The place of supply for export sometimes differs from the physical location of the goods or services. Depending on the nature and circumstances of the supply, the place of supply may vary from the origin or destination of the goods or services. Therefore, the supplier and the recipient must understand the place of supply determination for export supplies and how it affects their tax obligations and compliance requirements.
This blog will explain the export supply location determination process and how to apply it to different export supplies. We will also discuss some common issues and challenges regarding supply determination for export supplies and how to resolve them.
Understanding Place of Supply
The place of supply is an essential concept under GST. It determines whether a transaction is intra-state or inter-state. Accordingly, it also decides the applicable tax rate and the revenue allocation among the states. The place of supply for export supplies generally refers to the recipient’s location of the goods or services. This is because GST is a destination-based tax.
Determining place of supply for export transactions
The recipient’s location of the goods or services typically determines export transactions. However, when the system does not readily have information about the recipient’s zone, it designates the place of supply as the location of the supplier of the goods or services. This approach ensures a systematic determination of the place of supply, facilitating smooth and accurate implementation in export scenarios. It establishes a clear protocol for tax jurisdiction, contributing to the efficiency and compliance of export transactions.
Factors influencing place of supply for export supplies
Nature of Goods or Services:
The type of goods or services involved in an export transaction significantly influences the determination of the place of supply. Different regulations may apply based on whether the export involves tangible goods, intangible services, or a combination.
Mode of Delivery or Transportation:
The chosen mode of delivery or transportation is another crucial factor. The mode of transport—whether goods are shipped by sea, air, land, or a combination of these—can impact the determination of the place of supply.
Involvement of a Third Party:
When a third party participates in an export transaction, it complicates determining the place of supply. All parties must clearly document and understand their roles.
Location of the Special Economic Zone (SEZ) Unit or Developer:
In cases where export transactions involve entities within a Special Economic Zone (SEZ), the location of the SEZ unit or developer becomes a pertinent factor. SEZs often have distinct regulations and tax incentives. Therefore, the place of supply considerations may differ when dealing with transactions originating from or involving these designated zones.
Guidelines for identifying place of supply in exports
- If the export involves the movement of goods, the location of the supply depends on who moves the goods. This can be the supplier, recipient, or any other person involved in the transaction. The movement ends when the supplier delivers the goods to the recipient.
- In cases where the export involves the delivery of goods by the supplier to the recipient, the supplier acts under the direction of a third party. The place of supply is the principal place of business of the third party.
- This includes scenarios where the transfer of titles or documents facilitates the delivery.
- If the supplier exports goods that require assembly or installation at a specific site, the location of that installation or assembly becomes the place of supply.
- When the supplier exports goods on board a conveyance, such as a vessel, aircraft, train, or motor vehicle, the place of supply is the location where the goods are taken on board.
- For the export of services, the place of supply is the recipient’s location. However, if the recipient’s site is unavailable, the place of supply defaults to the service provider’s location.
- In cases of export involving services related to immovable property, such as architectural, engineering, or construction services, the place of supply is the location of the immovable property.
- If the export pertains to services related to events like admission, organisation, or participation, the place of supply is where the event occurs.
- For the export of services provided by a banking company, financial institution, or non-banking financial company to account holders, the place of supply is the service provider’s location.
- If the export involves the supply of services by way of the transportation of goods, including mail or courier services. The place of supply is the destination of the goods.
- In cases of export involving the supply of services by way of transportation of passengers, the place of supply is where the passenger embarks on the conveyance for a continuous journey.
- For the export of services by way of OIDAR, the place of supply is the location of the recipient of services.
- Suppose the export involves goods or services to a Special Economic Zone (SEZ) unit or developer. In that case, the place of supply is the location of the SEZ unit or developer.
- For exports involving goods or services notified as deemed exports by the Central Government, the place of supply is the location of the recipient of goods or services.
Legal Consideration for determining place of supply for exports
Legal aspects influencing the determination of the place of supply for exports stem from the regulations outlined by the IGST Act, 2017.
The corresponding rules and notifications supplement these regulations. The IGST Act characterises the export of goods as taking goods out of India to a destination outside the country.
At the same time, the export of services is defined as the provision of any service where the supplier operates in India. The recipient is situated outside India. The place of supply is beyond Indian borders. Payment is received in convertible foreign exchange or Indian rupees, as permitted by RBI.
These legal stipulations are crucial in establishing the parameters for determining the place of supply in export transactions.
Also Read: What Is An Export Supply?
Conclusion
The place of supply plays a crucial role in the taxation of export supplies. It determines both the supplier’s and the recipient’s tax liability and compliance obligations. To determine the place of supply, one must apply the export supply location determination process. This process can vary from country to country and from supply to supply.
It requires the supplier or recipient to consider various factors and criteria. Additionally, they must provide sufficient proof of the place of supply. The strategy ensures that the export supply is taxed in the appropriate jurisdiction. It aims to avoid both double taxation and non-taxation of the supply.
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Frequently Asked Questions(FAQs)
What is the meaning of Deemed Exports under GST?
Deemed Exports, as per GST, refer to specific categories of supplies of goods that are treated as exports even if the goods are not taken outside India.
Who can claim a refund for Deemed Exports under GST?
The supplier of goods or the recipient can claim a refund of tax paid on Deemed Exports, subject to certain conditions.
