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Determination of Nature & Place of Supply

Scope of Supply – Section 7

  1. Section 7(1) of the CGST Act provides definition and scope of the term ‘Supply’. Accordingly the expression supply includes following;–
    1. All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
    2. Import of services for a consideration whether or not in the course or furtherance of business;
    3. The activities specified in Schedule I, made or agreed to be made without a consideration; and
    4. The activities to be treated as supply of goods or supply of services as referred to in Schedule II.
  2. All activities or transactions specified in Schedule III; or notified activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of services. (7(2)).
  3. Subject to provisions of sub-sections (1) and (2) of section 7, the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as–
    1. A supply of goods and not as a supply of services; or
    2. A supply of services and not as a supply of goods.

4.
SCHEDULE I

(Section 7)

Activities to be treated as supply even if made without consideration.

  1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
  2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
    Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
  3. Supply of goods –
    1. By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or
    2. By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
  4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

4.
SCHEDULE II

(Section 7)

Activities to be treated as supply of goods or supply of services

  1. Transfer
    1. Any transfer of the title in goods is a supply of goods.
    2. Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services,
    3. Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.
  2. Land and Building
    1. Any lease, tenancy, easement, licence to occupy land is a supply of services,
    2. Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
  3. Treatment or process
  4. Any treatment or process which is applied to another person’s goods is a supply of services.

  5. Transfer of business assets
    1. Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person,
    2. Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services,
    3. Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless–
      1. The business is transferred as a going concern to another person, or
      2. The business is carried on by a personal representative who is deemed to be a taxable person.
  6. Supply of services
    1. Renting of immovable property.
    2. Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

      Explanation– For the purpose of this clause–

      1. The expression “competent authority” means the Government or any authorised person to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely–
        1. An architect registered with the Council of Architecture constituted under the Architects Act, 1972 or
        2. A chartered engineer registered with the Institution of Engineers (India) or
        3. A licensed surveyor of the respective local body of the city or town or village or development or planning authority.
      2. The expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure.
    3. Temporary transfer or permitting the use or enjoyment of any intellectual property right,
    4. Development, design, programming, customisation, adaption, upgradation, enhancement, implementation of information technology software,
    5. Agreeing to the obligation to refrain from an act, or to tolerance an act or a situation, or to do an act, and
    6. Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
  7. Composite supply

    The following composite supplies shall be treated as a supply of services, namely –

    1. Works contract as defined in clause (119) of section 2, and
    2. Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
  8. Supply of Goods

    The following shall be treated as supply of goods, namely –

    Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

5.
SCHEDULE III

(Section 7)

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

  1. Services by an employee to the employer in the course of or in relation to his employment.
  2. Services by any court or Tribunal established under any law for the time being in force.
    1. The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
    2. The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
    3. The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
  3. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
  4. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
  5. Actionable claims, other than lottery, betting and gambling.

    Explanation.– For the purposes of paragraph 2, the term “court” includes District Court, High Court and Supreme Court.

Intrastate Supply or Interstate Supply – (Sections 7 to 9 of IGST Act)

Interstate Supply – (Section 7 of The IGST Act)

  1. Following supply of Goods or Services is treated as inter-State Supply of Goods or Services or both;
    1. Supply of goods or services, where the location of the supplier and the place of supply are in––
      1. Two different States;
      2. Two different Union territories; or
      3. A State and a Union territory,
    2. Supply of goods or services imported into the territory of India, till they cross the customs frontiers of India,
    3. Supply of goods or services or both,––
      1. When the supplier is located in India and the place of supply is outside India;
      2. To or by a Special Economic Zone developer or a Special Economic Zone unit; or
      3. In the taxable territory, not being an intra-State supply and not covered elsewhere in this section,

Intrastate Supply – (Section 8 of the IGST Act)

  1. Section 8 of the IGST Act provides when as supply is to be treated intrastate.

    Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intrastate supply:

  2. However the following supply of goods is not treated as intrastate supply, namely:––
    1. Supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;
    2. Goods imported into the territory of India till they cross the customs frontiers of India; or
    3. Supplies made to a tourist referred to in section 15.
  3. Supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intrastate supply:
  4. However, the intrastate supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.
  5. For the purposes of this Act, where a person has,––
    1. An establishment in India and any other establishment outside India;
    2. An establishment in a State or Union territory and any other establishment outside that State or Union territory; or
    3. An establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory,

    then such establishments shall be treated as establishments of distinct persons. (Expl.1).

  6. A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory (Expl. 2)

Supplies in Territorial Waters – (Section 9 of The IGST Act)

  1. As per section 9;–
    1. Where the location of the supplier is in the territorial waters, the location of such supplier; or
    2. Where the place of supply is in the territorial waters, the place of supply,
  2. shall, for the purposes of this Act, be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

    In both the cases mentioned above, the Location of supplier or place of supply as the case may be will be the Coastal State or Union territory where the nearest point of appropriate base line is located. The tax applicable will be determined as per conditions laid down in Sections 7 and 8 of the IGST Act.

