Under the Goods and Services Tax (GST) regime in India, the determination of the location of the supplier is a critical aspect that influences the nature of the supply, the applicable tax, and the compliance requirements. Whether a supply is treated as intra-state or inter-state hinges on the correct identification of both the location of the supplier and the place of supply. This classification not only affects the type of GST, Central GST and State GST or Integrated GST, but also plays a key role in determining registration obligations, invoicing requirements, and the jurisdiction of tax authorities.
The location of the supplier of services is defined under Section 2(71) of the Central Goods and Services Tax Act, 2017, read with Section 2(15) of the Integrated Goods and Services Tax Act, 2017. The determination involves four specific limbs, which are applied in a descending order of priority. The location can be the registered place of business, a fixed establishment, the establishment most directly concerned with the provision of services, or,, iresidualry cases, the usual place of residence. Each of these categories presents practical interpretation issues that must be navigated by suppliers to ensure proper compliance.
Understanding the correct application of each of these limbs is essential, especially in cross-border transactions, supply chains involving multiple branches or units, and digital services where physical presence may be limited. The interpretation has far-reaching implications on tax liability, export and import treatment under GST, and even eligibility for input tax credit.
Statutory Definition of Location of Supplier of Services
The GST legislation provides specific provisions for determining the location of the supplier of services. Section 2(71) of the CGST Act defines the location of the supplier of services in terms of four distinct scenarios. The selection of the applicable scenario depends on the facts of each transaction. These are:
When the services are supplied from a registered place of business, the location of the supplier shall be that registered place of business.
When the services are supplied from a fixed establishment other than the place for which registration has been obtained, the location shall be the fixed establishment.
When the services are supplied from more than one establishment, whether the place of business or fixed establishment, the location of the supplier shall be the establishment most directly concerned with the provision of the service.
In any other case not covered above, the location of the supplier shall be the usual place of residence of the supplier.
These statutory provisions appear to provide a sequential application of rules, where the first applicable clause is to be adopted. However, real-world situations often blur the distinctions, particularly when multiple offices are involved in the provision of a service or when services are provided remotely.
Registered Place of Business as Location of Supplier
The first and most straightforward situation arises when the services are supplied from the registered place of business. This is usually the location where the supplier is registered under GST, maintains books of account, and conducts business operations.
In this case, determining the location of the supplier is relatively easy. If an invoice is issued from the registered office, and the services are rendered from that location, it satisfies the first limb of the definition. This condition is most common in cases where the supplier is operating through a centralized office with no branches or where branches exist but do not participate in the provision of services.
For instance, a legal consultant registered in Delhi providing services from his Delhi office to a client in Mumbai would have his Delhi address treated as the location of the supplier. The tax treatment will then depend on the place of supply, which in this case would be Mumbai, making it an inter-state supply liable to IGST.
However, the simplicity of this rule can become complex when multiple locations are involved. Questions arise when services are rendered from another location that is not registered under GST, or if the invoicing is from the head office while the actual services are delivered from another branch. This leads to the relevance of the next limb of the definition.
Fixed Establishment Other Than Registered Place of Business
The second limb deals with the situation where the supplier has a fixed establishment other than the registered place of business. If the services are supplied from this fixed establishment, then that location will be deemed to be the location of the supplier.
Section 2(50) of the CGST Act defines a fixed establishment as a place, other than the registered place of business, which is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services or to receive and use services for its own needs. This definition necessitates an objective assessment of whether a location qualifies as a fixed establishment.
The key considerations to determine a fixed establishment include:
The presence of human and technical resources.
The permanence of the establishment and its capacity to operate independently.
Whether the establishment is capable of providing or receiving services in its capacity.
This definition was interpreted in the case of Titanium Ltd. v. Finanzamt Österreich, decided by the European Court of Justice. It was held that mere ownership of property or assets is not sufficient to constitute a fixed establishment. The establishment must have its staff and infrastructure to operate independently.
Applying this principle to GST, if a supplier has an office in another state or country that meets the criteria of permanence and operational capacity, that office would be treated as a fixed establishment. Services provided from that office would attract GST liability accordingly.
For example, an Indian company registered in Mumbai but maintaining an overseas branch office in London with full operational capacity may be regarded as having a fixed establishment in the UK. If services are rendered from that office to clients in the UK, the location of the supplier would be considered as the London office.
The difficulty lies in interpreting whether a particular branch or unit constitutes a fixed establishment. Temporary project offices, agents working remotely, or shared office arrangements may not always qualify unless they satisfy the criteria of permanence and capability. Businesses must therefore evaluate each location on a case-by-case basis to ensure accurate classification under GST.
