(In this article, we have, at certain places, tried to indicate the various interpretations and views about certain provisions of the Revised GST Model Law. The views expressed are, by no means, our final views, but only pointers as to what issues will arise from certain parts of the law which admit of multiple interpretations. We hope that Parliament is careful while enacting the final law so that the new regime is not overwhelmed by litigation)

The Constitution 101st Amendment Act, 2016 has brought in a completely new system of taxation. The entire field of taxation of goods as well as services is now open to the Union and States to tax, except for some goods like petroleum products etc. which have been kept outside the GST net. The Constitution amendment merely provides for the power to levy GST, the actual levies will have to be enacted individually by Parliament and the State Legislatures by ordinary law-making process. No such Bill has been introduced in either Parliament or any of the State Legislatures so far. All we have is a “Revised Model GST Law” released in November, 2016 and newspaper reports that most of this law has been approved by the GST Council. This paper will therefore proceed on the base of the Model Law, November 2016.

The provisions relating to place of supply are an integral part of the GST law. They serve three important functions:

1. They help the taxpayer in assessing whether a particular supply is intra-state or whether the supply is in the course of interstate trade or commerce, import or export. Except for an intra-state transaction, each of the other types of transactions have been Constitutionally placed beyond the power of the State Legislatures and no State GST can be levied on them.

2. Even in the case of intra-state transactions, the place of supply provisions help in restricting the taxing power of the States qua intra-state transactions, so that only one State can tax one intra-state supply. This has been done to avoid a simultaneous levy of State GST by multiple States on one intra-state supply which is frowned upon the Constitution due to traditions which have come down to us from the Sales Tax law.

3. In the case of supplies having a foreign element, the place of supply provisions are aimed at determining whether a particular supply can be taxed by the Union Government or not.

Therefore, the place of supply rules are a sort of criteria to test, in all cases, the basic questions of power of either the Union or the State Governments to levy GST on a supply. They establish Constitutional right of taxation and thus go the root of the subject of taxing jurisdiction.

In order to understand the place of supply provisions and appreciate fully the issues that arise out of those provisions, it is necessary to first understand the Constitutional context of those provisions. As afore-said, these provisions are integrally connected with the question as to whether a particular supply is intra-state or in the course of interstate trade or commerce, import or export and discussion of one without the other is not possible.

Constitutional Framework

The model of taxation adopted in India is a three-tax structure. The Union Government will levy two taxes: Central GST and Integrated GST. The State Governments, on the other hand, will levy only one tax: i.e., the State GST. Broadly the taxes are to be levied in the following manner:

Thus, Central and State GST is only to be levied on intra-state supplies, they are not relevant for any other purpose. On all other transactions, that is supplies in the course of interstate trade or commerce, import or export, only Integrated GST is to be levied.

Even so far as intra-state supplies are concerned, Article 286(1)(a) of the Constitution has ensured that only one State GST will be levied on one supply by specifically providing that States cannot tax supplies which take place “outside the State”. Article 286(2) empowers Parliament to formulate the principles for determining whether a particular supply is “outside the State” or not. Thus, the State Legislatures have been completely denuded of any power to decide the territorial extent of their own taxing power to avoid an old controversy which plagued the Sales Tax law before the Constitution was enacted. The dire situation which arose then is succinctly summarised in the following passage from the judgment of the late
Chief Justice of India, Patanjali Sastri, in State of Bombay v. United Motors (India) Ltd.1 :

“In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India Act, 1935, the Provincial Legislatures enacted Sales Tax laws for their respective Provinces, acting on the principle of territorial nexus referred to above; that is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of their sales tax legislation. Assam and Bengal made, among other things, the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the goods in the Province was made an additional ground. A net of the widest range perhaps was laid in the Central Provinces and Berar where it was sufficient if the goods were actually “found” in the Province at any time after the Contract of Sale or Purchase in respect thereof was made. Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a Court of law. And such claims to taxing power led to multiple taxation of the same transaction by Provinces and cumulation of the burden falling ultimately on the consuming public. This situation posed to the Constitution makers the problem of restricting the taxing power on sales or purchases involving interstate elements, and alleviating the tax burden on the consumer.”

Furthermore, Parliament has been exclusively empowered to determine whether a supply is in the course of interstate trade or commerce or in the course of import or in the course of export.2 State Legislatures understandably have no role to play in such determination.

In short, the State Legislature can tax a supply within the State, but not any supply outside the State. The State Legislature cannot tax a supply made in the course of interstate trade or commerce or a supply in the course of import or export. Only Parliament can tax a supply in the course of interstate trade or commerce or a supply in the course of import or export.

Intra-state supply or interstate supply

The Integrated GST Model Law lays down the rules for determining whether a particular supply is intra-state or whether the supply is in the course of inter trade or commerce. The rules are enshrined in Sections 3(1) and (2) and Sections 4(1) and (2) of the Integrated GST Model law. These rules can be summarised as:

Thus, the question as to whether a particular supply is interstate or intra-state depends principally on two factors: Location of supplier and the Place of Supply. If the location of supplier and the place of supply are in the same state, then the supply is an intra-state supply. If the location of the supplier and the place of supply are in different states, then the supply is an interstate supply.

