OCTOBER 08, 2018

By Pritam Mahure, CA

GST Act casts the onus of determining whether a transaction is an 'intra-State' or 'inter-State' on the assessee. Every GST payer needs to determine whether a transaction is 'intra-State' or 'inter-State' to enable him/her decide whether to pay Central GST (CGST)  plus  State GST (SGST) or Integrated GST (IGST).

In this regard, GST payer is required to refer to IGST Act (particularly section 7 to 13 of IGST Act).

Section 7 and 8 of IGST Act provides for separate provision for goods and services and specific provisions are provided for import of goods, import of services, supplies to / by SEZ developer or unit.

As per section 7 and 8, there are two key factors which help the GST payer determine the transaction as 'intra-State' or 'inter-State':

a.  Location of supplier and

b. Place of supply

Challenges in determining location of supplier

Insofar as 'location of supplier' is concerned, CGST Act/IGST Act defines 'location of supplier of service' [section 2 (71) of CGST Act] and 'location of recipient of service' [section 2 (70) of CGST Act] and 'supplier' [section 2 (105) of CGST Act].

In case of definition of 'location of supplier of service' challenges could arise as the clause leads to multiple interpretations. For eg. ABC, a consultancy firm has offices in Mumbai and Goa. ABC, Mumbai enters into agreement to provide services to its client say PQR in Ahmedabad. However, ABC, Goa provides support in execution of the assignment (say either by way of co-ordination or executing partly or executing fully). In this case, what is the 'location of the supplier'?

Further, as there is no specific definition there is open-endedness in understanding the meaning of the term 'location' of 'supplier of goods'.

Challenges in determining 'place of supply'

The term 'place of supply' is defined at section 2 (86) of CGST Act to mean place of supply as defined in Chapter V of IGST Act. Chapter V of IGST Act covers sections 10 to 14 of IGST Act and provides place of supply provisions for different scenarios of supply of goods and services. To determine place of supply, Section 10 of IGST Act provides for 5 scenarios, section 11 provides for 1 scenario, section 12 provides for 14 scenarios and section 13 provides for 12 scenarios. Thus, effectively in the three sections there are 32 provisions/ sub-clauses to determine 'place of supply' (based on nature of transaction).

The aforesaid multiple scenarios considerably increase the possibility of wrong determination of the case as to whether a transaction is an 'intra-State' or 'inter-State'.

Few issues in determining place of supply

One of the questions often debated is in the case of 'intermediary' service to non-resident customer, whether to pay CGST and SGST or IGST. Similarly, another issue is whether to pay pay CGST and SGST or IGST in case of supply of accommodation services to SEZ unit.

Challenges for GST payer in case of wrong determination

As per section 77 of GST Act if an assessee wrongly determines an intra-State transaction as inter-State transaction and in-turn paysIGST, then taxpayer will have to pay the correct applicable tax i.e. CGST  plus  SGST again and claim refund of wrongly paid IGST.

Can GST payer request for advance ruling for 'place of supply'?

Advance Ruling can be sought on the on the specific issues covered under section 97 (2) of CGST Act, However, determination of 'place of supply' is not covered under the ambit of Advance Ruling.

Recently, in the Advance Ruling of Utility Powertech Ltd - 2018-TIOL-124-AAR-GST the Advance Ruling Authority (ARA) stated that advance ruling cannot be sought on the question of 'place of supply' as it is specifically kept out of the purview of AAR. Similarview was also taken in the case of Fichtner Consulting Engineers India Pvt Ltd - 2018-TIOL-129-AAR-GST.

Way forward

It may be noted that from GST payer perspective, the effective GST amount will not change and thus, the situation is GST neutral for him (whether he deposits CGST and SGST or IGST).

Given this, while the intentions of these provisions are to ensure transfer of funds to appropriate consuming States, it is apparent that the GST payer is getting repeatedly caught between the cross fire of these GST provisions.

Thus, ideally, instead of making the taxpayer deposit the taxes again and asking him to go through onerous refund process, the GST Council should either provide specific clarification in the aforesaid cases of 'place of supply' or include 'determination of place of supply' in the ambit of advance ruling or explore automatic transfer of such incorrect GST payments between Centre and States. These steps will certainly ensure that someone owns up the 'place of supply' baby!

(The Author is a Chartered Accountant and has authored books on GST and Gulf VAT)