Under Indirect Tax laws, the taxable event plays a crucial role in determining levy of taxes such as Excise is applicable on manufacture of goods, Value Added Tax (VAT) is applicable on sale of goods, Service Tax is applicable on provision of service, etc. The advent of Goods and Services Tax (GST) will result in shift of these concepts learnt over the years and the taxable event would be ‘supply’ instead of manufacture/sale. Place of Supply Rules for goods and services will play a pivotal role in determining the place of supply – i.e. whether supply would be taxed based on the delivery of the goods, location of service recipient, location of service provider, location of property, based on place of performance, etc. Accordingly under GST, much awaited clarity is expected as to how the Place of Supply Rules would be and how the same will impact the transactions of the businesses apart from the GST Law itself. Recently, Finance Ministry had invited suggestions to sought views from the industry to determine the place of supply for five sectors which includes much debated e-commerce and banking services.

On 3^rd December 2015, the Model GST Law submitted by one of the sub-Committee of the Government to All the State Finance Ministers was made available on one of the State Commercial Tax Dept's webportal[1]and in this article we have analysed the impact of the Place of Supply under GST as per the Model GST Law. It is worthwhile to note that Place of supply of goods and services is specified in the Law itself and there are no separate Rules per sepublished on the same. However it is mentioned that in case that the place of supply cannot be determined as per the provisions (sub-sections) then the same shall be determined by the Parliament in the accordance in the recommendations of the Council.

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In case of transactions wherein place of supply cannot be determined as per sub-sections then approval of Parliament and Council would be required which in our view could be time-consuming and may delay in implementing the changes since it typically takes time to get approval from Parliament.

As place of supply is mentioned in the provisions, we have summarised below the place of supply of goods and services (based on Model GST law):

Place of Supply of goods

Sr. No.	Events	Place of Supply
1	Supply[2] involves movement of goods	Location of receiver
2	Supply does not involve movement of goods	Location at the time of delivery to receiver
3	Goods – Assembled or Installed	Place of such installation or assembly
4	Goods – supplied on board a conveyance	Location at which goods are taken on board
5	Where place cannot be determined	Place to be determined by law made by Parliament in accordance with recommendations of the council

The above shift from the current practice is to move from ‘Origin based tax’ to ‘Destination based tax’ and accordingly the place of supply is based on the place where receiver is located/goods are delivered. Accordingly for tangible goods the provisions are clear to determine the place of supply.

However issues would arise to determine to place of supply in case of intangibles such as software, copyrights, license, etc as to whether the taxability should be determined considering the said transactions as transfer of goods or supply of services.

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It is essential to specify/cover the place of supply for these transactions (considering the current business scenarios) and the same should mainly be based on the place where receiver is located based on International practice. However in case the rates of goods and services are different, then the current issue of classification would still continue under GST. Also an issue could arise to track electronic movement/transfers/downloads and whether the place of supply should be the location of receiver or the place where person accessing the contents is located.

Also another issue could be in case of ‘bill to-ship to’ transactions i.e. the receiver would be located in one state whereas person to whom goods are shipped would be located in another state and revenue of State Goods and Services Tax (SGST) would accrue to which state, i.e. the state where receiver is located or the state in which goods are delivered. These transactions which businesses typically execute (along with other transactions such as Sale in transit, High seas sales, Sale in the course of import) should be covered/clarified in the provisions to avoid ambiguity.

Further, it is not mentioned in the provisions wherein goods are sold by the supplier at its premises to the buyer and buyer arranges for transportation to another state. In such cases, the goods are consumed in another state, so whether the transaction should be subject to Intergrated Goods and Services Tax (IGST) or CGST and SGST.

Also an issue may arise in case of works contract executed at a location other than the location of service receiver on whether the place of supply should be based on location of service receiver or where the contract is executed. The same would also have revenue implications in terms of accrual of SGST to which state.

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To resolve the ambiguities and provide clarity to the businesses we expect that the Council should specify the place of supply for the above transactions and invite comments from the Industry before issuing the final GST Law.

Place of Supply of services

Sr. No.	Particulars	Place of Supply
1	General Rule: 1. Supply of services to a registered person 2. Supply of services to unregistered person	Location of Service receiver Location of Service provider
2	Services in relation to immovable property[3]	Location of Immovable property[4]
3	Performance based services[5]	Location where services are performed
4	Services by way of admission/ organising of events[6]	Place where event is held3
5	Transportation of goods, including by mail or courier: 1.

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Supply of services to a registered person

2. Supply of services to unregistered person

 

Location of Service receiver

Place where goods are handed over

6

Passenger transportation service[7]

Place where passenger embarks on conveyance for a continuous journey

7

Services provided on board a conveyance

First schedule point of departure of that conveyance for the journey

 

8

Telecommunication services including data transfer, broadcasting, cable and DTH service:

 

1. In case of fixed line/ circuit/ cable/ antenna

Location of fixed line/ circuit/ cable/ antenna

2. Mobile connection 

 

a. Post-paid basis 

Location of Service receiver on record of Service provider

b. Pre-paid basis 

Location where payment received/ vouchers sold[8]

9

Banking and other financial services including stock broking

Location of Service receiver on record of Service provider[9]

10

Insurance service:

1. Supply of services to a registered person

2. Supply of services to unregistered person

 

Location of Service receiver

Location of Service provider

11

Supply of advertisement service to Govt., Statutory bodies and local authorities in more than one state

As per terms of contract. In case there is no contract on a reasonable basis as may be prescribed.

It appears that majority of provisions of place of supply for services are borrowed from the current Place of Provision of Services Rules, 2012 which determines the place of provision of service under Service Tax regime;though there are deviations mainly to shift from ‘Origin based tax’ to ‘Destination based tax’. Specifying the place of supply in case of telecommunication services is welcome move since it covers services which telecom sector typically provides. However it is not clear whether the place of supply in case of B2B transactions (between telecom players) would be based on location of service receiver or otherwise.

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Also there are certain value added services provided by telecom players such as ring-tones downloads, setting caller tunes, mobile wallet services, etc on which there is no clarity in the current provisions. Further an issue could arise if the location of service receiver as per record is different then the location of the state in which the receiver is located. In such cases the revenue of SGST would accrue to the state receiver as per the record whereas the services are consumed at another state.

Shifting the place of supply of intermediary, online information, database access or retrieval services, from location of service provider to location of service receiver would provide much awaited relief to those service providers providing services to overseas entities as such transactions are currently subject to Service Tax and under GST the same may qualify as exports. However, the place of supply for Banking sector which is currently based on location of service provider would be shifted to located of service receiver which would lead to stringent KYC norms and increase State level compliances substantially.  Also in case any activities (such as repairs, maintenance) are performed on goods then as per the current provisions the place of supply is the place where services are performed, however under GST, the same may be based on location of service receiver and place of performance is not specified as criteria to determine the place of supply.

It appears that the Place of Supply has simplified the taxability in some of the transactions, however for few of the transactions as discussed above, it remains still ambiguous and it is very critical that same is considered while finalising the Law along with other business transactions not specified in the provisions. Clarity on the same is expected; otherwise the concept of ‘Ease of doing business in India’ would be a distant dream.

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Note : Aforesaid comments are based on the Model GST Law available in the public domain; there cannot be any assurance that the final GST Law would not contain any contrary provisions.