Index - Circular

Determination of Nature & Place of Supply

'Supply' under the GST Act is an inclusive definition with very wide connotations and implications. It encompasses practically every feasible activity to be a 'supply' and thus, covered by the provisions of the GST law.

The GST Law artificially bifurcates supply into "supply of goods" and: "supply of services" for better determination of nature and timing of supply.

However, certain activities/transactions are treated neither as supply of goods nor supply of services. At the same time, some activities which are supplies without consideration have been roped in as 'supply'. Additionally, Specific activities/transactions have been carved out in order to avoid the litigation and have been treated specifically as either 'supply of goods' or as 'supply of services'.

The concept of 'place of supply' is one of the element/test which is relevant to determine the transaction to be intra-state [with in the state] or inter-state [between two states/UT]. The other being the 'location of supplier'.

Any taxing law has to provide for the 'time'; that is the point of taxable event when the transaction is to be taxed. Thus, principles of determining the 'time of supply' is important. The tax is to be levied on the 'value' of the transaction. Thus, the provisions/rules for 'valuation' is also provided.

The Central Goods and Services Tax (Amendment) Act, 2018 along with the Integrated Goods and Services Tax (Amendment) Act, 2018 and Goods and Services Tax (Compensation to States) Amendment Act, 2018 passed by the Parliament received the assent of the President on the 29th August 2018. The Government vide relevant notifications made applicable the provisions of the GST (Amendment) Act with effect from 1st February 2019.

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;—

(a) 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;

(b) Import of services for a consideration whether or not in the course or furtherance of business; [and]^[1]

[1A. Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]^[2]

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), [(1A)]^[3] 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—

(a) A supply of goods and not as a supply of services; or

(b) A supply of services and not as a supply of goods.

Till date no notification is issued in this respect.

SCHEDULE I

(See 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 —

a] By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or

b] 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 [person]^[4-6] from a related person or from any of his other establishments outside India, in the course or furtherance of business.

SCHEDULE II

(See Section 7)

ACTIVITIES [OR TRANSACTIONS]^[7] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. Transfer

a] Any transfer of the title in goods is a supply of goods.

b] Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services,

c] 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

a] Any lease, tenancy, easement, licence to occupy land is a supply of services,

b] 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

Any treatment or process which is applied to another person's goods is a supply of services.

4. Transfer of business assets

a] 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,

b] 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,

c] 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—

i] The business is transferred as a going concern to another person, or

ii] The business is carried on by a personal representative who is deemed to be a taxable person.

5. Supply of services

a] Renting of immovable property.

b] 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—

i] An architect registered with the Council of Architecture constituted under the Architects Act, 1972 or

ii] A chartered engineer registered with the Institution of Engineers (India) or

iii] 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.

c] Temporary transfer or permitting the use or enjoyment of any intellectual property right,

d] Development, design, programming, customisation, adaption, upgradation, enhancement, implementation of information technology software,

e] Agreeing to the obligation to refrain from an act, or to tolerance an act or a situation, or to do an act, and

f] 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.

6. Composite supply

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

a] Works contract as defined in clause (119) of section 2, and

b] 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.

7. 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.

SCHEDULE III

(See 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.

3. (a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) 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.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. Actionable claims, other than lottery, betting and gambling.

[7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.

8. (a) Supply of warehoused goods to any person before clearance for home consumption

(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.]^[8]

Explanation [1]^[9].— For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court.

[Explanation 2.— For the purposes of paragraph 8, the expression "warehoused goods" shall have the same meaning as assigned to it in the Customs Act, 1962.]^[10]

Though not part of Schedule III the Central Government notified grant of alcoholic liquor license by State Govt. as neither supply of goods nor supply of services. The entry is reproduced hereunder:

["Service by way of grant of alcoholic liquor license, against consideration in the form of license fee or application fee or by whatever name it is called" by the State Government, in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of service

Explanation. - This notification is being issued to implement the recommendation of the 26th Goods and Services Tax council meeting held on the 10th March, 2018 that no GST shall be leviable on licence fee and application fee, by whatever name it is called, payable for alcoholic liquor for human consumption.]^[11]