Services Provided from More Than One Establishment
The third limb of the definition becomes relevant when services are provided from more than one establishment. In such cases, the location of the supplier shall be the establishment that is most directly concerned with the supply of services. This determination is highly fact-sensitive and requires an examination of the circumstances surrounding the transaction.
The phrase most directly concerned has not been defined under the GST law, leading to interpretational challenges. However, guidance may be drawn from earlier indirect tax regimes, such as the Service Tax law, where similar terminology was used. The Central Board of Indirect Taxes and Customs had clarified that various factors may be considered in determining the establishment most directly concerned, such as:
The establishment of the service is performed.
The location of the personnel engaged in delivering the service.
The place where operational decisions are made.
The location where contracts are signed or payments are received.
In most cases, the establishment where the service is executed would be regarded as most directly concerned. This principle is intended to ensure that the location of the supplier reflects the economic substance of the transaction rather than mere contractual or administrative arrangements.
Consider a multinational corporation with a head office in Delhi and regional offices in Bangalore and Hyderabad. If a project is handled by the Hyderabad office with its staff and infrastructure, then Hyderabad would be treated as the location of the supplier, even if the contract is signed or invoiced from Delhi. Similarly, if a company is registered in India but performs consulting services entirely from its Singapore branch, then the Singapore branch would be treated as the location of the supplier.
The underlying principle is to link the supply to the establishment that bears the closest nexus to the performance of the service. This ensures alignment between the place of performance and the tax jurisdiction. However, the determination can be subjective, especially where services are delivered through collaboration across multiple offices, or where staff from different locations participate in various stages of service delivery.
Determining the Most Directly Concerned Establishment
When services are rendered through the participation of multiple offices or teams spread across geographies, identifying the establishment most directly concerned can become complex. Unlike the previous limbs, which focus on the formality of registration or the structural existence of an office, this limb emphasizes the substance of the supply.
Various indicators may assist in making this determination. These include the place where the service is substantially performed, the location from which key decisions and management control aree exercised, and the involvement of personnel from particular offices. Even the details of contracts, correspondence, and documentation may provide clues about the establishment that bears primary responsibility.
For example, if a software development company executes a contract through collaborative efforts of developers in Chennai, Pune, and Bengaluru, but the project manager, decision-making authority, and client interaction are concentrated in Chennai, it may be inferred that the Chennai office is the one most directly concerned. On the other hand, if the technical work is done in Bengaluru but invoicing, legal contracts, and management are handled from Mumbai, a case can be made for either, depending on the emphasis of the work.
While such interpretation is necessary, it opens up room for subjectivity and potential disputes with tax authorities. Businesses may claim one office as the establishment most directly concernedwith aligningn tax benefits or export status, whereas authorities may scrutinize whether the claim is substantiated with documentary evidence. Therefore, businesses are advised to maintain comprehensive records, including internal communications, project management logs, and operational guidelines, to support their determination.
Practical Examples and Judicial Precedents
There have been several instances where courts or authorities have examined the location of the supplier in contested scenarios. One such reference is the European Court of Justice ruling in the Titanium Ltd. case. The court emphasized that an establishment must be equipped with human and technical resources to independently provide or receive services. This ruling, though not binding in India, is persuasive and relevant given the similar language used in Indian GST statutes.
In another example, under the erstwhile Service Tax regime, the CBIC had provided an education guide that elaborated on the factors determining the establishment most directly concerned. This guide remains useful in interpreting similar provisions under GST. It clarified that the establishment most directly concerned is not necessarily the one that raises the invoice or receives payment, but is the one that plays the most significant role in actual performance.
Real-world cases further demonstrate the complexity. Suppose a marketing agency headquartered in Delhi has field teams in Ahmedabad and Chennai. A client project is executed entirely by the Chennai team, although the Delhi office signed the contract and receives payment. In such a situation, the Chennai office may be considered the establishment most directly concerned. If, however, the Chennai office merely supports the Delhi team in execution, and key operations remain in Delhi, then Delhi may remain the location of the supplier.
The distinction is critical because it determines whether the supply is inter-state or intra-state, impacts the place of supply, and affects compliance obligations such as invoicing, filing of returns, and availing of input tax credit.