Location of Supplier

As aforesaid, “location of supplier” is one of the two elements which decide whether a supply is in the course of interstate trade or commerce or is an intra-state supply. We will discuss the location of supplier in the ensuing paras:

Location of Supplier of Goods

The difficulty, however, is that the Integrated GST Model Law only defines “location of supplier of service”. Neither the Integrated GST Model Law nor the Central GST Model Law3 define “location of supplier of goods” as such.

It is a fundamental principle of interpretation of statutes that words and terms not defined in the statute have to be understood as per their ordinary meaning. However, finding the ordinary meaning of “location of supplier” as regards supply of goods itself is fraught with many difficulties. It is not clear if the location of supplier has to be the actual current location of the supplier at the time of supply of goods or the place of business from which he ordinarily carries on business. It is difficult to find locations of corporations and trusts

Consider this situation: XYZ Ltd. has a registered place of business in Maharashtra as well as warehouse in Karnataka. Goods are supplied from the registered place of business in Maharashtra for assembly and installation at site in Karnataka. The place of supply in such case is therefore Karnataka as per Section 7(5) of the Integrated Model GST Law. “Place of business” as defined in Section 2(22) specifically declares a warehouse to be a place of business. Can it be said that the supplier is located in Karnataka as well as Maharashtra at the same time?

We will proceed in this paper on the basis that the meaning of “location of supplier of goods” will have to be the place where the supply originates. This meaning is analogous to the that which is given to “location of supplier of services” in Section 2(18) of the Integrated Model GST Law. If the definition of “location of supplier of services” is seen closely, it is apparent that the substance of that definition is that the location of supplier of service is taken to be the place from where the supply originates. Thus, literal meaning should not be given to the words “location of supplier”.

This is also in line with the logic of things. The place of supply for both goods and services is mostly styled on the destination principle. Wheresoever the supply ends or is consumed, the place of supply is to be taken to be that place. Thus, at least as regards services, when the Integrated Model GST Law says that “location of supplier of service” and “place of supply of service” have to be in different states, the underlying test for determining interstate nature of supply is whether the supply originates and ends in different states. This principle could have been expressed in a less round-about manner.

A word of caution: Though we are making this assumption, it does not take away from the fact that the Integrated GST Model Law is fatally vague on this point. If tomorrow the Court holds that the meaning of “location of supplier” as regards supply of goods is uncertain, then the entire scheme of the Integrated GST Law as regards goods may fail and judges will have to lay down the principles for interstate, import and export supplies judicially. It is quite possible that the Court will refuse to make any blanket assumption that Parliament intended to give same meaning to “location of supplier of goods” as has been given to “location of supplier of services” given the fact that it would go beyond the function of interpretation and will amount to legislating from the bench.

Location of Supplier of Services

“Location of Supplier of Services” is defined in Section 2(18) of the Integrated GST Model Law. As aforesaid, the principle followed in determining location of supplier of services is whether the supply originates from that place. Only in residual cases this principle is abandoned. Thus:

If supply originates from

Location of supplier of services

Registered Place of Business

That Registered Place of Business

Fixed Establishment

That Fixed Establishment

More than one establishment, whether the place of business or fixed establishment

Establishment most directly concerned with the provision of the supply

Other cases

Usual place of residence of the supplier

“Place of business” is defined in Section 2(22) of the Integrated Model GST Law to include:

(1) A place from where the business is ordinarily carried on

(2) Warehouse

(3) Godown

(4) Any other place where a taxable person stores his goods

(5) Any other place where a taxable person provides or receives goods and/or services

(6) Place where a taxable person maintains his books of accounts

(7) Place where a taxable person is engaged in business through an agent, by whatever name called.

“Fixed Establishment” is defined in Section 2(8) of the Integrated Model GST Law. It is a definition borrowed from the judgment law of European Court of Justice (“ECJ” hereinafter) which was also subsequently adopted by the CBEC Education Guide on Service Tax.
(See Planzer Luxemborg Case C-73/06 and related cases). Section 2(8) considers any place which does not fulfil the criteria of a place of business as a fixed establishment if it is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive services, or to receive and use services for its own needs. It seems the definition of fixed establishment has nothing to do with the supply of goods.

This definition of fixed establishment is another example of the unnecessary piling up of layers of definitions in the model law. This definition has no other purpose to serve except be used in the definition of location of supplier of services. Furthermore, there is no special treatment for supplies made from fixed establishments as compared supplies made from places of business. The draftsman has probably not realised that the “place of business” definition is wide enough to cover even fixed establishment: the definition says that any place where a taxable person provides or receives services is a place of business. This anomaly arises due to the fact that the draftsman has tried to copy the scheme for place of supply of services under UK VAT Act (which is also substantially copied into our service tax law) where “place of belonging” is understood as either a business establishment, fixed establishment or usual place of residence. However, that scheme is different and a “place of business” definition like ours does not exist under the UK VAT Act.

