Goods and Services Tax is structured as a destination-based system, meaning the levy is imposed where goods or services are consumed rather than where they originate. This principle governs the distribution of GST revenue among the different jurisdictions. Under this system, supply made within the same state leads to a division between Central GST and State GST, while supply between different states or union territories triggers the levy of Integrated GST.
The destination-based nature ensures that the final place where the supply is received gets the associated share of revenue. To operationalize this model effectively, identifying the correct place of supply becomes essential. The concept holds relevance in defining whether a transaction is intra-state or inter-state, which in turn determines the applicable GST components.
Importance of Determining Place of Supply
Accurately identifying the place of supply holds critical importance for several reasons. It decides the jurisdiction in which GST must be paid, defines the classification of the supply, affects the claim of input tax credit, and ensures overall compliance with the GST framework. Incorrect classification can lead to demands of wrongfully collected amounts, penalty notices, or denial of credit.
The structure of the GST law provides detailed provisions to determine the place of supply for both goods and services. These provisions differ depending on whether the transaction is domestic or cross-border, and whether the parties involved are registered or unregistered under GST.
Legal Framework Governing Place of Supply
The provisions regarding place of supply are contained in Chapter V of the Integrated Goods and Services Tax Act. The chapter consists of the following relevant sections:
- Section 10: Place of supply of goods other than imports and exports
- Section 11: Place of supply of goods imported into or exported from the country
- Section 12: Place of supply of services where both supplier and recipient are located within the country
- Section 13: Place of supply of services where one party is located outside the country
- Section 14: Special provision for online information and database access services
Each of these sections has been drafted with reference to different factual matrices, and they serve as the guiding mechanism for determining the correct place of supply in any given transaction.
Concept of Location of Supplier and Recipient
Understanding the place of supply begins with identifying the location of the supplier and the recipient. The place of supply is measured in relation to these two locations. The GST law provides definitions to determine these locations in the context of both goods and services.
Location of Supplier of Goods
The location of a supplier of goods is typically the place from where the goods are supplied. It refers to the principal place of business or any additional place of business from which the goods are dispatched or made available to the recipient.
Location of Supplier of Services
The location of a supplier of services is determined under the provisions of the IGST Act. It can be:
- The place of business from where the service is supplied
- A fixed establishment other than the registered place of business
- The establishment most directly concerned with the supply when multiple establishments exist
- The usual place of residence when none of the above apply
Location of Recipient of Services
Similar to suppliers, the recipient’s location can be:
- The registered place of business
- Any fixed establishment other than the registered place
- The establishment most directly concerned with the receipt of service
- The usual place of residence when none of the above apply
These definitions play a fundamental role in determining the nature of supply.
Understanding Nature of Supply
The nature of supply under GST is classified into two broad categories:
- Intra-state supply
- Inter-state supply
An intra-state supply is one where the location of the supplier and the place of supply are in the same state or union territory. In such cases, the transaction attracts Central GST and the respective State GST or Union Territory GST.
An inter-state supply is one where the location of the supplier and the place of supply are in different states or union territories or when the transaction involves an import or export of goods or services. These transactions are subject to Integrated GST.
Examples of Nature of Supply
Let’s consider a few cases to understand this concept clearly:
- A trader in Rajasthan supplies machinery to a business in Gujarat – This is an inter-state supply as the supplier and place of supply are in different states.
- A furniture manufacturer in Delhi sells goods to a buyer in Delhi – This is an intra-state supply.
- A company in Mumbai provides architectural services to a client in Singapore – This qualifies as an export and is treated as an inter-state supply under the provisions of IGST.
Place of Supply of Goods in Domestic Transactions
The rules related to the place of supply of goods within the country are prescribed under Section 10 of the IGST Act. The determination varies depending on the nature of the transaction. Let us look into the various scenarios.
Movement of Goods by Supplier or Recipient
Where there is a movement of goods, either by the supplier or the recipient or a third party on their behalf, the place of supply is the location where the movement of goods ends for delivery to the recipient.
For example, if a supplier in Lucknow dispatches goods to a recipient in Indore, the place of supply is Indore.
Delivery of Goods at the Direction of a Third Party
In a scenario where goods are delivered by a supplier to a recipient on the instructions of a third party, the place of supply is deemed to be the principal place of business of the person who directed the delivery.
For example, a Delhi-based buyer instructs a Gujarat-based supplier to deliver goods directly to their branch in Kolkata. The place of supply is considered Delhi, the location of the person issuing the instruction.
Supply of Goods Without Movement
When there is no movement of goods, the place of supply is the location of the goods at the time of delivery to the recipient.
