Feb 162017
 

Significance of place of supply in IGST taxation

IGST stands for Integrated Goods and Service Tax. Supplies where location of supplier and place of supply are in different taxing state will come under the levy of IGST. Thus, determination of correct place of supply plays vital role to ensure that IGST is correctly levied and thereby correctly apportioned to consumer state.

The basic principle of GST is that it should effectively tax the consumption of above supplies at the destination thereof or as the case may at the point of consumption. In simple words tax should reach in the state where goods and / or services are actually consumed. So place of supply provision determine the place i.e. taxable jurisdiction where the tax should reach.

For instance, in the case of organization of IPL events, place of consumption is each of those states where IPL matches are actually organized. Hence, under the doctrine of taxing at the point of consumption the tax shall be received by all those states where IPL matches are organized.

Goods being tangible do not pose any significant problems for determination of their place of consumption as there is clearly identified movement of goods from origin state to destination states evident by transport documents which can be hardly manipulated subsequently. Hence, following simple rules are made with respect to determination of place of supply in case of movement of goods:

Place of supply of goods

  1. Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
  2. Where the goods are delivered by the supplier to a recipient or any other person, on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.
  3. Where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient.
  4. Where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly.
  5. Where the goods are supplied on board a conveyance, such as a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.
  6. Where the place of supply of goods cannot be determined in terms of sub-section (2), (3), (4) and (5), the same shall be determined by law made by the Parliament in accordance with the recommendation of the Council.

From the above it is evident that in case of supply of goods by physical movement place of supply could be one of the following:

  1. Location of goods at the time at which movement of goods terminates for delivery to the recipient
  2. Principle place of the third person on whose direction goods are delivered

In cases where there is no physical movement of goods the place of supply shall be the location of goods at the time of delivery of goods to the recipient.

In the case of goods assembled or installed at site, the place of supply shall be the place of such installation or assembly.

Finally, where the goods are supplied on board a conveyance, the place of supply shall be the location at which such goods are taken on board.

Apportionment of tax collected as IGST between central government and state government

IGST as we know is levied on every interstate supply of goods which is equal to CGST and SGST paid under normal transaction of intra state supplies. In case recipient is also a taxable person and eligible for input tax credit he will utilized IGST paid on input supply for paying his tax liability on outward supply.

However, in case any balance exist in IGST account even after utilization or recipient is unregistered dealer or not eligible for input tax credit, the balance outstanding in IGST account shall stand apportioned between central government and state government as provided under section 10. Thus, ultimately the consumer state will be the state that will enjoy the tax component in intra state supply.

The relevant portion of section is reproduced below to understand to principles of apportionment of IGST:

Section10. Apportionment of tax collected under the Act and settlement of funds

 (1) Out of the IGST paid to the Central Government in respect of inter-State supply of goods and/or services to an unregistered person or to a taxable person paying tax under section 8 of the CGST Act, the amount of tax calculated at the rate equivalent to the CGST on similar intra-state supply shall be apportioned to the Central Government.

(5) The balance amount of tax remaining in the IGST account in respect of the supply for which an apportionment to the Central Government has been done under sub-section (1), (2) or (3) shall be apportioned, in the manner and time as may be prescribed, to the State where such supply takes place as per section9 5 or 6.

Sensys