Usual Place of Residence as Location of Supplier
The fourth and final limb of the statutory definition of the location of the supplier of services serves as a residuary clause. It applies in situations where none of the earlier clauses are applicable. In such cases, the location of the supplier is deemed to be their usual place of residence. This provision becomes especially relevant in instances involving individuals or unincorporated entities operating without a fixed or registered establishment.
The usual place of residence is determined based on the legal or ordinary place of residence of the supplier. In the case of an individual, it is the place where the person ordinarily resides. For entities such as companies or partnerships, the place of incorporation or constitution is treated as their usual place of residence.
Under the erstwhile Service Tax regime, the education guide clarified that the usual place of residence for an individual is generally the location where the person spends most of their time during the relevant period. This may include where the person has established a home, resides with their family, or is employed full-time. Conversely, a tourist or someone in the country for short-term treatment or education is not considered to have their usual place of residence in that location.
This concept ensures that every supply has a definable supplier location, even if the supplier is not formally registered or established at any location. For example, an independent consultant providing freelance services online from their home, without any business registration or office, would have their usual place of residence considered as the supplier’s location.
This limb plays a key role in cross-border service transactions, where the supplier may not maintain a fixed place of business or establishment in India. For example, a foreign individual working as a digital nomad providing services to Indian clients while residing temporarily in India will still have their usual place of residence outside India unless they meet the criteria for permanent establishment.
Implications of Determining the Location of Supplier
The correct determination of the supplier’s location has wide-ranging implications for GST compliance and tax treatment. It directly affects whether a supply is treated as intra-state or inter-state and, consequently, whether the transaction is subject to CGST and SGST or IGST. It also determines the appropriate tax jurisdiction for registration, tax collection, audit, and enforcement.
In intra-state supplies, the supplier and the recipient are located within the same state or union territory, and the transaction is subject to CGST and SGST. In contrast, interstate suppliess occur when the supplier and the recipient are in different states or when the place of supply is in a different state from the supplier’s location. These transactions attract IGST.
For example, if a service provider located in Karnataka provides services to a client in Maharashtra, and both the location of the supplier and the place of supply are different, the transaction will be treated as inter-state and subject to IGST. However, if the supplier incorrectly determines their location as being in Maharashtra, it may lead to incorrect tax collection and potential disputes.
Further, in cases involving exports and imports of services, the place of supply and the location of the supplier must be in different countries for the transaction to qualify as an export or import. Therefore, misclassifying the location can lead to denial of export benefits or improper tax liability on imports.
Another implication is in relation to the availability and distribution of input tax credit. If the location of the supplier is determined to be different from what was reported in returns or invoices, it may lead to the denial of input tax credit to recipients, reversal of credits, interest, and penalties.
Issues Faced by Service Providers with Multiple Establishments
One of the most challenging aspects of determining the location of the supplier arises in scenarios where service providers operate through multiple offices or establishments. In such cases, various limbs of the definition may appear to be simultaneously applicable, and the determination becomes a matter of judgment.
Service providers with head offices in one city and operational units in several others must assess which establishment plays the primary role in each transaction. For instance, a company may have its management and finance teams in Mumbai, sales teams in Delhi, and service delivery teams in Bengaluru. Depending on the nature of the service, any of these could be the most directly concerned establishment.
Such complexities often lead to inconsistencies in reporting and compliance. Invoices may be raised from the head office while the services are rendered from another city. Payments may be received in a different location. Staff involved may belong to a third location. All of these lead to confusion about which establishment should be treated as the supplier’s location.
Businesses must adopt internal protocols to evaluate each transaction based on the actual place of performance, staff involvement, and decision-making authority. They should also document the reasons for identifying a particular location as the supplier’s location for each transaction. This is especially important during audits or investigations by tax authorities.
The lack of clear statutory guidance also makes this process difficult. The law provides limited interpretation, and judicial precedents are still evolving. This has led to divergent practices across industries and even among tax jurisdictions.
Challenges in Online and Remote Services
With the increasing prevalence of digital and remote services, the determination of supplier location has become even more challenging. Service providers often operate virtually, without any physical office or fixed establishment. They may offer services via email, video calls, or online platforms from locations where they have no formal presence.
In such cases, the definition of fixed establishment becomes hard to apply. Remote freelancers or consultants working from different cities or countries frequently move from one location to another and may not have a permanent base. Similarly, companies offering SaaS or IT services may operate from cloud-based environments, with decentralized teams working across borders.
This raises the question of whether such entities have a fixed establishment or should be treated as operating from their usual place of residence. While the residuary clause may help in certain cases, it does not provide full clarity, especially when legal and tax consequences depend on whether the service is deemed to have been exported or supplied interstate.
