The GST laws have seen plethora of changes during the recent times. Recent Council meetings and budget sessions have introduced various complexities for businesses. GST being a destination-based consumption tax is levied at every stage of the supply chain. The challenge arises when the invoicing location is different from that of the location where consumption takes place, particularly in a ‘bill to ship to’ transaction.
Recently, a circular dated June 26, 2024 (Ref: Circular No. 209/3/2024 – GST) was issued to clarify the place of supply for supplies made to unregistered persons (Circular). This Circular is in furtherance to a notification dated September 29, 2023 (Ref: Notification 02/2023 – Integrated Tax) which amended certain provisions of the Integrated Goods and Services Tax Act, 2017 (IGST Act). The said amendment introduced clause (ca) to Section 10(1) of the IGST Act, to inter aliaprescribe that the place of supply for supplies made to an unregistered person would be the location as per the address of the relevant person as recorded in the invoice.
It is pertinent to note that as per the amended clause read with the Circular, where the billing address is different from the address of delivery, the place of supply of goods, particularly being supplied through e-commerce platform to unregistered persons, shall be the address of delivery of goods recorded on the invoice and not the billing address. The clarification is in line with the intention of insertion of Section 10(1)(ca) of the IGST Act, i.e., the revenue should flow to the State where the goods are being consumed.
However, this clarification is quite contrary to the already existing provisions for ‘bill to ship to’ transaction in case of supplies made to a registered person. In other words, as per Section 16(2)(b)(i) of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Section 10(1)(b) of the IGST Act, in a ‘bill to ship to’ transactions where the bill to and ship to parties are located in different States, the place of supply is the location of the ‘bill to’ party and tax is accordingly discharged. Accordingly, the taxpayers have been paying CGST and SGST where the goods are delivered to an unregistered person located in another State.
It will now be interesting to see the practice adopted by the departmental authorities for recovering taxes where the taxpayers have discharged CGST and SGST instead of IGST or vice versa, since Section 10(1)(ca) of the IGST Act has been inserted with effect from October 1, 2023 and the Circular has been issued on June 26, 2024. Thus, the taxpayers are left to guess the correct legal position for the transactions that took place between the two abovementioned dates. Will they face tax demands for the past period, or would the issue be regularized on as is basis in terms of the proposed Section 11A of the CGST Act?
Since this new Section 10(1)(ca) supersedes Section 10(1)(a) of the IGST Act, the place of supply would now be the location where the movement ends for delivery. The subject of what constitutes ‘supply involving movement’ is very debatable because goods are considered to entail movement only when they involve movement, either before or after supply and final delivery. This Circular also attempts to lay down the same position that is prescribed under Section 10(1)(a) of the IGST Act, so what is the difference?