GST and Delhi State GST.
A software company in Hyderabad provides technical support services to a client based in London. Here, the recipient is outside India, so the place of supply is considered to be outside India. The transaction qualifies as export of services and is zero-rated under GST.
An architect registered in Bengaluru provides design services for a building project located in Mumbai. In this case, the place of supply is the location of the immovable property, which is Mumbai. Since the supplier is in Karnataka and the place of supply is Maharashtra, Integrated GST is levied.
These examples show how rules based on location of supplier, location of recipient, and the nature of supply interact to produce different tax outcomes.
Place of Supply of Goods in Domestic Transactions
When goods are supplied within India, the place of supply is determined under Section 10 of the Integrated Goods and Services Tax Act. The rules are designed to capture the point at which the supply is completed and delivered to the recipient. Since GST is a destination-based levy, the state where the goods ultimately reach is entitled to receive the tax revenue.
The provisions of Section 10 are crucial for businesses dealing in goods because they affect invoicing, rate of tax, and reporting requirements in GST returns. Five specific rules are prescribed, each covering different practical scenarios that arise in trade and commerce.
Supply Involving Movement of Goods
The most common type of supply is where goods are transported from one location to another. The law states that the place of supply is the location where the movement of goods terminates for delivery to the recipient.
For example, a manufacturer in Maharashtra sells electrical equipment to a distributor in Madhya Pradesh. The goods are transported by road and delivered at the distributor’s premises in Bhopal. Here, the place of supply is Madhya Pradesh because that is the point where delivery is completed.
The supplier is located in Maharashtra and the place of supply is in Madhya Pradesh, making it an inter-state supply that attracts Integrated GST. The rule applies regardless of whether the movement is arranged by the supplier, the recipient, or even a third-party transporter. What matters is the destination where delivery ends.
Bill-to-Ship-to Transactions
A common practice in trade is where the buyer instructs the supplier to deliver goods directly to another person. In such cases, the law provides that the place of supply is the principal place of business of the person who issues the delivery instructions.
For instance, a wholesaler in Delhi places an order for machinery with a supplier in Gujarat but instructs that the goods should be delivered directly to a factory in Haryana. In this situation, even though the goods are shipped to Haryana, the place of supply is Delhi because that is the location of the party who issued the delivery instructions.
The transaction between the supplier in Gujarat and the buyer in Delhi is treated as if the delivery had occurred to the buyer’s location. This provision ensures clarity in triangular transactions and prevents double taxation or confusion about jurisdiction.
Supply Not Involving Movement of Goods
Sometimes goods are supplied without any movement. This could happen when goods are already located at the recipient’s premises or are handed over without transportation. In such cases, the place of supply is the location of goods at the time of delivery.
For example, a company owns machinery in a warehouse in Karnataka and sells it to another company located in the same state. Since the goods are already situated in the warehouse, the place of supply is Karnataka. Whether or not the buyer subsequently transports the machinery is irrelevant. The law looks at the location of goods when ownership or possession is transferred.
Supply Involving Installation or Assembly
Certain supplies involve installation or assembly of goods at a site. In these cases, the place of supply is the site where the installation or assembly takes place.
For example, a German company supplies and installs a turbine at a power plant in Chhattisgarh through its Indian branch. The turbine components are shipped in parts and assembled on site. Here, the place of supply is Chhattisgarh because that is where the installation occurs.
It is important to note that if the contract includes not only goods but also significant services such as engineering, design, and civil work, the transaction may qualify as a works contract, which is treated as a supply of services under GST rather than supply of goods.
Supply on Board Conveyance
Supplies can also take place on board a conveyance such as an aircraft, train, vessel, or motor vehicle. In such cases, the place of supply is the location where goods are taken on board.
For instance, if food items are sold during a flight from Mumbai to Kolkata, the place of supply is Mumbai if the goods were loaded onto the aircraft in Mumbai. The actual route of the flight or the place where the sale occurs does not matter.
This rule provides a simple and predictable method for determining place of supply in situations where goods are sold during transit.
Residual Provisions
While the rules cover most scenarios, there may be cases where the place of supply cannot be clearly determined. In such situations, the government is empowered to prescribe additional methods as recommended by the GST Council. This flexibility ensures that the law can adapt to new commercial practices and technological developments without causing uncertainty for businesses.
