Pradeep Jain - Chartered Accountant

GST Update on determination of place of supply in case of Ex - factory sales 55/2020-21

Since inception of GST Law, there was confusion as regards the determination of place of supply in case of ex-factory or ex-showroom sales wherein the transfer of property in goods is transferred at the factory gate or the showroom. However, it appears that the doubts prevailing in the minds of the assessee has been resolved by the recent Advance Ruling pronounced by Telangana AAR in the case of M/s PENNA CEMENT INDUSTRIES LTD. The issue before the Telangana AAR in this case was regarding what tax should be charged on ex-factory inter-state sales made by the applicant.

It is pertinent to refer to the provisions contained in section 10(1)(a) of the IGST Act, 2017, which reads as follows:-
10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,––

(a) 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;

The meaning of the phrase “ location of goods at the time at which movement of goods terminates for delivery to the recipient” is to be seen from the supplier’s perspective or the recipient’s perspective was not clear as both the perspective fetched different results. If the phrase was to be considered from supplier’s perspective, then the movement of goods terminates for delivery at the factory gate or showroom whereas if it is considered from the perspective of recipient, it is the place where goods are actually taken for consumption. This is for the reason that the starting language of the clause mentions that movement of goods can by either by supplier or the recipient or any other person. As there was no clarity regarding the point where movement of goods terminates, there was doubt regarding considering such transaction as inter-state or intra-state.

Consequently, the Telangana Advance Ruling seeks to resolve the doubt and rules that on careful appraisal of the provisions of section 10(1)(a), it is found that if in case of ex-factory sales, the recipient is engaged in movement of goods to another State, then in such case, movement of goods terminates at the place of destination where the goods are finally destined as per the billing address. This is for the reason that movement of goods can be either by the supplier or the recipient. Accordingly, it is to be inferred that where supply involves movement of goods, whether by supplier or recipient or any other person, place of supply is to be determined with reference to the location where movement of goods is ultimately terminated.

To illustrate-if Mr. X having GST registration in Jodhpur (Rajasthan) purchases laptop from a Dell Showroom registered in Delhi, then in that case, even if the ownership of laptop is transferred at the showroom itself and the movement of laptop from showroom to Jodhpur is on account of Mr. X, the supplier will consider the transaction as inter-state transaction as place of supply in this case would be the place where movement of goods terminates being Jodhpur.

In our opinion, this advance ruling is in consonance with the provisions of GST Law on the following grounds:-

Even if movement of laptop is on account of Mr. X, e-way bill needs to be generated if the value of laptop exceeds Rs. 50,000. Mr. X would generate e-way bill as citizen and this facility is available on e-way bill portal. This proves that movement of goods terminates at Jodhpur as the GST law necessitates generation of e-way bill in this case also.
If the transaction is considered as inter-state transaction, the supplier will charge IGST and consequently, Mr. X, registered person will be able to avail input tax credit. However, if the transaction is considered as intra-state transaction, the supplier would charge CGST Delhi and SGST Delhi due to which Mr. X would not be able to claim input tax credit and such GST would become cost to Mr. X which is against the principle of seamless flow of input tax credit. It will lead to cascading effect which is not desirable.
GST is consumption/destination based tax which entails that the SGST portion of the tax should accrue to the State where the goods and services are consumed. In the present case, if the transaction is considered as inter-state transaction, the SGST portion of the IGST would be given to Rajasthan Government which is correct as per the consumption based principle as the goods are ultimately consumed in the State of Rajasthan. If the transaction was considered as intra-state transaction, the SGST portion would have gone to Delhi where goods were not consumed and so it would be against the concept of destination based taxation.

In the GST regime, the decisions of Advance Rulings are generally pro-revenue but this decision is a boon for the assessees as it clarifies all the doubts regarding interpretation of section 10(1)(a) of the IGST Act, 2017.

This is solely for educational purpose.
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GST Update on determination of place of supply in case of Ex - factory sales 55/2020-21

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