Some cases on this fixed establishment concept:

1. Gaming machines installed on board a ship on high seas does not constitute a Fixed Establishment of the operator-company. Fixed establishment requires both human and technical resources necessary for provision of services to be permanently present at that establishment. Where staff of operator company only temporarily and intermittently goes to the ship to repair and maintain the machines and is not permanently located on the ship, it cannot be said to be a
fixed establishment [Gunter Berkholz v. Finanzamt (ECJ Judgment dated 4.7.1985 in C 168/84]

2. W Ltd. situated in Cyprus entered into a co-operation agreement with P Ltd. in Poland (both distinct legal entities at the time of transaction), whereby P Ltd. would make available its website for the sale of W Ltd’s goods and also provide associated services like leasing of servers etc. P Ltd. principally undertook to sell W Ltd.’s goods on the website. Question involved in this case was whether W Ltd. had acquired a fixed establishment in Poland which received and used P Ltd.’s services, which was also situate in Poland.

Held: Computer equipment, servers and software without any human or other material support can also constitute a fixed establishment. This structure was suitable for receipt and use of services by P Ltd. and therefore W Ltd. had acquired a fixed establishment in Poland. (Welmory v. Dyrektor Case 605/12 by ECJ)

3. Subsidiary company appointed as an agent of parent company is a fixed establishment of parent company though the two companies are legally distinct entities – DFDS (Judgment of ECJ in Case C-260/95)

Where a supply is made from two or more establishments, that is place of business or fixed establishment, the establishment most directly concerned with the supply is taken as the “location of supplier of service”. The inspiration for this seems to be a similar “establishment most directly concerned with the supply” clause under the UK VAT Place of Supply provisions. VAT Manual VATPOSS05500 published by Her Majesty’s Revenue & Customs (HMRC) has explained at some length what evidences can be looked at for determining whether a particular establishment is most directly concerned with the supply:

“Before you make any decision as to which establishment is most directly concerned with the supply or raise any assessment, you need to assemble all the relevant facts and supporting evidence. The necessary evidence will need to include as far as possible

• The contract(s) between the supplier and customer

• Where a business supplies services on behalf of an overseas business as the latter’s fixed establishment, the contract(s) between those businesses and the contract(s) between the overseas business and its UK customers

• Where there are no written contracts, a written account from the supplier which sets out in detail their understanding of the oral contract

• Oral evidence (in written format) or witness statements obtained from the supplier’s staff and the staff of other businesses involved in the supply chain

• Telephone bills, fax printouts and so on (which may demonstrate the extent of any day-to-day contact with a particular establishment)

• Letterheads (although this could indicate a mere postal address, rather than a business or fixed establishment)

• Invoices or payments for office rental

• Certificates of incorporation and other company details such as common directors from, for example, Companies House

• Job descriptions, performance agreements, and so on (which may be indicative both of the substance and reality of work performed at a particular establishment, and the nature of the supply)

• Details of how the business fits into any larger corporate structure

• Company minutes, reports and other internal correspondence

• Evidence of any information obtained through mutual assistance,”

HMRC has also come out4 with the following criteria for determining whether a particular establishment is most directly connected with a supply or not:

1. How are the particular services provided?

2. What is the significance of the activities carried out at each establishment in contributing to the services provided?

3. Where are the necessary human and technical resources (for example database, technical equipment, office equipment, telephones, and so on) for actually providing the services permanently based?

4. Which establishment appears on the relevant contracts, correspondence and invoices?

5. Where are the directors or other personnel who entered into the contract permanently based?

6. Where are decisions taken and controls exercised over the performance of the contracts?

7. Does reference to the preferred establishment lead to a more appropriate or rational result for tax purposes?

In case where a supply originates from a place which is neither a registered place of business nor a fixed establishment, the location of supplier of services is to be taken as the “usual place of residence of the supplier”. Usual place of residence is, in turn, defined in Section 2(108) of the Central GST Model Law to mean either the place of ordinary residence (for individuals) or place of incorporation (for body corporates) or place where the person is legally constituted (in case of persons other than individuals and body corporates).

The usual place of residence rule is an exception to the origination of supply principle which is followed throughout the definition of “location of supplier of services”. Unlike supplies which originate from registered places of business or fixed establishment, a supply which originates from neither is traced to the residence of supplier or place of incorporation though the supply may not have originated from there. This clause has been brought in to cover casual supplies/non-resident supplies. Thus, if a doctor who has a registered place of business in Maharashtra goes for a vacation to Delhi and while in Delhi, renders professional services to people resident in Delhi, the location of supplier of service will still be regarded as Maharashtra though supply is taking place from Delhi itself and no supply is actually taking place from Maharashtra. The supply will thus be an interstate supply since the location of supplier is in Maharashtra and the place of supply is in Delhi.

Lastly, the determination as to what is the location of supplier of service itself may be a point of controversy from time to time. The European Court of Justice’s judgment in
Commissioner of Customs and Revenue v. Newey demonstrates the tendency of tax authorities to raise disputes as to where a supply has originated from by terming commercial arrangements as sham.5 It is to be seen how aggressive the Indian tax authorities get on this front.

Place of Supply

The other component to decide whether a supply is intra-state or in the course of interstate trade or commerce is the “place of supply”. It is only when the place of supply is in a state different from the location of supplier, that the supply becomes an interstate supply. Section 7 deals with place of supply of goods in case of interstate/intra-state supplies and Section 9 deals with place of supply of services in case of interstate/intra-state supplies.