Place of Supply of Goods in Cross-Border Transactions
When goods move across international boundaries, different considerations apply. Sections 11 of the Integrated Goods and Services Tax Act provide clarity on these transactions. Cross-border supplies are always treated as inter-state supplies.
Export of Goods
When goods are exported from India, the place of supply is considered to be outside India. This rule is consistent with the principle that GST is a destination-based tax. Since the goods are consumed outside India, no Indian state should claim tax revenue on such transactions.
Exports are treated as zero-rated supplies under GST. This means that exporters are not required to pay any tax on the goods supplied abroad, and they can also claim a refund of input tax credit on inputs used in making those exports. This mechanism ensures that Indian goods remain competitive in global markets.
For example, a textile exporter in Surat sells fabrics to a buyer in the United States. The goods are shipped from Mumbai port to New York. Here, the place of supply is outside India, and the supply qualifies as an export. The exporter can claim a refund of input tax credit on raw materials like yarn and dyes used in producing the fabric.
Import of Goods
When goods are imported into India, the place of supply is the location of the importer. Imported goods are always treated as inter-state supplies and are subject to Integrated GST in addition to customs duty and, in some cases, compensation cess.
For example, a company in Chennai imports medical equipment from Germany. The place of supply is Chennai, and Integrated GST is levied along with customs duties at the time of import. This ensures that imported goods are taxed in the same way as domestically produced goods, maintaining a level playing field.
Place of Supply of Services in Domestic Transactions
Services present unique challenges because they do not have physical movement like goods. The law therefore provides detailed rules in Section 12 of the Integrated Goods and Services Tax Act. These rules cover both general provisions and specific categories of services.
General Rule for Services
In most cases, when both the supplier and recipient are located in India, the place of supply of services is the location of the recipient if available. If the recipient’s location is not available, then the place of supply is the location of the supplier.
For instance, a software company in Bengaluru provides technical support to a corporate client in Hyderabad. The recipient’s location is available and is in Hyderabad. Hence, the place of supply is Hyderabad. Since the supplier is in Karnataka and the place of supply is in Telangana, Integrated GST is applicable. On the other hand, if a consultant provides advisory services to a walk-in customer and no address is recorded, the place of supply defaults to the consultant’s location.
Services Related to Immovable Property
For services directly related to immovable property, the place of supply is the location of the property. This includes services such as real estate, architecture, construction, and accommodation.
For example, if a property consultant in Delhi provides services for a project located in Jaipur, the place of supply is Jaipur. Since the supplier is in Delhi and the place of supply is in Rajasthan, Integrated GST applies. This rule is logical because immovable property is tied to a specific location, and the state where the property is situated has the jurisdiction to collect revenue.
Restaurant and Catering Services
For restaurant, catering, personal grooming, fitness, beauty treatment, and similar services, the place of supply is the location where the services are actually performed.
If a catering company in Bengaluru provides services for a wedding in Mysuru, the place of supply is Mysuru. The supplier and place of supply are in the same state, so Central GST and Karnataka State GST are applicable.
Training and Performance Appraisal Services
For services relating to training and performance appraisal, the place of supply depends on whether the recipient is registered under GST. If the recipient is registered, the place of supply is the recipient’s location. If the recipient is not registered, the place of supply is where the services are actually performed.
For instance, if a registered corporate client based in Mumbai arranges training for its staff in Pune through a service provider, the place of supply is Mumbai, the location of the registered recipient. On the other hand, if an unregistered individual attends a training workshop in Pune, the place of supply is Pune.
Event-related Services
Services in relation to events, such as cultural, artistic, sporting, educational, or entertainment events, as well as ancillary services, are tied to the place where the event is actually held.
If an event management company in Kolkata organizes a music concert in Bhubaneswar, the place of supply is Bhubaneswar. The rule ensures that the state where the event takes place receives the tax revenue.
Place of Supply of Services in Cross-Border Transactions
When services cross international boundaries, determining the place of supply becomes more complex compared to domestic transactions. Section 13 of the Integrated Goods and Services Tax Act provides the framework for such cases. These rules apply when either the supplier or the recipient is located outside India.