This is often the case in transfers of ownership of fixed assets or immovable machinery, where the buyer takes possession without any transportation involved.
Goods Assembled or Installed at Site
When goods are assembled or installed at the recipient’s premises, the place of supply is the location where the assembly or installation takes place.
For instance, heavy plant machinery supplied in knocked-down condition and installed at the recipient’s factory in Hyderabad has the place of supply as Hyderabad.
Supply of Goods on Board a Conveyance
If goods are supplied on board a conveyance like an aircraft, train, bus, or ship, the place of supply is the location where the goods were taken on board.
An example is a meal sold on a train that started from Mumbai and is bound for Delhi. If the goods were loaded on the train in Mumbai, then Mumbai is the place of supply.
Import and Export of Goods
Section 11 of the IGST Act covers the place of supply in case of import and export transactions involving goods.
- For imports, the place of supply is the location of the importer.
- For exports, the place of supply is the location outside the country where the goods are delivered.
These transactions are essential to define whether the supply is zero-rated or liable to customs duty.
Special Economic Zones (SEZ) and Place of Supply
Supplies made to or by a Special Economic Zone unit or developer are treated as inter-state supplies even if the supplier and recipient are located in the same state. These transactions fall under the provisions of zero-rated supply.
For example, a business in Noida supplying services to an SEZ unit in Noida is considered an inter-state supply and not intra-state, despite the same geographical location.
Supplies through E-Commerce Operators
In the case of transactions conducted through e-commerce operators, the location of the recipient and the supplier, along with the delivery address, determines the place of supply.
If a registered user from Bengaluru places an order on an online platform and the goods are delivered from a warehouse in Mumbai, then the place of supply is Bengaluru. The supply qualifies as inter-state and IGST is applicable.
Introduction to Place of Supply of Services
Unlike goods, which are tangible and whose place of supply is often linked with physical movement, services are intangible and require specific principles to determine where they are supplied. Under GST, the place of supply of services plays a critical role in classifying the transaction as intra-state or inter-state and deciding which components of GST are applicable.
The provisions related to place of supply of services are detailed under Sections 12 and 13 of the Integrated Goods and Services Tax Act. Section 12 deals with cases where both the supplier and recipient are located within the country, whereas Section 13 governs scenarios where either the supplier or recipient is located outside the country.
General Rule for Place of Supply of Services
Under Section 12(2), the default rule for place of supply of services when both parties are within the country is based on the recipient’s location:
- If the recipient is a registered person, the place of supply is the location of the recipient.
- If the recipient is unregistered, the place of supply is:
- The address on record with the supplier, or
- The location of the supplier if no address is available.
This general rule is overridden by specific provisions in certain service categories, as discussed below.
Specific Categories of Services and Their Place of Supply
There are numerous services for which special place of supply rules are prescribed under Section 12. Each of these must be interpreted individually, depending on the nature of the service.
Services in Relation to Immovable Property
The place of supply for services directly related to an immovable property is the location of the property itself. This rule applies to:
- Architects and engineers providing property-related services
- Real estate agents
- Accommodation in hotels or guest houses
- Grant of rights to use immovable property
Example: A consultant in Bengaluru offers architectural design for a building located in Hyderabad. The place of supply is Hyderabad, where the immovable property is situated.
Restaurant and Catering Services
The place of supply for services involving food and beverages, including catering, is the actual location where the service is performed.
Example: A catering company registered in Delhi provides services for a wedding event in Jaipur. Since the service is provided in Jaipur, that location becomes the place of supply.
Training and Performance Appraisal Services
For services related to training or performance appraisal, the place of supply depends on the recipient:
- If the recipient is a registered person, the location of the recipient is the place of supply.
- If unregistered, the actual location where services are performed is considered.
Example: A firm based in Pune conducts training for employees of a registered company located in Bengaluru. The place of supply is Bengaluru.
Admission to Events and Services Related to Events
In the case of admission to events such as cultural, artistic, or sporting activities, and also for organizing such events, the place of supply is the location where the event is held.
Example: A Delhi-based agency organizes a trade fair in Mumbai. The place of supply is Mumbai.
Transportation of Goods, Including Courier Services
The place of supply for transportation of goods depends on whether the recipient is registered:
- For registered recipients, it is their location.
- For the unregistered, it is the location where goods are handed over for transportation.
Example: A logistics company in Gujarat transports goods to a registered recipient in Haryana. The place of supply is Haryana.
Passenger Transportation Services
For passenger transport services:
- If the recipient is registered, the place of supply is the recipient’s location.
- If unregistered, the place where the passenger embarks on the journey is the place of supply.
Example: A registered business books a flight ticket from Delhi to Kolkata. The place of supply is the business’s location.