Place of Supply rules for Goods

There are four principal categories for which place of supply rules have been laid down in Section 7:

1. Supply involves movement of goods

2. Supply does not involve movement of goods

3. Supplies involving third parties

4. On-site assembly and installation of goods

5. Supplies on board conveyances

6. Residual cases

(1) Supplies involving movement of goods

Section 7(2) deals with place of supply of goods where the supply “involves” movement of goods. Section 7(2) has to be read in contrast with Section 7(4) which deals with place of supply of goods where the supply does not involve the movement of goods. The place of supply in a case where the supply involves movement of goods is the location of the goods at the time at which movement of goods terminates for delivery to the recipient.

Examples: A in Pune supplies goods to B in Nagpur and the goods have to be delivered to B’s warehouse in Nagpur by A, the place of supply will be Nagpur where the movement will stop after delivery. Similarly, when A in Maharashtra enters into a contract with B in Delhi to sell and deliver goods to B’s factory in Gujarat, the place of supply is Gujarat.

There are two possible interpretations which can be placed on the words “supply involves movement”.
Both interpretations seem logical and convincing, but do not bear uniform results in all cases. It would be better if the GST Council brings in a simpler and clearer provision.

The first interpretation depends on Section 3 of the Central Sales Tax Act, 1956 which defines an interstate sale as a sale in which the contract of sale “occasions” the movement of goods across State frontiers. This word “occasions” has been interpreted judicially to mean that the contract of sale has to contemplate and envisage the movement of goods from one State to another and the goods have to move in pursuance of that contract. Under the Central Sales Tax law, whether the transfer of property took place before or after movement is irrelevant. Movement could either be before transfer of property in the goods or afterwards, as long as the sale occasioned the movement of goods, the sale was an interstate sale.

We are doubtful as to whether the words “supply involve movement” were meant to achieve a similar result as that which came about through the words “sale occasions movement”. It cannot be ignored that the GST Council, while making this draft law, has consciously avoided using the word “occasions” which is regarded as the heart of the Central Sales Tax law. Instead, the Council uses the words “involves”. The second interpretation is based on this difference in language between Section 3 of Central Sales Tax Act, 1956 and Section 7(2) of the Integrated GST Model Law.

Now, according to Schedule II, only a transfer of title in goods is considered to be supply of goods. Everything else is a supply of services. Transfer of title in goods has to be understood as per the principles of the Sale of Goods Act, 1930 to mean transfer of property in goods. Under the Sale of Goods Act, 1930, transfer of property in goods takes place as soon as the contract is made in case of ascertained or specific goods or as soon as apportionment to the contract takes place in case of unascertained goods. Ordinarily, transfer of property does not wait till actual delivery of goods. It is only if parties agree, the transfer of property in goods will be postponed to the event of delivery.

“Supply involves movement” therefore has to mean a transfer of property in goods where the movement of goods to a specified place of delivery is essentially before such transfer of property in goods can take place. Thus, Section 7(2) will certainly cover those cases where the transfer of property will take place after the goods are transported to the place of recipient or his agent and delivery to the recipient is given at the place of buyer. However, if transfer of property takes place before movement of goods, we are afraid, it cannot be said that the transfer of property involves the movement of goods.

Now, movement as contemplated by Section 7(2) has to either be by the supplier or by the recipient or by any other person. Movement by supplier would occur in a case where the supplier himself undertakes the delivery of goods. Movement by recipient, in context of Section 7(2), would include cases where movement is undertaken by the recipient but the transfer of property will only take place after the goods are moved to the place of delivery. Movement by any other person will be movement by a transporter engaged by supplier or recipient. Another example of movement by any other person would be movement in cases of back-to-back contracts where (say) A has a contract with B to sell and deliver 100 TVs for 150 Rs. each. A then enters into a contract with C to deliver 100 TVs directly to B for 100 Rs. Each. Here there are two contracts and two supplies, one by C to A and then by A to B. C has no privity of contract with B and no consideration flows between them. Hence there is no supply as understood under Section 3 of the Central GST law between C and B. However, the supply by C to A will be governed by Section 7(3) due to involvement of third party directions. The supply by A to B will be governed by Section 7(2) where though the movement is not by the A or B, it is by “any other person”, that is C.

There are some issues with this interpretation. Firstly, Section 7(2) contemplates that movement can be by the recipient. However, at the same time it says that the place of supply will be the place where the movement terminates for delivery to the recipient. Generally, once the goods are handed over to the recipient, the event of delivery is complete though transfer of property in goods may be contractually delayed to the point of the goods arriving at the place of recipient. It is not clear as to what the Council seeks to achieve here.

Secondly, it is uncertain as to how this particular clause will operate in case where a contract for sale of goods was cancelled before the supply actually takes place. Section 3 of the Central GST Act an agreement to make a supply also within the definition of “supply”. Thus, the taxable event is complete as soon as an agreement to make a supply is in place and consideration is stipulated. When the supply is cancelled, it is difficult to apply Section 7(2) since the words “time at which movement terminates” seem to indicate actual movement and termination and not contemplated movement and termination. Clarity from the Government in this regard is essential.