To address this, businesses involved in remote service delivery must consider the legal risks of each classification. They must maintain records of where employees work, how services are delivered, and where operational decisions are taken. In some cases, they may need to obtain GST registration in more than one state or country to ensure compliance.
Relevance in Cross-Border Transactions
The issue of supplier location becomes especially significant in the context of international trade in services. GST laws treat a service as exported when the supplier is located in India, the recipient is outside India, the place of supply is outside India, the payment is received in convertible foreign exchange, and the supplier and recipient are not merely establishments of the same person.
If the supplier’s location is misclassified, it can lead to loss of export status, denial of zero-rated benefits, and tax liability. For instance, if an Indian company provides consulting services through its US branch and incorrectly treats the Indian head office as the supplier location, it may wrongly claim the transaction as an export and not pay tax.
Similarly, in import transactions, if the service recipient in India fails to correctly identify the foreign supplier’s location, they may not discharge IGST liability under the reverse charge mechanism. This can attract interest, penalties, and denial of input tax credit.
Businesses engaged in cross-border services must exercise caution in determining supplier location. They must also align their GST filings, agreements, invoices, and financial records to reflect the same interpretation. Mismatches can invite scrutiny and disputes.
Industry-Wise Practical Concerns
Different industries face different challenges in applying the rules regarding supplier location. In the IT and software industry, services are often delivered remotely by teams spread across different countries. The establishment most directly concerned may be in a different jurisdiction from the contracting office.
In the construction and infrastructure sectors, project offices at different sites may perform services on behalf of the head office. Determining whether such project offices qualify as fixed establishments is crucial to identifying the correct location of the supplier.
In the financial and consulting sectors, services may be structured through branch offices, affiliate companies, or remote personnel. Often, the management and execution teams are located in different countries. Legal contracts, intellectual property, and resource allocation must be evaluated to determine the actual location of service provision.
In each case, industry players must examine their supply chain, resource allocation, and operational structure to determine the correct supplier location under GST. They must also consult legal and tax professionals where ambiguity exists.
Importance of Documentation and Contractual Clarity
Given the subjective nature of the determination of supplier location, proper documentation plays a vital role. Contracts must mention the location of service provision, responsible personnel, and invoicing terms. Internal records should document how and where the service is performed, including staff location, resource usage, and decision-making processes.
Businesses must also ensure consistency between their GST registrations, invoices, and returns. Discrepancies can trigger audit findings and penal consequences. Maintaining emails, work orders, project reports, and management approvals can help in defending the declared supplier location during assessment or litigation.
In the absence of statutory rules prescribing precise methods for determination, businesses are advised to adopt a consistent and well-documented approach. If an organization declares its Mumbai office as the supplier location in one transaction and Bengaluru in another for similar services, the tax authorities may question the rationale unless supported by clear evidence.
Contracts should also consider GST implications when structuring payment flows, jurisdiction clauses, and tax obligations. Where possible, standardized invoicing templates and internal controls can help ensure the correct classification of supplier location.
Judicial Interpretation of Supplier Location
The interpretation of the term “location of supplier” under GST has been shaped by limited but significant judicial and quasi-judicial rulings. Given the novelty of the GST regime in India, there is still an evolving body of case law. However, guidance can be derived from earlier service tax rulings and global jurisprudence, especially from the European Union, where VAT systems share similar definitions of fixed establishment and service provider location.
One key case from the European Court of Justice, Titanium Ltd. v. Finanzamt Österreich, ruled that mere ownership of a property does not amount to a fixed establishment unless it includes personnel and technical resources to carry out business operations independently. This judgment is significant because Indian law under GST also requires that a fixed establishment possess human and technical infrastructure with a sufficient degree of permanence. The ruling emphasized that decision-making, operational autonomy, and deployment of resources are more critical than mere presence or registration.
Indian adjudicating authorities have referred to such international decisions in the absence of domestic precedents. Though not binding, they are considered persuasive. In the Indian context, rulings under the erstwhile service tax regime, especially those interpreting the term “establishment most directly concerned,” continue to influence GST analysis.
Where ambiguity exists in applying the multiple limbs of supplier location, courts have reiterated the importance of evaluating the economic substance over form. For instance, if invoicing is done from a registered office but the actual services are delivered from a project site with full technical and administrative capability, the latter may be treated as the actual location of supply. This prevents tax avoidance through contractual manipulation and ensures correct tax jurisdiction.
