The concept of ‘place of supply’ is not new to indirect taxation, as it is already in use in the service tax law under the Place of Provision of Service Rules (POPS Rules).India’s service tax laws treat the whole country as a single tax jurisdiction. Hence the place of provision of a service assumes significance only when deciding if a transaction is an ‘export of services’. Excise laws, on the other hand, do not have a place of supply concept, as duty is collected at the factory gate and also because India is a single tax jurisdiction.In the case of Value Added Tax (VAT), the movement of goods broadly determines which tax will be charged. That is, if goods are transported from one state to another, the Central Sales Tax (CST) is levied whereas if they remain within the state VAT will be levied.All of this makes the place of supply concept—as well as its provisions in the soon-to-be-implemented Goods and Service Tax (GST) law—an important one to take note of, as it can have far reaching effects in the long run.Below are some issues that companies and organisations may face while putting these provisions in practice.Place of supply for an ex-works sale
More often than not, a manufacturer (or trader) may sell goods and request a buyer to accept the delivery at the factory gate (or at a shop). This is termed as an ex-works sale. Here, the subsequent cost of transportation and associated risks are undertaken by the buyer. The question which comes to mind here is, would such a sale attract IGST (Integrated GST) or Central GST+State GST. This is a question that is bothering many companies and their advisors.Section 10(1) (a) and (c) of the IGST Act are useful in resolving this problem. These provisions can be paraphrased as:
10 (1) (a) Where the supply involves movement of goods, place of supply shall be the location of the goods when the movement of goods terminates for delivery to the recipient.
10 (1) (c) Where the supply does not involve movement of goods, place of supply is defined as the location at the time of delivery to the recipient.The above mentioned ex-works sale raises an additional question: Does the supply involve movement of goods, especially when the risk and transportation of goods thereafter is the responsibility of the buyer? The contract inked between the parties is crucial in answering this question.We will see three cases of how these contracts can be worded and what interpretations are possible.A clear contract
The contract states that in light of the fact that the sale is ex-works, the seller will arrange the transportation and ensure that the goods are delivered to the buyer’s premises.
From this we can conclude that the supply involves movement of goods. The seller in such case arranges for the transportation, but later can recover the transportation charges from the buyer. The risks after the factory gate are borne by the buyer. Despite this, we can conclude that the supply is for delivery to the buyer. In this case, if the buyer gets the delivery in another state, the supply would attract IGST, otherwise CGST+SGST.No written contract
Let us take another example. An individual from Pune goes to Delhi and buys a pair of jeans at a shop there. This can be termed as an ex-works sale. But here, there is no contract stipulating movement of goods after the pair of jeans is handed over to the buyer at the cash counter in the shop.In this scenario, even the seller is not concerned about where the jeans has been transported by the customer. It can safely be assumed therefore that the supply did not involve movement of goods. Hence, one is inclined to apply sub section 1(c) in such a case to define place of supply as the shop itself and charge CGST+SGST.Ambiguous contract
A really complicated case arises when the buyer arranges for transportation of the goods purchased ex-works and asks the seller to hand over these goods to the transporter of his choice.The first question here is whether handing over the goods to the transporter appointed by the buyer would amount to giving delivery to the buyer. While the GST law does not answer this question, Sale of Goods Act, 1930 can offer some help. It would be clear from Section 33 of this Act that delivery of goods sold may be made by doing anything which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.Whether one can refer to the Sale of Goods Act is another question as definitions from other statutes cannot be routinely borrowed unless these statutes are pari materia, i.e. dealing with the same or similar subject matter. Thus, here we must look at the Sale of Goods Act and GST Act as pari materia as both deal with the sale/supply of goods. A delivery to the transporter thus can be construed as a delivery to the buyer. If such delivery happens in the state of the seller, then the tax to be charged would be CGST+ SGST.But if the seller is fully aware that the goods he hands over to the transporter are destined for another state, the question that arises is, can he charge IGST considering the goods will finally be delivered to the buyer in another state?Such a position must be backed up by a lot of documentary support to show that the seller was fully aware that the goods are destined for delivery to a buyer in another state. When transportation is arranged by the buyer, it can be very difficult to prove this beyond doubt. All of this can lead to litigation as the seller’s state will definitely question the IGST charged on such a sale. Therefore, a contract or a purchase order, which specifically mentions the place of delivery of the goods, irrespective of the person arranging for transportation or bearing risk, would be essential in this case to prove the intent of the buyer and seller.What we find here is that even a simple sale for delivery to the buyer can invoke different interpretations. Since there can be many crucial implications, including litigation, parties should carefully word their contracts to clearly bring out the intent they have in their mind. If the delivery is defined to be at the customer’s premises, that should be brought out clearly in the contract. A stitch in time saves nine.(Views expressed are personal.)-By Dr. Waman Parkhi, Partner, Indirect Tax at KPMG in India
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