Similar issue will arise in case of supply of goods by way of documents of title to goods. For example, if A in Maharashtra has entered into a contract of sale and delivery of goods to B in Karnataka. Before the movement of goods is undertaken, B endorses the documents of title to the goods in favour of C in Gujarat. The goods therefore are delivered to Gujarat directly without entering Karnataka. In this case also, there are two supplies – first supply is by A to B and second supply is by B to C. The second supply by B to C will have to be covered by Section 7(3), however the first supply by A to B cannot fall in Section 7(3). In case of the first supply by A to B, it was never contemplated by the parties at that time that the goods will be delivered to Gujarat and not to Karnataka: the endorsement is a subsequent event. Furthermore, as far as Section 7(2) is concerned, it talks of delivery to the recipient. The recipient in case of the first supply between A and B has to be B according to the definition of “recipient” which defines “recipient” as one who pays the consideration. No delivery ever takes place to B and hence application of Section 7(2) to such transactions is fraught with problems.

(2) Supply does not involve movement of goods

Section 7(4) of the Integrated GST Model Law deals with supplies which do not involve movement of goods, e.g. ex-works delivery. In such cases, the place of supply is mandated to be the location of such goods at the time of delivery of the goods to the recipient.

As aforesaid, Section 7(4) has to be understood in contrast with Section 7(2). However, if Sections 7(2) and 7(4) are closely perused, it is apparent that both of them contemplate the same result: the place where goods are situated at time of delivery is the place of supply.

(3) Supplies involving third parties

The scheme of Sections 7(2) and (3) makes one thing quite clear: Sections 7(2) contemplate only two parties, whereas Section 7(3) contemplates three or more than three parties. Section 7(3) deals with goods delivered by a supplier to a recipient on directions of a third person. The person who is actually delivering the goods is referred to as the “supplier” in this case and the person actually receiving the goods is referred to as the “recipient”, whereas the person who gives the directions for delivery to the actual recipient is referred to as the “third person” and the third person is deemed to have received the supply of goods. The principal place of business of that third person is taken as the place of supply of the goods.

Take an example: A who has his principal place of business in Delhi has a contract to sell and deliver 1,000 motor cycles to B in Madhya Pradesh for ₹ 5,00,000 each. In order to fulfil the contract, A enters into a contract to purchase 1,000 motor cycles from C in Punjab for ₹ 4,00,000 each and directs C to directly deliver the motor cycles to B:

In this cases, there are two contracts. First one is between A and B for supply of 1000 motor cycles by A to B. Second contract is between A and C for supply of 1000 motor cycles by C to A. Under the second contract, delivery is to be made directly by C to B. This is thus a back-to-back supply contract. Since there is no privity of contract and consideration flowing between B and C, there is no taxable supply as between them, though there is a physical supply of goods. There are only two taxable supplies here, first by A to B and second by C to A. Each contract will have a separate place of supply.

The place of supply for the second contract can be conveniently determined before the place of supply for the first contract is determined. The place of supply for the second contract has to be determined by applying Section 7(3) since three parties are involved in the said supply. Here the physical receipt of goods is by B and hence B is the “recipient”. C has made the physical supply of goods and hence C is the “supplier”. Since the goods were delivered by C on instructions of A, A is the “third person”. The place of supply has to be the principal place of business of the third person, i.e. Delhi even though the physical supply originated from Punjab and ended in Madhya Pradesh.

As far as the first contract is concerned, it does not involve three parties as such and hence the place of supply has to be determined as per Section 7(2).

Section 7(3) also talks of supply of goods by transfer of documents of title to the goods. The transfer of documents of title can either be before or after the movement of goods.

(4) On-site assembly or installation of goods

Where goods are assembled or installed at site, the place of supply is the place of such installation or assembly as per Section 7(5) of the Integrated GST Model Law. It is to be remembered, however, that a works contract is deemed to be a supply of services under Schedule II. Hence, the assembly or installation being talked about here has to necessary exclude any assembly or installation which is of such a nature as to amount to a works contract – E.g. fabrication and installation of a lift. Section 7(5) will thus cover goods which are transported in completely-broken down condition and assembled at site of recipient. That is how the word “assembled” can be understood.

It is, however, difficult to ascertain any meaning of “installation” which does not involve a works contract. This is because recent judicial pronouncements on what constitutes a works contract have practically brought into the scope of the term works contract any contract which involves both the element of supply of goods and supply of services. The GST Council has to clarify exactly what is and is not covered by Section 7(5). The term “installation” has been used here perhaps because the UK VAT place of supply provisions also use the same term. However, the draftsman has not realised the controversies which the term can cause in India which are not prevalent in UK.

(5) Supplies on board conveyances

Section 7(6) of the Integrated GST Model Law says that if a supply is made on board a conveyance (that is vehicle/train/aircraft/vessel), the place of supply for supply of goods on board that conveyance is where the goods are taken on board. This provision has been made to deal with situations where merchandise is sold on aircrafts etc. which fly over various States or territories. It is impossible to determine the actual place of supply in such a case. The law has therefore enacted a fiction that the place of supply is the place where the goods were taken on board.