The judiciary also emphasizes that tax treatment should reflect the commercial reality of business operations. Therefore, businesses must expect judicial authorities to look beyond surface-level agreements and examine the operational facts before accepting the declared supplier location.
GST Audit Risks Related to Supplier Location
Incorrect determination of the supplier’s location can lead to several risks during audits or assessments. GST authorities may question whether the taxpayer has collected the right type of tax, whether it is CGST and SGST for intra-state supplies or IGST for inter-state supplies. If the location is misclassified, it may lead to a tax shortfall or excess credit availability by the recipient.
Auditors may also scrutinize whether the establishment shown as the supplier has the necessary infrastructure, staff, and resources to be treated as a fixed establishment. If the declared office is merely a registration address with no operational control over the supply, the tax officer may reject the classification and demand tax as per their interpretation.
Mismatch between the GST returns (such as GSTR-1 and GSTR-3B), registration details, invoicing patterns, and place of supply may trigger red flags during audit. Businesses that operate across states with centralized invoicing or distributed teams must ensure consistency between the data filed and the actual operational arrangements.
There is also a risk of penalty and interest if the wrong classification results in a short payment of GST. Further, the recipient of the supply may face input tax credit reversal if the supply is wrongly classified as intra-state or inter-state. In such cases, both parties to the transaction are affected.
To mitigate audit risk, taxpayers must maintain comprehensive documentation to support the supplier location, including contracts, correspondence, internal approvals, work allocation, employee records, and performance logs. Advance rulings may be sought in doubtful cases, although such rulings are binding only on the applicant and the concerned jurisdictional officer.
Importance of Advance Rulings in Clarifying Supplier Location
The mechanism of advance rulings under GST provides a useful tool for taxpayers to seek clarity on matters involving ambiguity, such as the determination of the location of the supplier. Advance rulings are decisions given by the Authority for Advance Ruling (AAR) or the Appellate Authority for Advance Ruling (AAAR) upon application by the taxpayer, specifically for transactions that are proposed or undertaken.
Although rulings from one state are not binding across India, they serve as useful references and carry persuasive value. In matters of supplier location, advance rulings have provided clarity in specific factual scenarios. For example, some rulings have dealt with whether service delivery from a branch office constitutes a separate supplier location, or whether services rendered from abroad constitute exports based on the branch office’s operational role.
A taxpayer engaged in cross-border consultancy services may seek a ruling to determine whether their overseas branch qualifies as a fixed establishment. Similarly, businesses operating from co-working spaces may ask whether the arrangement qualifies as a permanent establishment for supplier location purposes.
However, the advance ruling process has limitations. Decisions are often fact-specific and may vary from state to state. There have also been inconsistencies in rulings, especially where similar facts have led to different outcomes. Additionally, some taxpayers have found the process time-consuming or lacking in predictability.
Nevertheless, for high-value or complex transactions, seeking an advance ruling is a prudent risk mitigation strategy. It can provide legal cover and demonstrate the taxpayer’s intent to comply. Businesses must provide complete and honest disclosures in their application and ensure they follow the ruling consistently in practice.
Cross-Border Structures and the Role of Establishments
Multinational entities and businesses involved in cross-border operations face unique challenges in applying the supplier location rules. They may operate through multiple branches, subsidiaries, liaison offices, or service delivery centers. Each of these may or may not qualify as a fixed establishment depending on their structure, resource allocation, and legal status.
For example, a foreign company with a liaison office in India may be prohibited from commercial operations under the Reserve Bank of India regulations. Despite having staff and infrastructure, if the liaison office is not allowed to provide services independently, it may not be treated as a supplier location under GST. On the other hand, a project office or branch office registered with the Registrar of Companies may qualify if it performs commercial operations with autonomy.
Businesses must also examine whether their overseas branches constitute separate persons or establishments of the same entity. This is critical in determining whether the transaction qualifies as an export or internal supply. Under GST, the export of services requires that the supplier and recipient are not merely establishments of the same person.
A common example is an Indian company providing back-office services to its foreign parent. If both are considered part of the same legal entity or closely integrated establishments, the supply may not qualify as an export, even if foreign exchange is received. This can lead to unexpected tax liability unless carefully structured and disclosed.
Therefore, businesses must assess the legal nature of each entity involved in a transaction, their roles, and interdependence. Transfer pricing documentation, service agreements, and organizational charts may be relevant to determine whether the establishments are distinct or part of the same supplier.
