Model GST Law – inter-State transactions

Presented by Samir Kapadia

BOMBAY CHARTERED ACCOUNTANTS SOCIETY

© Samir Kapadia

Synopsis

» Current law

» Model GST Law

» Important concepts

» Place of supply

» Illustrations

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Present scheme for taxation of inter-State sale of goods and provision of services

Goods:

» Centre levies CST on inter-State sale

» Tax is levied when sale is occasions inter-State movement of goods or where the sale of goods is effected by transfer of documents of title during the inter-State movement of goods

» Central Levy but collected & retained by originating State

» States levy tax on entry of goods into a local area for consumption, use or sale therein

» Some %age of retention is mandated where goods are transferred outside the State otherwise than by way of sale

» Declaration forms are issued of inter-state movement of goods and concessional rate of tax

» Verifications at Border Check posts

» VAT, ED and ST credit not fungible

» ITC of CST / Entry Tax not allowed to buying dealer

Services:

» Centre levies Service tax on provision of services across India

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Model GST Law

» An Integrated Goods and Services Tax (‘IGST’) shall be levied in respect of supply of goods and/or services in the course of inter-State trade or commerce (i.e. from one State to another)

» Inter-State supply of goods and/or services means any supply where the location of the supplier and the place of supply are in different States

» Intra-State supply of goods and/or services means any supply where the location of the supplier and the place of supply are in the same States

» A supply of goods and/or services in the course of import into the territory of India shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce

» An export of goods and/or services shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce

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Important definitions under the Model GST Law

» India means -

(a) the territory of the Union as referred to in clauses (2) and (3) of Article 1 of the Constitution;(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the

Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of1976);

(c) the seabed and the subsoil underlying the territorial waters;(d) the air space above its territory and territorial waters; and(e) the installations, structures and vessels located in the continental shelf of India and the exclusive economic

zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas andsupply thereof;

» Appropriate State in relation to a taxable person, means that State where he is registered or liable to be registered under section 19 of the Central Goods and Services Tax Act, 2016

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Important definitions under the Model GST Law

» Export of goods with its grammatical variations and cognate expressions, means taking out of India to a place outside India;

» Deemed exports as notified by the Central Government/State Government on the recommendation of the Council, refer to those transactions in which the goods supplied do not leave India, and payment for such supplies is received either in Indian Rupees or in convertible foreign exchange

» Import of goods with its grammatical variations and cognate expressions, means bringing into India from a place outside India

» Export of Service: the supply of any service shall be treated as “export of service” when:(a) the supplier of service is located in India,(b) the recipient of service is located outside India,(c) the place of supply of service is outside India,(d) the payment for such service has been received by the supplier of service in convertible foreign exchange,

and(e) the supplier of service and recipient of service are not merely establishments of a distinct person;

Explanation: For the purposes of clause (e), an establishment of a person in India and any of his otherestablishment outside India shall be treated as establishments of distinct persons.

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Important definitions under the Model GST Law

» Import of Service: the supply of any service shall be treated as an “import of service” if,

(a) the supplier of service is located outside India,(b) the recipient of service is located in India,(c) the place of supply of service is in India, and(d) the supplier of service and the recipient of service are not merely establishments of a distinct person;

Explanation 1: An establishment of a person in India and any of his other establishment outside India shall betreated as establishments of distinct persons.

Explanation 2: A person carrying on a business through a branch or agency or representational office in anyterritory shall be treated as having an establishment in that territory.

» Location of supplier of service means:

(i) where a supply is made from a place of business for which registration has been obtained, the location ofsuch place of business;

(ii) where a supply is made from a place other than the place of business for which registration has beenobtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;

(iii) where a supply is made from more than one establishment, whether the place of business or fixedestablishment, the location of the establishment most directly concerned with the provision of the supply;and

(iv) in absence of such places, the location of the usual place of residence of the supplier;

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Important definitions under the Model GST Law

» Location of recipient of service means:

(i) where a supply is received at a place of business for which registration has been obtained, the location of such place of business;

(ii) where a supply is received at a place other than the place of business for which registration has beenobtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;

(iii) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and

(iv) in absence of such places, the location of the usual place of residence of the recipient;