(6) Residual cases

In cases which are covered by Sections 7(2) to 7(5), the Central Government has been empowered to prescribe the rules for determining the place of supply in accordance with the recommendations of the GST Council.

Place of Supply rules for Services

The Place of Supply provisions with respect to services are contained in Section 9 of the Integrated GST Model Law. These provisions are relevant in determining whether a particular supply is intra-state or in the course of interstate trade or commerce. These provisions deal with:

1. A general thumb rule

2. Exceptions to the thumb rule

a. Services relating to immovable property or accommodation

b. Actual performance services

c. Training and performance appraisal

d. Services relating to events/parks

e. Transportation of goods/passengers

f. Services on board a conveyance

g. Telecommunication services

h. Banking and other financial services

i. Insurance services

j. Advertisement services to Government

The provisions relating to place of supply of services follow the general principle that the place of supply is where services are generally consumed. This is keeping in line with the nature of the GST as a destination based consumption tax.

(1) A general thumb rule

Sections 9(2) and (3) lay down the general rule that if a supply is made to a registered person, the place of supply is the location of the registered person. If the supply is not made to a registered person, then location of the recipient as per address on record of the supplier has to be taken as the place of supply. Where the address on record also does not exist, then the location of supplier of service is to be taken as the place of supply. The principle therefor is to locate the place of supply as far as possible in the recipient’s State. Only in exceptional circumstances where the address of recipient is not on record and the recipient is also not registered, will the rule be reversed and place of supply in such cases will be location of supplier of service.

“Location of recipient of service” is defined in Section 2(17) of the Integrated GST Model Law and is a mirror opposite of the definition of “location of supplier of service”:

If supply is received at

Location of recipient of services

Registered Place of Business

That Registered Place of Business

Fixed Establishment

That Fixed Establishment

More than one establishment, whether the place of business or fixed establishment

Establishment most directly concerned with the receipt of the supply

Other cases

Usual place of residence of the recipient

(2) Exceptions to the thumb rule

(a) Service relating to immovable property or accommodation

Section 9(4)(a) of the Integrated GST Model Law states that place of supply of services provided directly in relation to immovable property will be where the immovable property is located. If the services are provided in relation to immovable property which has not yet come into being, then the place of supply is where the immovable property was intended to be located.

An illustrative list of services which are covered by Section 9(4)(a) is given in that provision itself. These are services provided by:

i. Architects

ii. Interior Decorators

iii. Surveyors

iv. Engineers

v. Other related experts

vi. Other related estate agents

Services provided by way of grant of rights to use immovable property and services provided by way of co-ordination of construction work are also covered by Section 9(4)(a). In both these cases, the place of supply will be the location/intended location of the immovable property.

Section 9(4)(c) speaks about services provided way of accommodation in any immovable property for organising any marriage, reception or related functions and other official, social, cultural, religious or business functions. The place of supply in such a case would be the location of the immovable property.

Other services of lodging accommodation provided by hotels, inns, guest houses, homestay, club or campsite are dealt with by Section 9(4)(b). Curiously there is no specific place of supply provided for these. The place of supply relating to “immovable property” has to apply therefore.

Section 9(4)(b) also covers services by way of lodging accommodation in house boats or vessels. The place of supply of such services is the location of the house boat or vessel.

Proviso to Section 9(4) says that if the location of the immovable property is located or intended to be located outside India, the place of supply shall be the location of the recipient. It is to be remembered that Section 9 only applies when location of supplier as well as location of recipient is in India. Thus, where ABC Ltd. having registered place of business at Bengaluru engages an architect who has his registered place of business in Mumbai to design a skyscraper tower for housing its branch office at Dubai, the location of the immovable property being outside India, the location of the service recipient in India will be the place of supply. Thus, the place of supply in this case will be Bengaluru.

Explanation to Section 9(4) clarifies that where the immovable property or boat or vessel is located in more than one State, the supply of service shall be treated as made in each of the States in proportion to the value for services separately collected or determined, in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.

(b) Actual performance services

Section 9(5) deals with services whose place of supply is located wherever the services are actually performed. 5 types of services are specified under Section 9(5):

i. Restaurant and catering

ii. Personal grooming

iii. Fitness

iv. Beauty treatment

v. Health services including cosmetic and plastic surgery

(c) Training and performance appraisal

According to Section 9(6), the place of supply in relation to training and performance appraisal services is location of the recipient (if registered) or place of actual performance (if services provided to unregistered persons).

(d) Services relating to events/parks etc.

Services in relation to admission to events/parks etc. and organisation of events are covered by Sections 9(7) and (8) of the Integrated GST Model Law. However, the place of supply rules in relation to admission to events are different from the place of supply in relation to organisation of events.

Section 9(7) deals with supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational or entertainment event or amusement park or any other place. Place of supply of such services is where the event is actually held or where the park or such other place is located.

Section 9(8) deals with organisation of cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to organisation of such events or services, or assigning of sponsorship of such events. The place of supply in relation to such events is the location of the recipient (if services provided to registered person) or place where the event is actually held (if the services are provided to unregistered persons).

Like the Proviso to Section 9(4), the Proviso to Section 9(8) says that where the location of the event is outside India, the place of supply will be the location of recipient. Principles discussed therein will apply here.

