FEBRUARY 23, 2018

By Padmasri Manyam, CA

CASES involving two parties in a transaction, where one is the supplier and another is the recipient of goods is a cliché. Similarly, in cases involving tripartite arrangements, the transaction in the nature of 'bill to-ship to' is a cliché.

Typical example being that, 'A' directs 'B' to deliver the goods to 'C' who is the customer of 'A'. In such cases, the consideration is paid by A to B and subsequently collected from C along with his profit margin, if any.

The tax treatment / taxability of such transactionisra ther new under GST regime as compared to the earlier indirect tax regime. This is one of the hot topic of discussion in most of the forums. We have some clarity with respect to the taxability of 'bill to - ship to' transactions, yet there are lot of confusions. This article is intended to discuss few of such confusions.

Determination of place of supply for certain 'Bill to - Ship to' transactions:

Transaction-1

Customer (A) located in Karnataka, places purchase order for procurement of goods on Supplier (B) located in Tamilnadu and request him to deliver goods directly at Chennai port for export. 'A' does not have registration in the state of Tamil Nadu.

Place of supply for the Supply between B to A:

Let us examine the applicability of Section 10(1)(b) in this case to determine the place of supply:

In term of the said section, where the goods are delivered to the recipient or any other person on the direction of third party, the place of supply of such goods shall be the principal place of business of third party. Hence, the place of supply of the said transaction shall be the location of A (who has directed to supply goods at different location) i.e. Karnataka. Accordingly, B shall charge IGST.

However, the ambiguity in this transaction is that the goods are delivered at port for further export to be done by A. There is no 'ship to' party involved in this transaction, the goods are just delivered at different address as per the directions of 'A'.

Can we still apply Section 10(1)(b) to determine the place of supply or it will fall under Section 10(1)(a) i.e. the place of supply shall be the location of goods at the time at which the movement of goods terminated for delivery to the recipient.

If we apply Section 10(1)(a),since the goods terminates for delivery at Chennai port, Tamil Nadu and the supplier is also situated in Tamil Nadu, the supplier shall charge CGST and SGST.

Such cases, the recipient of supply (A) located in Karnataka cannot avail Input tax credit of CGST and SGST of Tamil Nadu state.

The above said transaction is very regular practice followed by industry to minimize the transportation cost. However, the law is not very clear with respect to the determination of place of supply.

There are certain instances where the refund application filed by the recipient is kept on hold due the above reason (i.e. the supplier has charged IGST instead of CGST and SGST), which is not at all the fault of the recipient and it is due to the lack of clarity under GST Law.

Transaction-2

Recipient (A) located outside India, places purchase order for procurement of goods on Supplier (B) located in Tamilnadu and request him to deliver goods directly to his Customer (C) located in Karnataka.

1. Whether the supply of goods by B to C on the direction of A amounts to export of goods?

Export of goods means taking goods out of India to a place outside India , in terms of Section 2(5) of IGST Act.

In the above transaction, goods are not moving outside India, hence, the transaction fail to become export of goods. The place of supply shall not be determined as per Section 11 (Place of supply of goods imported into, or exported from India) of IGST Act.

Therefore, the place of supply of goods can be determined as per Section 10 (Place of supply of goods other than imported into, or exported from India) of IGST Act. As per Section 10(1)(b), the place of supply of goods by B to C on the direction of A shall be the principal place of business of 'A'.

The principal place of business is defined under Section 2(89) as the place of business specified as a principal place of business in the certificate of registration.

In the present case, 'A' is located outside India and the GST law cannot be applied to a person outside India. 'A' is not registered person under GST Law. Hence, there is no the principal place of business of 'A'. Therefore, one view is that Section 10(1)(b) cannot be applied for the current transaction.

Another view is that the said Section shall not be restricted only to the registered person in India. It shall be applied even in case where the Bill to party is located outside India.

In case, if we apply Section 10(1)(b) even for the person outside India, the place of supply in the present case shall be the location of 'A' i.e. outside India. As per Section 7(5) of IGST Act, supply of goods when the supplier is located in India and the place of supply is outside India, shall be treated as inter-state supply. Therefore, supply of goods by 'B' shall be treated as inter-state supply and IGST is leviable.

Further, Section 10(1)(b) also provides the deeming fiction that, it shall be deemed that the said third person has received the goods. Hence, it shall be deemed that 'A' has received the goods.

Now the ambiguity is whether we can apply the deeming fiction to qualify the transaction as export of goods?

If the answer to the above question is yes, the transaction becomes export of goods and we shall go back to Section 11 to determine the place of supply of goods. This is creating a vicious circle i.e. first we rely on Section 11 to determine the place of supply, since it is not export of goods, we will refer Section 10(1)(b) and based on that provision again we will come back to Section 11.

There are many ambiguities with respect to this transaction. Government shall provide clarifications with respect to the determination of place of supply for the said transaction.

2. Whether the transaction between 'A' to 'C' shall be considered as import of goods or import of service or nota supply?

Import of goods means bringing goods into India from a place outside India, in terms of Section 2(10) of IGST Act.

In this case, 'A' is located outside India and the consideration for the supply is paid by 'C' in foreign currency. The goods are delivered by 'B' in India to 'C' in India on behalf of 'A', outside India.

In the said transaction, goods are moving within India. The goods are not moving into India from a place outside India. Hence, the transaction is not import of goods. No need to file Bill of entry and pay custom duty as per Section 12 of Customs Act, 1962.

When the supplier outside India (A) issue invoice on Customer in India (C), what type of tax to be paid by 'C'?

Will it be considered as import of service?

The following parameters to be prescribed under laws to levy tax or to enter the concept of tax:

1. Taxable event

2. Indication of the person on whom the levy is imposed and who is obliged to pay tax

3. Rate of tax

4. Value to which the rate will be applied

In the above said transaction, there is no provision under law to qualify said supply as supply of goods or supply of service, to adopt the appropriate rate of tax . There is no provision under law to determine the place of supply as well.

Hence, one of the parameter to be prescribed under law to enter the concept of tax has not been prescribed under Law.

On this ground, a view can be taken that the transaction is not subjected to tax.

In the above legal scenarios, it remains to be seen whether Government comes up with principles to determine the place of supply for said transactions. In absence of such provisions, the place of supply in the above situations may remain unanswered and be open to scrutiny and litigation.

Therefore, one hopes that the Government provides clarity with respect to the place of supply and other issues through circulars or notifications to avoid confusion.

The taxpayers would be grateful if these are issued at the earliest.

(The author is an Associate with Lakshmikumaran & Sridharan, Bangalore and the views expressed are strictly personal.)