Contractual Structure Versus Operational Substance
A recurring theme in the analysis of supplier location is the tension between the legal structure of contracts and the operational realities of business execution. In many cases, businesses structure contracts and invoices through one office for convenience, while the actual service is delivered from another location. Tax authorities may challenge such arrangements if they believe the contractual terms do not reflect the real nature of the supply.
For instance, a consulting firm may enter into contracts and raise invoices from its Mumbai head office, while all work is executed by its Chennai branch. If the Chennai branch has its staff, systems, and autonomy, it may be argued that the actual supplier is the Chennai office, not Mumbai. The location of the supplier for GST purposes must then be identified based on the office that is most directly concerned with the supply.
Similarly, some companies attempt to route contracts through a particular office to claim benefits such as zero-rated export or eligibility for input tax credit. However, unless the declared office is genuinely involved in service delivery and has the required infrastructure, such arrangements may be disregarded by the tax authorities.
Taxpayers must ensure that contractual terms are aligned with operational reality. If an office is declared as the supplier location, it must be involved in the actual provision of services, have records to support the claim, and be reflected accordingly in tax filings. Merely using an address on paper does not suffice if the office lacks substance.
Managing Multi-State Registrations and Compliance
Businesses operating across multiple states often obtain separate GST registrations in each state. This is necessary because GST is a destination-based tax, and each state is treated as a distinct tax jurisdiction. In such cases, the location of the supplier must be determined separately for each registration.
For a business with a head office in Maharashtra and branches in Tamil Nadu and Gujarat, the location of the supplier may vary depending on which office executes the transaction. This has direct implications on invoicing, tax payment, and return filing. If a service is supplied from the Gujarat office to a client in Delhi, the Gujarat registration must be used, and IGST must be paid accordingly.
Businesses must implement systems to ensure that transactions are recorded under the correct registration. Centralized accounting systems must capture the location of service provision and match it with the correct GSTIN. Errors in this process can result in wrong tax payments, difficulty in reconciling GSTR-2B input credits, and potential audit queries.
In addition, multi-state businesses may face issues in distributing common input tax credits across registrations. Input Service Distributor (ISD) mechanisms can be used, but they have their compliance requirements. Proper documentation and internal policies are essential to ensure that the correct location of the supplier is recorded and reported in all compliance filings.
Conclusion
From the analysis above, it can be concluded that there is a lack of clarity in determining the location of the supplier in cases involving more than two parties or cross-border services. Though these cases are few, they create significant confusion and litigation risk. The root cause of most of the problems is the inability of the GST law to clearly differentiate between the ‘contractual supplier’ and the ‘actual supplier’ of services. The term ‘supplier’ is not well defined and creates ambiguity when it comes to multiple entities being involved in the provision of services, especially where the consideration is received by one entity but the actual service is provided by another.
Another layer of complication arises when there is a difference between the ‘location of the supplier’ and the ‘place of supply’, particularly in cases involving intermediary services, export of services, or back-end support services. This impacts the classification of the transaction as either intra-state or inter-state and affects the tax rate, registration requirements, and reporting obligations.
The government has attempted to bring some clarity through various circulars and advance rulings, but these are often conflicting or limited in applicability. Further, advance rulings are binding only on the applicant and the jurisdictional officer, leading to a lack of uniformity in interpretation across different states.
One possible way forward is for the GST Council to bring in a clear definition of the term ‘supplier’ in the context of services, especially in multi-party or cross-border transactions. Clarifying the basis for determining the location of the supplier in such cases, through either legislative amendment or comprehensive guidelines, would go a long way in reducing litigation and compliance costs.
Additionally, the government could consider issuing clarifications or detailed explanatory notes, perhaps with illustrative examples, similar to the OECD’s approach in international tax matters. These could cover common scenarios such as outsourcing, subcontracting and shared services to bring consistency in interpretation.
Training and sensitization of tax officers is also critical, as a large number of disputes arise due to varying interpretations by authorities. A central repository of rulings and interpretations could also help businesses and officers align their understanding.
Lastly, it is important for businesses to take proactive measures such as reviewing their contracts, clearly defining the scope of services and parties involved, and seeking advance rulings where possible. Proper documentation and a clear trail of the flow of consideration and services can also help substantiate the position taken in GST returns and audits.
While GST was intended to simplify the tax landscape, the issues related to the determination of the location of the supplier highlight the need for continuous evolution of the law to adapt to modern business models. As businesses become increasingly global and interconnected, a more nuanced and flexible approach to determining tax obligations is necessary. By addressing these practical issues and providing greater clarity, the government can enhance the ease of doing business and make GST truly a good and simple tax.