The Explanation appended to Section 9(8) says that where an event is held in more than State and a consolidated amount is charged for supply of services relating to such event, the place of supply of such services shall be taken as being in each of the States in proportion to the value of services so provided in each State as ascertained from the terms of the contract or agreement entered into in this regard or, in absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.

(e) Transportation of goods/passengers

Section 9(9) sets out the place of supply for transportation of goods (including by mail/courier) services and Section 9(10) deals with place of supply for transportation of passengers. In both cases, if the recipient of services is a registered person, then the place of supply is the location of the recipient. In case the services are provided to a non-registered person, then the place of supply in case of transportation of goods is the location at which the goods are handed over for transportation and in case of transportation of passengers is the place where the passenger embarks on the conveyance for a continuous journey.

“Continuous journey” is defined in Section 2(29) of the Central GST Model Law as a journey for which a single or more than one ticket or invoice is issued at the same time, either by a single supplier of service or through an agent acting on behalf of more than one supplier of service, and which involves no stopover between any of the legs of the journey for which one or more separate tickets or invoices are issued. Explanation to Section 2(29) defines the meaning of ‘stopover’ as a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it a later point of time.

Section 9(10) which deals with transportation of passengers, contains a Proviso and an Explanation. The Proviso says that where the right to passage is given for future use and the point of embarkation is not known at the time of issue of right to passage, the place of supply shall be determined as the general thumb rules laid out in Sections 9(2) and 9(3). For example, ABC Ltd. enters into a contract with Jet Airways whereby employees of ABC Ltd. can travel one time during the New Year holidays through Jet Airways on any domestic flight. ABC Ltd. pays a lump sum amount to Jet Airways for providing these services to its employees. This is a supply of future right to passage and since the point of embarkation is not known at the time of issuance of the right to passage, the place of supply will have to be determined as per the general thumb rules.

Explanation to Section 9(10) says that a return journey will be treated as a separate journey even if the right to passage for onward and return journey is issued at the same time.

(f) Services on board a conveyance

Place of supply of services provided on board a conveyance (train/vessel/aircraft/vehicle) is the location of the first scheduled point of departure of that conveyance for the journey in accordance with Section 9(11).

(g) Telecommunication services

Section 9(11) deals with place of supply of telecommunication services, including data transfer, broadcasting, cable and direct
to home television services to any
person. Place of supply in case of such services is:

1. In case of services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna, the place of supply is location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services;

2. In case of mobile connection for telecommunication and internet services provided on post-paid basis, the place of supply is the location of billing address of the recipient of services on record of the supplier of services;

3. In cases where mobile connection for telecommunication, internet service and direct to home television services are provided on pre-payment through a voucher or any other means:

a. The place of supply is the address of the selling agent or re-seller or distributor as per record of the supplier at time of the supply if the services are provided through a selling agent or a re-seller or a distributor of a SIM card or rec-charge voucher

b. The place of supply is the location where the pre-payment is received or vouchers are sold in case services are provided by any person to the final subscriber

4. In cases not covered by points 2 and 3, the place of supply shall be the address of the recipient as per records of the supplier of the service.

There are two provisos appended to Section 9(12). The first proviso says that where the address of the recipient as per records of the supplier of service is not available, the place of supply shall be location of the supplier of service. The second proviso says that if pre-paid service is availed or the recharge is made through internet banking or other electronic mode of payment, the location of the recipient of services on record of the supplier of services shall be the place of supply of the such service.

Explanation to Section 9(12) clarifies that where the leased circuit is installed in more than one State and a consolidated amount is charged for supply of services relating to such circuit, the place of supply of such services shall be taken as being in each of the States in proportion to the value of services so provided in each State as ascertained from the terms of the contract or agreement entered into in this regard or, in absence of such contract or agreement, on such other reasonable basis as may be prescribed in this behalf.

(h) Banking and other financial services

According to Section 9(13) the place of supply of banking and other financial services, including stock broking services provided to any person is the location of the recipient of services on the records of the supplier of services.

The proviso to Section 9(13) says that if the location of the recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services.

(i) Insurance services

Section 9(14) states that the place of supply of insurance services is the location of the recipient (if the service is provided to a registered recipient) or the location of the recipient on the records of the supplier of services (if the recipient is not a registered person).

(j) Advertisement services to Government

According to Section 9(15), where advertisement services are provided to the Central Government, State Government, a statutory body or a local authority and the supply is meant for identifiable State, the place of supply shall be located in each State and the value has to be apportioned on basis of contract.

Supply in the course of import and export

The Integrated GST Model Law lays down an elaborate machinery for determining whether a supply is in the course of interstate trade or commerce or whether a supply is intra-state. When it comes to provisions for determining whether a supply is in the course of import or export, another elaborate machinery is set out in the model law.