Inter-State 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;

I) Supply of goods or services, where the location of the supplier and the place of supply are in--

(a) Two different States;

(b) Two different Union territories; or

II) Supply of goods or services imported into the territory of India, till they cross the customs frontiers of India,

III) Supply of goods or services or both,--

(a) When the supplier is located in India and the place of supply is outside India;

(b) To or by a Special Economic Zone developer or a Special Economic Zone unit; or

Intra-State Supply - (Section 8 of the IGST Act)

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

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 intra-State supply:

2. However the following supply of goods is not treated as intra-State supply, namely:--

(i) Supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

(ii) Goods imported into the territory of India till they cross the customs frontiers of India; or

(iii) 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 intra-State supply.

4. However, the intra-State 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,--

(i) An establishment in India and any other establishment outside India;

(ii) An establishment in a State or Union territory and any other establishment outside that State or Union territory; or

(iii) An establishment in a State or Union territory and any other establishment 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:—

(a) Where the location of the supplier is in the territorial waters, the location of such supplier; or

(b) Where the place of supply is in the territorial waters, the place of supply,

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.

High Seas Sales

Circular No. 33/2017-Cus dated 1st August, 2017, has clarified in respect of high seas sale (HSS) of imported goods that IGST would be levied only once, at the time of customs clearance.

Supply of goods lying in customs bonded warehouse

The CBIC vide Circular No. 46/2017-Customs dated 24th November, 2017 had clarified the applicability on IGST on all supply transactions made prior to customs clearance. Please note, IGST was continued to be levied on clearance of said goods from customs.

However, effective from 1st April, 2018, vide Circular No. 3/1/2018-IGST, the CBIC had re-examined/re-evaluated such transactions and clarified that integrated tax shall only be levied and collected at the time of final clearance of the warehoused goods for home consumption. All in-bond supply transactions prior to April 2018 to still attract IGST.

Treatment of High Seas Sales and Supply of goods lying in custom bonded warehouse w.e.f. 01/02/2019

By inserting Para 8 in Schedule III, the legislation has ensured that there is no double taxation where supply of goods occur in high seas sales and sale of warehoused goods [goods in customs Bond] before clearance for home consumption. IGST would be payable only once at the time of clearance of goods for home consumption. The said treatment is to be applied w.e.f. 01/02/2019. Therefore, prior to the 01/02/2019, the earlier treatment as discussed above, would continue.

Determination of Place of Supply

Place of supply of goods other than goods imported into India or exported out of India (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
(1)	Supply involves movement of goods	Location of goods at the time of termination of goods for delivery
(2)	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 transactions first being between supplier and 3rd person and 3rd person and final buyer.
(3)	Supply does not involve movement of goods	Location of goods at the time of delivery to the recipient
(4)	Goods to be assembled or installed at site	Place of such installation or assembly
(5)	Goods supplied on board conveyance i.e., aircraft, train, or a motor vehicle	Place where goods are brought on board
(6)	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 goods imported into India or exported out of India (Section 11 of the IGST Act)

Type of Supply/Nature of Transaction		"POS" of Goods
(1)	Imported Into India	Location of Importer
(2)	Exported from India	Location outside India

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

B2B - Supply made to a registered person

B2C - Supply made to other than registered person

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 like services by architect, surveyors, accommodation in hotel, house boat, vessel, renting, organising functions etc.; any services ancillary to above.	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. However, in case where immovable property/vessel is located outside India, POS shall be the location of recipient.
2.	Performance based services	Place of actual performance --> Specific services covered such as supply of restaurant and catering services, health services, beauty treatment etc.— place of performance. However, for 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 - If event is held outside India, the POS - location of recipient 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 W.e.f. 01/02/2019 where transportation of goods is to a place outside India, Place of supply - place of destination of goods
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-
	a. Services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna	Location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services
	b. Mobile connection for telecommunication and internet services provided on postpaid basis	Location of billing address of the recipient of services on record of the supplier of services
	c. Mobile connection for telecommunication and internet services are provided on pre-payment through a voucher or any Other means	(i) through a selling agent or a re-seller or a distributor of subscriber identity module card or re-charge voucher - Location of address of the selling agent or re-seller or distributor as per the record of the supplier at the time of supply. (ii) by any person to the final subscriber - Location where such pre-payment is received or such vouchers are sold
	d. in other cases	The address of the recipient as per records of the supplier of services and where such address is not available, the place of supply shall be location of the supplier of services:
	Provided that where the address of the recipient as per the records of the supplier of services is not available, the place of supply shall be location of the supplier of services: Provided further that if such prepaid service is availed or the recharge is made through internet banking or other electronic mode of payment, the location of the recipient of services on the record of the supplier of services shall be the place of supply of such services.
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