Determination of Place of Supply – (Section 10 of the IGST Act)

In respect of supply of goods, other than goods imported into India or exported out of India in order to determine the place of supply there are five rules. Those are as under:–

Type of Supply/ Nature of Transaction “POS” of Goods
(2) Supply involves movement of goods Location of goods at the time of termination of goods for delivery
(3) Goods supplied on direction of a 3rd 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, 3rd person deemed to be recipient and POS is POB of 3rd Person. (This is common in Bill to Ship to transactions. As per this section, there will be two separate transaction first being between supplier and 3rd person and 3rd person and final buyer.
(4) Supply does not involve movement of goods Location of goods at the time of delivery to the recipient
(5) Goods to be assembled or installed at site Place of such installation or assembly
(6) Goods supplied on board conveyance i.e aircraft, train, or a motor vehicle Place where goods are brought on board
(7) None of the above Shall be determined in a manner prescribed by CG on recommendation of the GST Council. So far no such notification is issued.

Place of Supply of Service other than services imported into India or exported out of India – (S. 12 of the IGST Act)

Sr. No Services Place of supply of services
1 General Rule B2B supplies: location of recipient

B2C supplies: location of recipient where address on record exists,

If not, then the location of supplier of services

Specific Rules for identified situations & different treatment for certain B2B and B2C of specified services
1. Immovable property related services Location of immovable property

Where property /vessel located in more than one State – proportionate allocation of consideration amongst States as per the contract or reasonable basis

2. Performance based services Place of actual performance --> Specific services covered such as supply of restaurant and catering services, health services etc.– place of performance.

Services in relation to training and performance appraisal–

B2B supply : location of recipient

B2C supply : place of performance

3. Event based services. Cultural event, social, religious event. Admission and ancillary services:–

Place where event held or where the park / other place is located

Organisation of event and services in relation to such event and ancillary services or assigning of sponsorship:

B2B supply : location of recipient

B2C supply : where event is held

Proportionate value of services to be considered where the event is held in more than one State and a Consolidated amount is charged

4. Goods transportation services B2B supply : location of recipient

B2C supply : location at which such goods are handed over for their transportation

5. Passenger transportation services B2B supply: location of recipient

B2C supply: Place where the passenger embarks on the conveyance for a continuous journey

6. Services on board a conveyance Location of the first scheduled point of departure of that conveyance for the journey
7. Supply of telecommunication services including data transfer, broadcasting, cable and direct to home television services- Location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services.
a. Services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna; Location of billing address of the recipient of services on record of the supplier of services.
b. Mobile connection for telecommunication and internet services provided on post-paid basis; Location where such pre-payment is received or such vouchers are sold.
c. Mobile connection for telecommunication and internet services are provided on pre-payment through a voucher or any Other means. Provided that if such pre-paid service is availed or the recharge is made through internal banking or other electronic mode of payment, the location of the recipient of services on record of the supplier of services shall be the place of supply of such service.
8. Supply of banking and other financial services including stock broking services. Location of the recipient of services on the records of the supplier of services.

Provided that if the service is not linked to the account of the recipient of services, the place of supply shall be location of the supplier of services.

9. Supply of insurance services Location of recipient of services where recipient is registered person; or location of recipient of services in the records of the supplier of services.
10 Supply of advertisement services to the Central Government, a State Government, a Statutory body or a local authority meant for identifiable States. Place of supply shall be taken as located in each of such States.

Location of Recipient/Supplier of Services

The expressions ‘location of supplier of services’ and ‘location of recipient of services’ have been defined in IGST Act. But the said Act is silent on “location of supplier of goods” .

As per the section 2(14) of IGST Act the location of recipient of services means:–

  1. Registered place of business where supply is received by the recipient of service.
  2. Fixed establishment other than the registered place of business where recipient has received the supply.
  3. Where recipient is having more than one establishment, the place of business which is directly connected with the receipt of supply.
  4. If recipient has no place of business stated in above 3 clauses, then the place of residence of recipient would be location of recipient of services.

As per section 2 (15) of IGST Act, the location of supplier of the service means:–

  1. Whereas supply is made from a place of business for which the registration has been obtained, the location of such place of business;
  2. Where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
  3. Whereas supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concern with provision of supply; and
  4. In absence of such places, the location of usual place of residence of the supplier.

As per sec. 2 (93) of CGST Act “recipient” of supply of goods or services or both means:–

  1. Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay the consideration ;
  2. Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of goods is given or made available; and
  3. Where no consideration is payable for the supply of service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.
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