Rajakumari's blog

In our earlier blog GST Impact on Supply without Consideration and Importation of Services, we discussed about supply without consideration and the import of service.
This blog discusses, in detail, supplies without consideration between:
• Related person
• Distinct person

Schedule-II of the model GST law provides clarity on determining the type of supply as supply of goods or supply of services. This aims at eliminating the dilemma that exists in the current indirect tax system, for example, Service Tax Vs. VAT on works contract, AC Restaurant Service, Software, etc.
It is, therefore, important for businesses to know whether supply amounts to supply of goods or supply of services, and treat supply accordingly.

Under GST, the existing system of levy of tax on manufacture, provision of taxable services, and sale of goods will be replaced by the concept of ‘SUPPLY’. The taxable event under GST is the ‘Supply’ of Goods or Services. It is very important, therefore, to understand the place of supply in determining the right charge of tax on supply. The model GST Law lays down the criteria to determine the place of supply. Based on these criteria, you can treat the supply of goods or services as either Intra-State (within the State) or Inter-State (Outside the State).

In the previous blog, we discussed what is place of supply and why it is important to determine the place of supply. In the next few blogs, we will cover the parameters to determine the place of supply. Here, we will learn how to determine the place of supply of goods – in which movement of the goods is involved.

1. When supply does not involve movement of goods, the location of the goods at the time of delivery to the recipient is the place of supply.
For example: Rex Cars, whose registered place of business is Chennai, Tamil Nadu, opens a showroom in Mysore, Karnataka. They purchase a pre-installed generator at the premises from Rohan Generators in Mysore, Karnataka.
Location of supplier: Mysore, Karnataka
Place of supply: The supply of the generator does not require its movement. Hence, the place of supply is Mysore, Karnataka.

In the Bill to – Ship to model, the billing and shipping of goods are done to two states and entities. In order to avoid the cascading of multiple taxes through the course of the transaction, the first sale will be taxable, and any subsequent sale during the movement of goods is exempt from tax. Today, Bill to – Ship to transactions are a common occurrence.
Let us understand ‘Bill to – Ship to’ transactions with an example.

In the current tax regime, the provision of a taxable service is subject to service tax.  Service tax is levied by the Central government and is applicable irrespective of whether the provision of service is interstate or intrastate.
However, under GST, the place of supply of service will determine the type of tax applicable on the service. This is based on the concept of GST being a ‘destination based consumption tax’, where tax will accrue to the State where the supply is consumed. Hence, it is important to determine the place of supply of services.

In a business, return of goods sold is common. Under current regime, the return of goods are allowed to be reduced from the total turnover of sales, provided that the goods are returned within specified time limit. The eligibility to avail reduction from tax varies from state to state, but it is generally 6 months from the date of sale.

Our Nation is on the brink of GST, a single unified indirect tax system. This is the largest taxation reform in the indirect taxation regime and it subsumes a host of indirect taxes. GST introduces the concept of seamless flow of input tax credit across the supply chain (from manufacture till it reaches the consumer) and across state borders. Secondly, supply being the taxable event under GST, the concept of manufacture, trade and provision of services become irrelevant.

Point of Taxation (POT) refers to the point in time when tax is required to be paid. This is a mechanism which is used to determine the point in time when the tax liability will arise.
Under the current indirect tax regime, the point of taxation is different for each of the tax type.
 

Scenario

Type of Tax

Point of Taxation

Manufacturing of Goods

Central Excise