JANUARY 22, 2020

By Vijay Kumar

SECTION 10(1)(a) of the IGST Act reads as:

(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;

Now, suppose a person living in Gurugram goes across to a Delhi shop, buys some goods and returns to Gurugram with the goods, should the shopkeeper charge/pay IGST or SGST and CGST?

Apply the situation to Section 10(1)(a):

1. There is movement of goods by the supplier or the recipient or by any other person. In this case by the recipient - from Delhi to Gurugram.

2. Where did the movement of goods for delivery to the recipient terminate? At the Delhi shop or Gurugram?

The simple GST has such complicated problems.

This is not a hypothetical situation.

An issue was raised by Commissioner of State Tax (Punjab) before the GST Council seeking clarification on the issue related to place of supply in case where Goods are purchased over the counter (on OTC basis) in one State and thereafter transported to another State by the recipient. States like Punjab & Himachal Pradesh have noticed that in case of OTC supply to recipient outside the State, some suppliers are levying CGST and SGST instead of IGST. Further, one of the Tax authorities has issued direction to do the same, that is, in case of OTC supply, the supplier has been directed to charge CGST and SGST instead of IGST even in case of inter-State supply.

The CBIC proposed to issue a clarification as:

It is seen that this situation is squarely covered under the provisions contained in clause (a) of sub-section (1) of Section 10 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the "IGST Act") which provides that the place of supply of goods, where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

It has been informed that even though the goods are supplied on OTC basis but the supply involves further movement of goods which is arranged by the recipient, the expression "movement of goods terminates" would mean the place where the movement of goods terminates when the goods reach the place of registration of the recipient or to the address that has been declared in the tax invoice, as the case may be. It is, accordingly, clarified that the place of supply in case of such supplies, i.e. where the recipient is registered or the address declared in the tax invoice (in case such recipient is not registered) in a State other than the State in which the supplier is located, shall be determined in accordance with the provisions contained in clause (a) of sub-section (1) of section 10 of the IGST Act. Accordingly, such supplies would be treated as inter-state supplies in accordance with the provisions contained in sub-section (1) of section 7 of the IGST Act. It is further clarified that the supplier would be liable to pay integrated tax in such cases.

However, where the supply is to an unregistered person and where the recipient's address is not available on record, the place of supply would be determined in accordance with the provisions contained in clause (c) of sub-section (1) of section 10 of the IGST Act. The place of supply in such cases would be the location of goods at the time of delivery to the recipient. Accordingly, such supplies would be treated as intra-State supplies in accordance with the provisions contained in subsection (1) of section 8 of the IGST Act. It is further clarified that the supplier would be liable to pay Central tax and State tax / Union territory tax in such cases.

This matter including the draft clarification was placed before the GST council in its 37th meeting on 20th September 2019.

It was stated that the draft Circular was in accordance with the views of States like Punjab and Himachal Pradesh i.e. such OTC supplies may be treated as intra-State supplies where the supply was made to an unregistered person and the recipient's address was not available on record and inter-State supplies where the address of recipient is available.

Haryana Government opposed the proposal as they felt that the proposal went beyond Section 10(1)(a) of the IGST Act and that the proposed Circular would affect the revenue flowing to the State in the form of GST revenue.

Delhi supported the views expressed by Haryana.

Kerala suggested to follow the destination principle and agreed with the views expressed by State of Punjab.

Gujarat stated that it appeared that if any person belonging to one State purchased goods in any other State and got the address of his/her residing State recorded in the invoice then the revenue would flow to the native State and not to the State where bill was actually issued. This would be a big change and it was not clear as to how would one verify the address of the buyer and what would be the mechanism of the revenue flow to the States.

Delhi also felt that the law was being grossly misinterpreted as the destination principle meant where the supply chain terminated and not necessarily the address of the buyer.

The Chairperson/Finance Minister felt that the issue should be looked into afresh by the Law Committee as the destination principle was being questioned and the entire edifice of GST was based on it. She requested the States to give their opinion in writing along with reasons thereof for consideration of the issue afresh in the Law Committee.

So, the issue is officially pending. Till they take a decision, what should the shopkeeper in Delhi charge his customer from Gurugram? IGST or SGST and CGST? Any answer is wrong - till the GST Council decides the issue.

Does the tax payable depend on the address of the buyer? Will it be mandatory to carry an address proof whenever you buy something ‘over the counter'? Will there be a notification prescribing the documents accepted as proof of address. Will the shopkeeper be required to keep a certified copy of the address proof to prove that he paid the correct tax?

Suppose the same person from Gurugram goes to Delhi, has a haircut and returns to Gurugram with his head, what is the tax liability of the barber?

Until next week