Let us start with Section 3 of the Integrated GST Model Law. Sub-section (3) declares that a supply of goods in the course of import into the territory of India till they cross the customs frontiers of India shall be deemed to be a supply of goods in the course of interstate trade or commerce. Section 3(4) similarly declares that a supply of services in the course of import into the territory of India shall be deemed to be a supply of services in the course of interstate trade or commerce. Sections 3(3) and 3(4) simply enact what the Constitution says, through Explanation to Article 269A, that a supply in the course of import is deemed to be a supply in the course of interstate trade or commerce. This allows Integrated GST to be levied on all supplies in course of import. In fact, import of goods will now be subject to Customs as well as GST.

Now, “import of goods” is defined in Section 2(10) of the Integrated GST Model Law as bringing of goods into India. Similarly, “import of services” is defined in Section 2(11) of the Integrated GST Model Law as meaning a supply of services where:

1. Supplier of service is located outside India, and

2. Recipient of service is located in India, and

3. Place of supply is located in India.

On the other hand, “export of goods” is defined in Section 2(5) of the Integrated GST Model Law as taking goods out of India to a place outside India. Section 2(6) of the Integrated GST Model Law defines an “export of services” as a supply of services where:

1. Supplier of services is located in India

2. Recipient of services is located outside India

3. Place of supply is outside India

4. Payment for such service is in convertible foreign exchange

5. Supplier of service and recipient of service are not merely establishments of a distinct person in accordance with Section 5(1).

It is pertinent to note here that though the Integrated GST Model Law defines “import” and “export”, it does not specifically lay down any formula for determining whether a supply is in the course of import or export. A supply in the course of import or export will therefore have to be determined as per the principles evolved judicially under Article 286 before the Central Sales Tax Act, 1956 was enacted.

Section 8 deals with place of supply in case of goods imported or exported into India. It says that the place of supply of goods imported into India shall be the location of the importer and the place of supply of goods exported from Indian shall be the location outside.

According to Section 3(5) a supply of goods and/or services when the supplier is located in India and the place of supply is outside India is to be deemed as a supply in the course of interstate trade or commerce.

Section 10 determines the place of supply when the location of the supplier of services or the location of recipient of services is outside India. Again, it does not purport to define “supplies of services in course of import” or “supplies in the course of export”. It merely lays down the rules for place of supply when the location of the service recipient or the location of the supplier is outside India.

The thumb rule, as laid down in Section 10(2) of the Integrated GST Model Law, is that the place of supply of services in such cases is the location of recipient of service. In case the location of recipient of service is not available in the ordinary course of business, the place of supply shall be the location of the supplier. There are, of course, exceptions to this thumb rule which are set out in Sections 10(3) to 10(13).

Where services are supplied in respect of goods that are required to be made physically available by the recipient of service to the supplier of service or to a person acting on behalf of the supplier of services in order to provide the service, the place of supply as per Section 10(3)(a) is the place of actual performance of services. First Proviso to Section 10(3)(a) states that when such services are provided from a remote location by way of electronic means, the place of supply is the location where the goods are situated at the time of supply of service. Second Proviso states that Section 10(3)(a) is not supposed to apply in case of a service supplied in respect of goods that are temporarily imported into India for repairs and are exported after repairs without being put to any use in India, other than that which is required for such repairs.

Section 10(3)(b) speaks about services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the receiver or the person acting on behalf of the recipient, with the supplier for the supply of the service. The place of supply in this case is also the place of actual performance.

Section 10(4) says that the place of supply of services supplied directly in relation to immovable property, including services supplied in this regard by experts and estate agents, supply of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located.

The place of supply of services supplied by way of admission to, or organisation of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar events and of services ancillary to such admission, shall be the place where the event is actually held as per Section 10(5).

Place of supply for services supplied by a banking company, or financial institution or a non-banking financial company to account holders, intermediary services, hiring of means of transport other than aircrafts and vessels except yachts up to a period of month is the location of the supplier of services as per Section 10(8). Explanation to Section 10(8) says that for the purposes of that section, “goods” includes securities.

Place of supply of transportation of goods services, excluding by way of mail or courier, is set out in Section 10(9) as being the place of destination of goods. Section 10(10) says that the place of supply in respect of passenger transportation services shall be the place where the passenger embarks on the conveyance for a continuous journey. Place of supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, is the first scheduled point of departure according to Section 10(11).

Section 10(12)(a) deals with the place of supply of online information and database access or retrieval services and states that the place of supply of such services is the location of recipient of service. Section 10(12)(b) thereafter states that a person receiving such services shall be deemed to be located in the taxable territory if any two of the following non-contradictory conditions are satisfied, namely –

i. The location of address presented by the recipient of service via internet is in taxable territory

ii. Credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of service settles payment has been issued in the taxable territory

iii. Billing address of recipient of service is in the taxable territory

iv. Internet protocol address of the device used by the recipient of service is in the taxable territory

v. Bank of recipient of service in which the account used for payment is maintained is in the taxable territory

vi. Country code of the subscriber identity module (SIM) card used by the recipient of service is of taxable territory

vii. Location of the fixed landline through which the service is received by the recipient is in taxable territory.

Lastly, Section 10(13) authorises the Central Government to notify any description of service or circumstances in which place of supply shall be the place of effective use or enjoyment of a service in order to prevent double taxation or non-taxation or for the uniform application of rules.

Thinking is the capital, Enterprise is the way, Hard Work is the solution.

– A. P. J. Abdul Kalam