JANUARY 30, 2017

By Mohammad Salim, CA

UNDER Revised Model GST Law as issued in November, 2016 the determination of place of supply of service is of critical importance as the place of supply of service together with the location of supplier of service determines whether the supply is inter state in which case IGST would be levied or intra state in which case CGST and SGST both will be applicable. Further, the location of supplier and place of supply of service would also determine the taxability of supply of service, like export of services is regarded as zero rated/exempt supply under Model GST Law subject to fulfillment of certain conditions.

Under the revised Model GST Law the determination of "place of supply of services" is governed by Section 9 of IGST Act in cases where the location of supplier of service and location of recipient of service is in India and Section 10 of IGST Act where the location of supplier or the location of recipient is outside India.

a) Where the location of supplier of service and location of recipient of service is in India

In cases where the location of supplier as well as recipient of service is in India the determination of place of supply of services will be made as per Section 9 of IGST Act.

Section 9(13) of the IGST Act mandates about the determination of place of supply of banking and other financial services and reads as under:-

The place of supply of banking and other financial services including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services:

Provided that if the location of the recipient of services is not on the records of the supplier, the place of supply shall be location of the supplier of services.

b) Where the location of supplier of service or the location of recipient of service is outside India

In situations where the location of supplier OR the location of recipient is outside India the determination of place of supply of services will be made as per Sec 10 of IGST Act.

In this regard Section 10(8) of IGST Act inter alia mandates that the place of supply in respect of services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders; shall be the location of the supplier of service.

As the above covers only the services provided to account holders the services provided to non account holders shall be governed by Section 10(2) of IGST Act which is default section and according to which the place of supply of services shall be location of recipient of service OR the location of supplier of service where the location of recipient of service is not available in the ordinary course of business.

The definition of term "account" has till now not been given in the GST Model Law. However it is felt that the term "account" may be defined on the lines of the definition given currently under Rule 2(b) of Place of Provision of Service Rules, 2012 which has been reproduced below:-

"account" means an account bearing interest to the depositor, and includes a non-resident external account and non-resident ordinary account.

Now let us compare the above position with the existing law wherein Rule 9 of the Place of Provision of Service Rules, 2012 is relevant which inter alia mandates that the place of provision of services provided by Banking Company or a financial institution, or a non-banking financial company, to account holders shall be the location of the service provider.

In regard to the services provided by above entities to persons other than account holders the determination of place of provision of services would generally be governed by Rule 3 (Default Rule) of Place of Provision of Service Rules, 2012 which states that the place of provision of service is the location of the service recipient. However in cases where the location of service receiver is not available in ordinary course of business, the place of provision shall be the location of provider of service.

Now in order to have better understanding and to appreciate the difference between the prevailing law and Revised GST Model Law in regard to the principles governing the determination of the place of provision/supply of banking and other financial services the comparative position is illustrated as under:-

* Location of provider/supplier of service where location of service receiver is not available in the ordinary course of business.

** Location of supplier of service where location of recipient of service is not on the records of the supplier.

From the above table it is evident that the rule regarding determining the place of provision/supply of services has been reversed in regard to the banking and other financial services provided to account holders in case the location of supplier as well as recipient of service is in India. Therefore in such cases where the banking and other financial services which are at present non-taxable as the place of provision is outside taxable territory may become taxable under GST regime and similarly such services which are currently taxable may be rendered non taxable/zero rated/exempt under the GST era. However the determination principles are identical in cases where the location of supplier of service or the location of recipient of service are located outside India.

Interesting days ahead!