How to determine Place of Supply of Goods - Section 7 r/w Section 10 of IGST Act

As we all know, GST is a destination based tax. Whether CGST/SGST or IGST is to be charged will depend upon whether a particular transaction is Intra State or Inter State. Whether a transaction is Intra State or Inter State will be determined by Place of supply.  Thus, the concept of "Place of Supply" is extremely important for understanding GST. The concept of Intra-State and Inter - State has been defined in IGST ACT, 2017. Section 7 r/w section 10 of IGST Act deals with Place of Supply of goods. Here I will try to analyse each section one by one.

Section 7 - defines what constitutes an Inter State Sale of goods. It states that supply of goods where the location of the supplier and place of supply (Please note it is not place of recipient of goods) are in

i) two different States; or

ii) two different union territories; or

iii) a state and a union territory, 

shall be treated as a supply of goods in the course of inter state trade or commerce.

However, this section has been subjected to provisions of  section 10 of IGST Act, 2017. It means section 7 needs to be within the framework of section 10.  Therefore, lets examine the provisions of section 10 simultaneously.

Section 10 -  It determines place of supply for goods in all cases except for Import & Export

Section 10(1)(a) - states that "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"

My understanding is that it covers the situation where :

• There is direct sale between seller & buyer; and
• Goods are delivered to buyer itself (not to branch or any other client)
• If the above two conditions are satisfied, then the place of supply shall be where the movement terminates for delivery, i.e. where the ownership is transferred. Please note that the Place of recipient is irrelevant. 

Let us try to understand it with an example:

• Mr A of Delhi sells goods to Mr B of Lucknow. Mr A ships the goods from his shop in Delhi to the shop of Mr B in Lucknow. In this case, since the goods moved from Delhi to Lucknow, hence Mr. A will charge IGST to Mr B in accordance with section 7 read with section 10(1)(a).

Section 10(1)(b) - states that where the goods are delivered by the supplier to a recipient (here the recipient is the person to whom goods are delivered) or any other person on the direction of a third person (it is the actual buyer, the person with whom the contract for sale has been entered into, i.e. the recipient as defined in law), whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person

My understanding of the section is that it covers the situation where :

• there is an agreement to sell between seller & buyer (referred to as third person); and
• the buyer directs the seller to deliver the goods to some other person (referred to as recipient); then
• it will be deemed that the place of supply has been to the actual buyer and not to the person to whom goods have been delivered. Hence, for determining whether CGST/SGST or IGST needs to be charged, place of supplier & buyer holds importance. Please note that unlike section 10(1)(a), place of termination of delivery of goods holds no importance for this section.
• This is a case of Bill to Ship to transactions

Let us try to understand it with some examples:

• Mr A of Delhi sells goods to Mr B of Lucknow. Mr B directs Mr. A to deliver the goods to Mr C ( a customer of Mr A) in Delhi itself. Mr A ships the goods from his shop in Delhi to Mr C in Delhi. In this case, though the goods moved within Delhi itself, but it was on instruction of Mr B.  Hence, it is deemed that the place of supply of goods is where Mr B is located, i.e. Lucknow. Therefore, Mr. A will charge IGST to Mr B in accordance with section 7 read with section 10(1)(b). Mr B will subsequently bill Mr C and charge IGST to him. 
• Mr A of Delhi sells goods to Mr B of Delhi.  Mr B directs Mr. A to deliver the goods to Mr C ( a customer of Mr A) in Lucknow. Mr A ships the goods from his shop in Delhi to Mr C in Lucknow. In this case, though the goods moved from Delhi to Lucknow, but it was on instruction of Mr B. Hence, it is deemed that the place of supply of goods is where Mr B is located, i.e. Delhi. Therefore,  Mr. A will charge CGST & SGST to Mr B in accordance with section 7 read with section 10(1)(b). Mr B will subsequently bill Mr C and charge IGST to him. 
• Mr A of Delhi sells goods to Mr B of Lucknow. Mr B directs Mr. A to deliver the goods to Mr C ( branch of Mr B) in Delhi itself. Mr A ships the goods from his shop in Delhi to Mr C in Delhi. In this case, though the goods moved within Delhi itself, but it was on instruction of Mr B.  Hence, it is deemed that the place of supply of goods is where Mr B is located, i.e. Lucknow. Therefore, Mr. A will charge IGST to Mr B in accordance with section 7 read with section 10(1)(b). Mr B will not issue bill to his own branch but will only book the credit. In accounts, this transaction shall be recorded as mere stock transfer entry. Please note that in GST, a branch, located in another state is a distinct person under law. Hence, section 10(1)(b) would be applicable in this case. 

Section 10(1)(c)- states that where the supply does not involve movement of goods, whether, by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient.

For example, 

• Bharat Limited registered in Maharashtra sold its pre-installed transmission tower(electric tower) located at Madhya Pradesh to Hindustan Limited registered in Delhi. In this case, the location of the supplier is Maharashtra, but a place of supply will be Madhya Pradesh. Hence, IGST will be levied. ( Example is originally published in bcasonline material about Place of Supply - https://www.bcasonline.org/files/res_material/resfiles/Place_of_Supply-GST.pdf). 

Section 10(1)(d) - states where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly.

For example,

• Mr A of Delhi went to Noida (U.P) and ordered 50 ACs for his office in Delhi. The ACs are installed in Delhi. Thus, the place of supply would be Delhi and hence it would be an inter state sale. The Shopkeeper in Noida would charge IGST to Mr A. 

Section 10(1)(e) - states where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.This provision includes those purchases which are done while traveling on a conveyance.

For example,

• Mr. Mehta is traveling on a cruise liner from Mumbai to Goa. He purchases a book from the in-house store in the cruise liner. These books were on-boarded from Mumbai. Registered place of business of the book shop is in Mumbai. Place of supply, in this case, will be Mumbai. This is an intrastate supply, and CGST and SGST will be charged. ( Example is originally published in bcasonline material about Place of Supply - https://www.bcasonline.org/files/res_material/resfiles/Place_of_Supply-GST.pdf). 

I hope I have been able to add a little clarity to the concept. I welcome and value your useful suggestions.

Thanks for reading!