Place of Supply of Service where Location of Supplier of Service OR Location of Recipient of Service is outside India - (S. 13 of the IGST Act)

Sr. No.	Services	Place of supply of services
1	General Rule	Place of supply shall be location of recipient of service If location of the recipient is not available - in the ordinary course of business, then the location of supplier of services
Specific Rules for identified situations
1.	Goods required to be made physically available by recipient to supplier/person acting on behalf of the supplier to provide service	Location where the services are actually performed If provided from a remote location by way of electronic means - place of supply is location where goods are situated at the time of supply of service If goods temporarily imported into India for repair [or treatment or process]^[12-14] and exported after such repairs without being put to any use in India, other than that which is required for such repairs or treatment or process - then place of supply as per general rule. If goods located at more than one location including taxable territory, place of supply to be taxable territory. Where goods located in more than one state/UT — place of supply to be in proportion to the value of services so provided in each state/UT or as per contract, if the contract so provides.
2.	Performance based services	Place of actual performance (other than 1 above) If services performed at more than one location including taxable territory, place of supply to be taxable territory. Where services performed in more than one state/UT — place of supply to be in proportion to the value of services so provided in each state/UT or as per contract, if the contract so provides.
3.	Immovable property related services like services by architect, surveyors, accommodation in hotel, house boat, vessel, renting, organising functions etc.; any services ancillary to above.	Location of immovable property If property located at more than one location including taxable territory, place of supply to be taxable territory. Where property located in more than one state/UT — place of supply to be in proportion to the value of services so provided in each state/UT or as per contract, if the contract so provides.
4.	Event based services, cultural event, social, religious event.	Admission and Organisation of event and services in relation to such event and ancillary services:— Place where event is actually held If event located at more than one location including taxable territory, place of supply to be taxable territory. Where event located in more than one state/UT — place of supply to be in proportion to the value of services so provided in each state/UT or as per contract, if the contract so provides.
5.	a) Banking company, or a financial institution, or a non-banking financial company, to account holders b) Intermediary Services c) Hiring of means of transport (including Yacht but excluding aircraft and vessel) for a period of one month	Location of supplier of services
6.	Goods transportation services other than by way of mail or courier	Place of destination of such goods
7.	Passenger transportation services	Place where the passenger embarks on the conveyance for a continuous journey
8.	Services on board a conveyance	Location of the first scheduled point of departure of that conveyance for the journey
9.	Online information and database access or retrieval services (OIDAR) - to be read with Sec. 13(12) and Sec. 14 of IGST Act, 2017	Location of recipient of services

In view of powers conferred by Sec. 13(13) of the IGST Act, 2017, the Central Government has notified the place of supply of services by a person located in taxable territory to a person located in the non-taxable territory to be location of the recipient of services in respect of the following:

1. [Research and Development related to pharmaceutical sector - Category of services covered under this entry as well as the conditions for the same are enumerated in Tables A & B of the said Notification]^[15]

2. [Supply of maintenance, repair or overhaul service in respect of aircrafts, aircraft engines and other aircraft components or parts supplied to a person for use in the course or furtherance of business.]^[16]

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 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:—

a) Whereas supply is made from a place of business for which the registration has been obtained, the location of such place of business;

b) 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;

c) 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

d) 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:—

a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay the consideration ;

b) 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

c) 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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