Services on Board a Conveyance
Services such as meals or entertainment offered on a train, aircraft, or ship are taxed based on the location of the first scheduled point of departure.
Example: A movie shown on a flight that departs from Mumbai is considered supplied in Mumbai.
Telecommunication Services
The place of supply for telecom services varies:
- For postpaid services, the billing address of the recipient is used.
- For prepaid services through agents or retail outlets, the place where payment is received is considered.
Example: A prepaid mobile recharge done at a shop in Kerala is supplied in Kerala.
Banking and Financial Services
For banking and financial services, the place of supply is the location of the recipient as per records. If not available, the supplier’s location is considered.
Example: A non-resident opens an account with a bank headquartered in Chennai. The place of supply is Chennai if the customer’s location is not identifiable.
Insurance Services
For registered recipients, the location of the recipient is the place of supply. For others, it is the recipient’s address on record.
Example: An insurance company issues a policy to a registered business in Ahmedabad. The place of supply is Ahmedabad.
Section 13: Place of Supply for International Services
Section 13 applies when either the supplier or recipient is located outside the country. The default rule under Section 13(2) states that the place of supply is the location of the recipient.
If the location is not available, then the supplier’s location is considered the place of supply.
Specific Exceptions Under Section 13
Section 13 also includes service categories with special place of supply rules for cross-border transactions.
Services Related to Immovable Property
The place of supply for services connected to immovable property located outside the country is where the property is situated.
Example: A construction firm in Kolkata offers project consultancy for a hotel in Dubai. The place of supply is Dubai.
Performance-Based Services
For services requiring physical presence, such as repair, maintenance, or body care, the place of supply is the location where the services are actually performed.
Example: A technician travels from Mumbai to Singapore to service equipment. The place of supply is Singapore.
Services Provided to Individuals
Personal services such as health, grooming, or photography offered to individuals are considered supplied at the place where the service is performed.
Example: A makeup artist from Delhi provides bridal services in London. The place of supply is London.
Training and Performance Appraisal (Cross-Border)
- When provided to a registered person outside the country, the recipient’s location is the place of supply.
- When provided to an unregistered person, the location of performance is considered.
Admission to Events or Organization of Events (Cross-Border)
Admission and organization services provided outside the country are taxed where the event is held.
Example: A firm in Mumbai organizes a conference in Bangkok. The place of supply is Bangkok.
Intermediary Services
An intermediary is someone who arranges or facilitates a supply between two parties. The place of supply for intermediary services is always the location of the supplier.
Example: An agent in Hyderabad connects a Dubai-based exporter with a UK importer. The place of supply is Hyderabad.
Hiring of Means of Transport
For short-term hiring (less than one month), the place of supply is the location of the supplier.
Example: A UK resident hires a yacht from a marina in Goa for a week. The place of supply is Goa.
Online Information and Database Access Services (OIDAR)
In the case of OIDAR services supplied from outside to unregistered persons, the place of supply is the location of the recipient. The foreign supplier is required to register and pay GST in such cases.
Examples of OIDAR services include:
- Streaming platforms
- E-book sales
- Online courses
- Cloud storage
Example: A streaming platform based in the US provides subscriptions to customers in India. The place of supply is India.
Services Provided Through E-Commerce Platforms
When services are provided through online platforms, the place of supply depends on whether the supplier and recipient are located domestically or internationally.
For example, online hotel booking services offered by a domestic travel portal are taxed based on the location of the hotel or the recipient, depending on the nature of the service.
Cross-Border Services and Reverse Charge
In cases where services are imported from a person located outside the country by a registered recipient, the recipient is liable to pay GST under the reverse charge mechanism. The place of supply is the recipient’s location.
Example: A marketing consultant based in Germany provides services to a company in Mumbai. The company in Mumbai is liable to pay IGST under reverse charge.
Importance of Accurate Classification
Correctly identifying the place of supply in service transactions is essential for:
- Avoiding disputes and penalties
- Claiming proper input tax credit
- Ensuring compliance with export and import procedures
- Correctly applying reverse charge provisions
- Assessing liability in cross-border services
A small error in the determination can lead to payment of the wrong type of GST, delayed credit, or even denial of refund in export scenarios.
Overview of Complex Scenarios in Place of Supply
The application of place of supply provisions in the GST regime becomes more intricate in scenarios involving multiple locations, mixed supplies, composite supplies, third-party invoicing, and special economic zones. The clarity in determining the correct place of supply becomes essential to avoid non-compliance, misclassification, or denial of benefits such as input credit or refunds.