» Fixed establishment means a place (other than the place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs;

» Place of business includes

(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any otherplace where a taxable person stores his goods, provides or receives goods and/or services; or

(b) a place where a taxable person maintains his books of account; or(c) a place where a taxable person is engaged in business through an agent, by whatever name called

» Principal place of business means the place of business specified as the principal place of business in the certificate of registration where the taxable person keeps and maintains the accounts and records as specified under section 42

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Place of supply of goods and services

» IGST is payable in case of inter-state trade or commerce and CGST and SGST is payable in case of intra-state supply of goods and services

» Whether the goods and/or services are supplied inter-State or intra-State has to be determined as per the place of supply as specified under section 5 (in case of goods) and section 6 (in case of services) of the Model IGST Law

» The basic principle behind provisions relating to place of supply is that GST is destination based tax. Thus, tax is finally payable where goods and services are consumed

» Determination of the destination is relatively easy in case of goods, but not so easy in case of services. Typically the place of supply of services is determined on the basis of the location where:

• Service receiver is registered; or

• Service receivers billing address; or

• Immovable property is located; or

• Services are performed; or

• Other similar indexes

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Inter-State supply of goods – important concepts

» Location of supplier – refers to the site or premises (geographical point) where the supplier is situated, with thegoods in his control, ready to be supplied;

» Place of supply of goods – refers to the place where the delivery takes place

» Delivery would be the place where the supplier passes control over the goods supplied. Thus, whethermovement of goods is involved or not, the important aspect to be understood is that the place of supply will bedetermined based on the site or premises (geographic location) where the ‘delivery’ is complete for each supply

» The place where the control passes from the supplier to the recipient is vital for determining the place of supply

» If goods have to be transported to properly complete the supply, then the place where ‘movement terminates’ is said to beits place of supply

» If goods do not have to be transported, then the place where they are ‘delivered’ or ‘made available’ to the recipient isprovided to be its place of supply

» If the place from where the supply originates and the place of supply (as determined under thisSection) are not in the same State, then it is a supply covered by IGST Act

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Pla

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Goods

Movement of goods involved

General ruleLocation where the movement of goods

terminates

Movement of goods at the instance of a third party

Principal POB of the third party

Movement of goods not involved

Location of the goods at the time of the delivery

Installation or assembly at site

Place of installation or assembly

Supplied on board a conveyance

Location where the goods are taken on board

Cannot be determinedAs per law made by the

Parliament in accordance the GSTC recommendation

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Services

In relation to immovable property, accommodation

and ancillary services

Location of the immovable property or vessel

If vessel is located at more than one location either

proportionate or reasonable basis

Personal servicesPlace where the services

are actually performed

Training and performance appraisal

B2B: Location of the registered person

B2C: Location where the services are performed

Admission to event or amusement park

Location where the event is held or where the park is

located

Organizing an event and ancillary services

B2B: Location of the registered person

B2C: Location where the event is held

Where event is held in more than one State either

proportionate or reasonable basis

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Services

Transportation of goods, including by

mail or courier

B2B: Location of the registered person

B2C: Location where the goods are handed

over for transportation

Transportation of passengers

B2B: Location of the registered person

B2C: Location of passenger when he

embarks

Right of passage for future use

B2B: location of registered person

B2C: Billing address or location of the service providerServices on board a

conveyance

Location of the first scheduled point of

departure

Telecommunication services

Fixed line:Location where the

line is installed

Post paid Billing address

Pre paidLocation where the prepaid voucher is

sold

Pre paid sold through internet

Billing address

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Pla

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Services

Banking and other financial services including stock

broking

Linked to accountLocation of recipient

on records of supplier

Not linked to accountLocation of service

provider

Insurance

B2B: Location of the registered person

B2C: Address of the recipient on record

AdvertisementGovernment, Local

authorityLocation in each

StateProportionate or reasonable basis

Residuary rule

B2B: Location of the registered person

B2C

Address of the recipient on record

Location of the service provider

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Illustrations

» Inter-State Sales

» High Seas Sale

» Bill to Ship to

» Inter-State Works Contract

» Chartered Accountants Service

© Samir Kapadia

Thank youEmail: Samir.kapadia@voxlaw.in

© Samir Kapadia