Comprehending Nuances of New Place of Supply Provision for B2C Supplies Brought by IGST Amendment Act, 2023

Jigar Doshi & Sunil Kumar – [2023] 154 taxmann.com 162 (Article)

1. Introduction

Under the GST framework, determining the place of supply(POS) is pivotal in categorizing transactions as intra-state or inter-state supplies and eventually dictating the applicable tax (CGST and SGST or IGST). While the IGST Act’s Section 10 outlines the POS for goods, confusion persisted, particularly in ex-work and Over-the-counter (OTC) sales involving buyers from different states than the supplier. The contentious question was whether such transactions constitute intra-state or inter-state supplies. The IGST Act has recently been amended to include a new clause relating to POS of goods for unregistered persons to address this issue. This article delves into the ex-work and OTC POS issues and assesses whether the Amendment Act 2023 brought a new provision of POS to resolve this issue effectively.

2. Relevant Legal Provisions (Prior to Amendment Act, 2023)

In ex-factory supplies, the supplier hands over the goods to the recipient at the factory gate. The title of goods also gets transferred at the time goods are handed over at the factory gate. Similar to ex-work sales, over-the-counter (OTC) sales involve the transfer of title at the point of sale.

Additionally, in the case of FOR destination sales, the supplier assumes the responsibility of transporting goods to the buyer’s location. Consequently, the title of the goods transfers when the goods reach such location, effectively completing the sales process on the buyer’s premises.

As per Section 10(1)(a) of the IGST Act, where the supply involves the physical movement of goods, the POS would be the place where the movement of goods terminates (ends) for delivery to the recipient. Conversely, in scenarios where the supply doesn’t entail the movement of goods, whether by the supplier, or the recipient, or any other person, the POS, as per Section 10(1) (c), would be the location of such goods at the time of the delivery to the recipient.

As per the above provisions, two viewpoints emerged regarding the ex-work/OTC supplies made to a buyer located in another state. One argued that since title transfer occurs at the factory gate and the supplier’s risk ends there, the supply completes at the factory gate. The supplier location and POS are in the same State, so the transaction should be treated as an intra-state supply.

Another viewpoint provides that since the law specifically provides that goods can be delivered by the supplier or recipient or any other person, one would need to see the ultimate place where the goods are destined. In the case of ex-factory inter-state sales, the movement of goods may terminate inanother State; therefore, the transaction may be referred to as an inter-state supply.

In this regard, the Telangana AAR, in the matter of Penna Cement Industries Ltd., In re [2020] 116 taxmann.com 876/2020 (37) G.S.T.L. 463/[2021] 84 GST 166 noted that the movement can be affected by the supplier or by any other person authorized by the recipient. It ruled that, in these cases, the POS has to be determined with reference to the location where the movement of goods ultimately terminated. The AAR held that the transaction would qualify as an inter-state supply.

The Hon’ble Kerala High Court Kun Motor Co. (P.) Ltd. v. Asstt. State Tax Officer, Thiruvananthapuram [2018] 100 taxmann.com 154/2018 (19) G.S.T.L. 395 also dealt with a case where ownership of goods was transferred at the seller’s premises, and the contract of supply did not include further movement of goods. The Court held that the pivotal factor for establishing the POS is the terms of the sale agreement itself. In this specific case, as the terms of the agreement did not entail any provision for additional movement of the goods, the transaction was terminated in the same State, and hence it was an intra-state supply.

Considering the divergent practice of interpretations, the Law Committee has also placed the given issue before the GST Council for deliberation. Adraft Circular was also placed before the GST Council as per which the expression’ movement of goods terminates’ under Section 10 (1)(a) was suggested to be read as the place where the movement of goods terminates when the goods reach the place of registration or to the address that has been declared in the tax invoice. The draft circular further clarified that where the supply is made to an unregistered person and where the recipient address is not available on record, the supplier should charge CGST and SGST.

Disagreement among States relating to the above interpretation led the GST Council to refer the matter back to the Law Committee, ultimately resulting in legislative amendments.

Click Here To Read The Full Article