We explore such advanced scenarios, key judicial interpretations, and industry-specific complexities to understand the practical application of the place of supply rules in challenging situations.
Place of Supply in Mixed and Composite Supplies
In the GST framework, a composite supply refers to a naturally bundled supply involving two or more goods or services, where one is the principal supply. The entire supply is taxed as per the principal supply’s nature and place of supply.
On the other hand, a mixed supply consists of two or more individual supplies bundled together, but not naturally bundled. In such cases, the supply with the highest rate determines the tax treatment.
Determining Place of Supply for Composite Supplies
The place of supply for a composite supply is aligned with that of the principal supply. This simplifies the process, but challenges arise in determining which component is primary.
Example: A telecom company provides mobile devices bundled with postpaid connections. If the device is incidental and the telecom service is the principal supply, the place of supply will be based on the service.
Place of Supply for Mixed Supplies
For mixed supplies, each component must be independently analyzed for place of supply unless a single supply dominates the transaction.
Example: A hamper containing chocolates, soft drinks, and toys is sold during a festival. The place of supply depends on the nature of each component and the recipient’s location.
Place of Supply in Third-Party Billing Arrangements
Third-party billing arises when a supplier invoices a third party for goods or services provided to another person. This is common in centralized procurement, inter-branch services, and project-based outsourcing.
Billing vs Delivery Location
In such cases, determining whether the place of supply is based on the delivery location or the billing entity’s location is key.
Example: Company A in Mumbai purchases goods from a supplier in Pune and asks for delivery directly to its branch in Bengaluru. The place of supply is Bengaluru, which will classify the transaction as inter-state.
Triangular Transactions in Services
In services, if an intermediary arranges for service provision between two parties, the intermediary’s location becomes the place of supply under certain conditions.
Example: A marketing agency in Delhi facilitates consultancy services from a UK firm to a client in Chennai. The intermediary service by the Delhi agency is taxable in Delhi, but the core service’s place of supply may be outside the country.
Place of Supply in Special Economic Zones (SEZ)
Supplies to or from SEZs are treated as inter-state transactions under GST. The place of supply rules in this context carry significant impact for exporters and developers.
Supplies Made to SEZs
The supply of goods or services to SEZ units or developers is treated as a zero-rated supply. However, to be eligible for zero-rating, the place of supply must be within the SEZ, and proper documentation must support the claim.
Example: An IT company in Bengaluru supplies cloud storage services to an SEZ unit in Visakhapatnam. The place of supply is Visakhapatnam, qualifying the transaction as a zero-rated supply.
Supplies from SEZs to DTA
When an SEZ supplies to a Domestic Tariff Area (DTA), the recipient must pay applicable IGST. The place of supply is the DTA location.
Example: A SEZ-based manufacturer sends goods to a buyer in Gujarat. The place of supply is Gujarat, and the DTA buyer pays IGST.
Place of Supply in Cross-Border E-Commerce Transactions
E-commerce transactions with international suppliers or customers bring their own complexities under the place of supply framework.
Import of Online Services
Online information and database access or retrieval (OIDAR) services supplied by overseas entities to individuals are taxed based on the recipient’s location. The overseas service provider is required to register and pay GST or appoint a representative.
Example: A digital marketing software firm based in the US offers monthly subscriptions to freelancers in India. The place of supply is the subscriber’s location.
Export of Services via Online Platforms
Export of services is treated as a zero-rated supply provided certain conditions are met. One such condition is that the place of supply should be outside the country.
Example: A consultant in Pune provides design services to a client in Australia. The place of supply is Australia, making the transaction eligible for zero rating.
Place of Supply in Export and Import of Services
Determining whether a service qualifies as an export or import hinges largely on the place of supply. Services supplied to a person outside the country can only be treated as exports if:
- The supplier is located within the country
- The recipient is located outside the country
- The place of supply is outside the country
- Payment is received in convertible foreign exchange
- The supplier and recipient are not merely establishments of the same person
Example: A software firm in Hyderabad develops applications for a US-based client and receives USD as payment. The place of supply is outside, making it a zero-rated export.
Conversely, if a domestic company receives a service from an overseas consultant, it is an import of service. The place of supply is within the country, and GST must be paid under reverse charge.
GST Implications on Place of Supply Errors
Errors in identifying the correct place of supply may lead to severe compliance consequences:
- Wrong classification between CGST/SGST and IGST
- Rejection of input credit
- Denial of refunds
- Tax demand with interest and penalties
Inter-State vs Intra-State Misclassification
If a transaction is wrongly classified as intra-state and CGST/SGST is paid instead of IGST, the supplier may be required to pay IGST and claim a refund of CGST/SGST, leading to cash flow disruptions.