The objective is to ensure that taxation is aligned with the principle of destination-based consumption. The section contains a general rule as well as specific provisions for particular services. Understanding these rules is crucial for businesses engaged in international trade, outsourcing, and digital services.
General Rule for Cross-Border Services
In most cases, the place of supply of services is the location of the recipient of services. If the recipient’s location is not available, then the place of supply is taken as the location of the supplier.
For example, if an Indian consulting firm provides advisory services to a company in Singapore, the place of supply is Singapore. This transaction qualifies as an export of services if the other conditions of export are met, such as receipt of payment in convertible foreign exchange.
On the other hand, if a company in the United States provides design services to a customer in India and the recipient’s location is known to be in India, the place of supply is India. This makes the transaction taxable in India under reverse charge mechanism, where the recipient is liable to pay tax.
Services Related to Immovable Property
For services connected to immovable property located outside India, the place of supply is the location of the property. This applies to real estate services, architectural services, and hotel accommodation.
For example, if an Indian architect provides services for a property in Dubai, the place of supply is Dubai. As the supply is outside India, it is treated as export of services subject to conditions. Similarly, if a hotel in London provides accommodation to an Indian traveler, the place of supply is London.
Services Requiring Physical Presence
Certain services, such as performance-based services, require physical presence and are tied to the location where they are performed. These include training, personal grooming, fitness, and cultural events.
For instance, if an Indian trainer travels to Malaysia to conduct a workshop, the place of supply is Malaysia. Conversely, if a foreign trainer conducts a session in Mumbai, the place of supply is Mumbai. In the latter case, Integrated GST will apply, and depending on circumstances, it may fall under reverse charge.
Services Related to Events
Event-related services such as sports, cultural functions, exhibitions, and entertainment are treated as supplied at the location where the event actually takes place.
For example, if an Indian company organizes an exhibition in Singapore, the place of supply is Singapore. If a foreign company organizes a sporting event in Delhi, the place of supply is Delhi.
Services Related to Goods Requiring Physical Work
If services are provided in respect of goods that require physical work or evaluation, the place of supply is the location where the services are actually performed.
For instance, if equipment is sent from the United States to India for repair, the place of supply is India since the repair work is performed in India. Similarly, if Indian machinery is sent abroad for inspection, the place of supply is the country where the inspection occurs.
Online Information and Database Access or Retrieval Services
Digital services such as online streaming, e-books, digital advertising, and cloud computing fall under the category of Online Information and Database Access or Retrieval services. Section 14 of the Integrated Goods and Services Tax Act contains special provisions for these services, recognizing their borderless nature.
Place of Supply for OIDAR Services
The place of supply for OIDAR services is the location of the recipient of services. For individuals, this is determined based on indicators such as billing address, internet protocol address, bank details, or mobile country code.
For example, if an Indian resident subscribes to an international streaming service, the place of supply is India. Even if the supplier is located outside India, the service is deemed to be consumed in India, and Integrated GST is payable.
Taxation of OIDAR Services
When OIDAR services are provided by a foreign supplier to unregistered persons in India, the foreign supplier is required to register under GST and pay Integrated GST. If the foreign supplier does not comply, the responsibility to discharge tax may shift to an intermediary or the recipient.
This provision ensures that consumption of digital services in India is not left outside the GST net and maintains fairness between foreign and domestic service providers.
Importance of Correct Place of Supply Determination
Determining the correct place of supply has practical implications for businesses. Incorrect classification can lead to disputes, denial of input tax credit, penalties, and interest liabilities. Businesses must carefully assess transactions and apply the correct rules.
Compliance and Documentation
Suppliers are required to issue tax invoices mentioning the place of supply and type of tax applicable. Proper documentation, including agreements, purchase orders, transport documents, and payment records, is essential to support the determination of place of supply.
For example, in bill-to-ship-to transactions, the supplier must record the delivery instructions clearly to establish the place of supply as per law. Similarly, in cross-border services, evidence of recipient location and foreign exchange remittance is necessary to qualify as export of services.