Example: A company invoices CGST and SGST on a transaction where the place of supply is in another state. Authorities may disallow the credit to the recipient.
Place of Supply in Job Work and Bill-to-Ship-to Scenarios
In job work and bill-to-ship-to transactions, determining the correct place of supply is crucial for seamless input credit flow.
Bill-to-Ship-to Transactions
When goods are billed to one party but delivered to another, the place of supply is the location of the third party (the recipient named in the bill).
Example: Supplier in Gujarat bills goods to a company in Maharashtra, but ships them to its warehouse in Karnataka. The place of supply is Maharashtra, and the supplier charges IGST.
Job Work Transactions
In job work, goods are sent to another party for processing and then returned. The place of supply is based on the recipient’s location in the case of job work services.
Example: A component manufacturer in Noida sends goods to a job worker in Gurugram. The processing service’s place of supply is Noida if the principal is registered there.
Judicial Pronouncements on Place of Supply
Various advance rulings and judicial decisions have helped clarify ambiguous place of supply scenarios:
AAR Ruling on Event Management
In one case, an event management firm provided services to a client for an event conducted in another state. The authority ruled that the place of supply is where the event is held, regardless of the client’s registered address.
Ruling on Supply to SEZ Units
A ruling held that even if the service is performed outside the SEZ premises, it is still considered a supply to SEZ if the invoice and agreement are in the SEZ’s name, and the service is used by the SEZ unit.
Such rulings reinforce the importance of contract drafting, documentation, and accurate mapping of location details.
Industry-Specific Place of Supply Considerations
Real Estate and Construction
The location of the property decides the place of supply for real estate services. For developers operating across states, misjudgment can result in significant compliance issues.
Travel and Tourism
Tour operators must evaluate whether the place of supply is based on the origin of service, destination, or recipient’s registration status. Different combinations lead to varied tax implications.
Software and IT Services
Software services provided through the cloud or software-as-a-service models often fall under OIDAR. The customer’s billing address, IP location, and payment location all play roles in determining the place of supply.
Documentation for Determining Place of Supply
Correctly determining and supporting the place of supply requires documentation such as:
- Purchase orders
- Shipping documents
- GSTIN of recipient
- Contractual agreements
- Invoices with place of supply mentioned
- Address proof of recipient
Proper documentation ensures both the supplier and recipient can prove their compliance in the event of audits or investigations.
Role of Technology and ERP in Compliance
Modern businesses rely on enterprise resource planning (ERP) systems to automate the determination of place of supply. By mapping GSTINs, delivery addresses, and transaction types, businesses can reduce manual errors and ensure consistent classification.
Common Errors and Best Practices
Common Errors
- Ignoring the customer’s GST registration status
- Incorrect shipping address mapping
- Applying general rules instead of specific rules
- Treating intermediary services as exports
Best Practices
- Maintain accurate master data of customers and vendors
- Train accounting and sales teams in place of supply rules
- Review contracts for clarity on service location
- Leverage advance rulings where ambiguity exists
- Use automated invoicing systems with pre-configured place of supply logic
Conclusion
The concept of place of supply forms the backbone of the GST framework, determining the nature of the transaction and the type of GST to be levied — central, state, or integrated. Accurate determination of the place of supply ensures proper compliance, supports the seamless flow of input credit, avoids litigation, and contributes to the overall efficiency of the indirect tax regime.
Through this detailed series, we explored the foundational rules governing the place of supply for both goods and services. We examined practical illustrations that spanned intra-state and inter-state transactions, imports and exports, as well as supplies to and from Special Economic Zones. We also delved into industry-specific complexities and exceptional cases such as third-party billing, composite and mixed supplies, and job work arrangements. Real-life examples and judicial interpretations helped in clarifying ambiguous provisions and underlined the importance of a case-by-case analysis.
It is evident that determining the place of supply is not merely a procedural task, it requires a nuanced understanding of the transaction’s substance, the contractual terms, the location of the parties involved, and the nature of the supply itself. Mistakes in identifying the correct place of supply can result in serious compliance consequences, such as payment of the wrong type of GST, denial of input tax credit, or refund rejections.
For businesses, the key takeaway is the need for robust internal controls, proper documentation, and periodic review of transaction patterns to ensure alignment with applicable GST laws. Leveraging technology to automate place of supply determination and training teams to recognize the nuances in varied scenarios will significantly reduce errors and improve compliance readiness.
As GST continues to evolve with judicial clarifications and administrative updates, staying informed and agile is essential. A correct understanding of the place of supply rules is not only vital for day-to-day operations but also plays a strategic role in pricing, customer management, and overall tax planning.