Impact on Input Tax Credit
Place of supply rules affect the availability of input tax credit. Businesses engaged in inter-state transactions pay Integrated GST, which is available as credit across India. However, intra-state supplies attract Central GST and State GST, which can only be utilized within that state.
For example, a company headquartered in Maharashtra but operating in multiple states must ensure that input tax credit is distributed correctly through Input Service Distributor mechanism when services are consumed in other states.
Challenges Faced by Businesses
Despite clear rules, businesses face practical difficulties in determining the place of supply. Complex supply chains, digital services, and multi-jurisdictional operations make compliance challenging.
Ambiguity in Service Transactions
Services that involve multiple locations or intangible benefits often create ambiguity. For instance, legal or consultancy services may be used by a business across different states, but the law requires linking the place of supply to either the recipient’s registration or the supplier’s location.
International Transactions
Cross-border services involve exchange rate fluctuations, varying contractual terms, and different tax jurisdictions. Businesses must also ensure compliance with foreign tax rules while adhering to Indian GST provisions.
Digital Economy
In the digital economy, identifying the recipient’s location is often difficult. Virtual private networks, multiple payment methods, and shared devices create challenges in determining where the service is actually consumed.
Illustrative Examples of Place of Supply
Practical examples help in understanding how the rules operate in real scenarios.
Example 1: Domestic Supply with Movement of Goods
A furniture manufacturer in Kerala sells products to a retailer in Tamil Nadu. The goods are transported by truck and delivered at the retailer’s premises in Chennai. The place of supply is Tamil Nadu, making it an inter-state supply subject to Integrated GST.
Example 2: Cross-Border Import of Services
A company in India engages an advertising agency in the United Kingdom to run a campaign for Indian customers. The place of supply is India since the services are consumed in India. The Indian company is liable to pay Integrated GST under reverse charge mechanism.
Example 3: Bill-to-Ship-to Transaction
A trader in Gujarat orders goods from a supplier in Maharashtra and instructs delivery to a warehouse in Rajasthan. The place of supply is Gujarat, the trader’s principal place of business, even though the goods are shipped to Rajasthan.
Example 4: OIDAR Services
An Indian student subscribes to an online education platform hosted in the United States. The place of supply is India. The foreign platform must register and pay Integrated GST, or the liability may shift under prescribed rules.
Example 5: Services Related to Property Abroad
An Indian construction company provides services for a project in Dubai. The place of supply is Dubai, and the transaction may qualify as export of services subject to conditions.
Conclusion
The concept of place of supply is at the heart of Goods and Services Tax because it ensures that tax revenue accrues to the state where consumption actually occurs. GST being a destination-based levy makes it essential to determine whether a transaction is intra-state or inter-state, as this decides whether Central GST, State GST, Union Territory GST, or Integrated GST applies.
For goods, the rules are largely centered around movement, delivery location, installation, and special situations like bill-to-ship-to arrangements or supplies on board conveyances. For cross-border transactions, imports and exports have their own rules with imports attracting Integrated GST and exports being zero-rated.
For services, the framework is more complex due to their intangible nature and the possibility of consumption across multiple jurisdictions. Domestic transactions are governed by Section 12 of the IGST Act, while cross-border cases fall under Section 13. Services related to immovable property, events, goods requiring physical work, transportation, and online digital services have specific rules that override the general principle.
The introduction of provisions for Online Information and Database Access or Retrieval services reflects the growing importance of the digital economy and ensures that such services consumed in India are not left untaxed. Similarly, special mechanisms like reverse charge and registration requirements for foreign suppliers balance compliance responsibilities between domestic and foreign players.
Businesses must treat place of supply determination as a key compliance function. Invoices, contracts, payment records, and transport documents play a critical role in justifying the classification of transactions. Correct identification not only avoids disputes and penalties but also ensures that input tax credit is properly availed and distributed.
Although the statutory framework is detailed, practical challenges persist. Multi-jurisdictional service contracts, cross-border operations, and digital services often give rise to ambiguities. Companies need robust tax planning, internal controls, and professional guidance to manage these challenges effectively.
Overall, the place of supply provisions are designed to align GST with its fundamental principle of taxing consumption at the destination. By carefully applying these rules, businesses can achieve compliance, avoid litigation, and contribute to the seamless functioning of the GST regime.