Role of State Codes in Determining the Place of Supply

GST is a tax that is based on the destination. The tax is based on the supply at the destination. The place of supply of POS determines the destination of the supply and helps us to know the jurisdiction of the tax.

Introduction

In today’s article, we will try to understand the role of state codes in determining the place of supply. You see, GST and POS are directly proportional to each other. Unless someone finds out the POS, the wrong country, state, or union territory will receive the GST.

Without further ado, let us delve into the post.

How do you determine the place of supply?

There are some places of supply rules according to section 10 of the IGST Act, regarding the place of supply of goods in domestic transactions. We will be reading them to get a clear picture of the place of supply of goods:

Movement of goods

The movement of goods involves transporting goods from one location to another. Here, the place of supply or POS indicates the location of the recipient where the goods are delivered. For example, if the seller is from Gujarat, and is selling products to a buyer in Madhya Pradesh.

As we can see, they transport the products from Gujarat to Madhya Pradesh, and then they apply IGST for the supply of goods. The reason for that is it is an inter-state transaction.

No movement of goods

In some cases, there is no movement of goods. Here, the place of supply of the goods becomes the location of the products delivered to the recipient. For instance, a buyer from one state goes to another state to purchase goods.

No one has moved the products or goods from one state to another. So, the place of supply of goods is the state from where the buyer has purchased the goods. In this case, the type of transaction involves intra-state supply, and they apply both CGST and SGST.

Goods sent to the third party

In some cases, a third party requests that we send the goods. In this sense, the supplier delivers the products at the request of the third party to the buyer. They do it on behalf of the recipient.

In this kind of transaction, the place of supply of goods is the location of the third party. For example, a third-party seller can request the supplier to provide a buyer who is based in another state with the products on their behalf.

It becomes an interstate transaction in most cases.

Installation of goods at a site

In this case, the goods are provided at a site. Here, the place of supply is the location where they install such goods. Let us say, that a buyer from Maharashtra orders a product from a seller who is based in Delhi.

The seller installs the product at the premises of the buyer, who is based in Maharashtra. So, the place of supply is Maharashtra. They apply the IGST as it is obvious this is an inter-state transaction.

Goods supplied on a conveyance

Suppliers use a conveyance like a vehicle, train, or aircraft to supply the goods. The place of supply or POS is the place where they load the goods on board. For example, if a train provides food for the journey from Delhi to Ranchi.

The train receives the food parcels from Lucknow. So, in this case, the place of supply of goods will be Lucknow, UP.

While most of the goods are tangible, you can easily determine their place of supply consumption. However, in the case of services, we need to address several challenges to know the place of supply.

Below, we mention some of the difficulties:

• The billing address of a customer using a telecom service can be altered without anybody knowing about it. 
• In most cases, the receiver of the service, the service provider, and the actual service provided may not accurately reflect reality, as no tangible items move.
• Besides, having a fixed location for the service provider is not necessary for both the supplier and the recipient of the service.

The service providers use the different elements involved in a service to determine the place of supply of the service. It is important to note that these elements give more precise results than other methods for finding out the place of supply.

Some of the elements used for finding out the place of supply of service include the following:

• The accurate location of the service provider.
• The proper location where the activity happens.
• The location where someone consumes or gives the service.
• The place where the benefit goes to or the individual to whom the actual benefit goes.

These elements serve as proxies that can help determine the actual place of supply of services.

What is the place of supply within the state?

The place of supply within a state or other states happens when there is movement of goods or products. The place of supply within the state is taken as the destination where the goods or the products are finally given.

When the seller transports the goods or the products to the billing address of the buyer, it is the principal place of business. However, there are certain scenarios where the place of supply of goods can’t be found.

In this case, we can find the place of supply such that we can prescribe it. Likewise, some of you may ask, how is the GST applied for goods that are delivered in the same state but the billing address in another state?

Firstly, it is known as a ‘bill to ship to’ consignment. According to the provisions given in IGST Act – section 10(3), the place of supply of the goods delivered to a person on behalf of a third party is the location.

The system uses the billing address as a central criterion in determining whether the supply is intra or inter-state. Sometimes it also becomes the responsibility of the third person to understand the taxing of the transaction between the seller and the buyer.

What is the provision of GST relating to the determination of the place of goods supplied?

The provision of GST relating to the determination of the place of the goods supplied is that it should tax the consumption at the destination. It simply means that the destination where the supply has taken place is taxable. 

The tangible products don’t determine the place of consumption. Some of the services that are tangible with the place of supply depend on some of the factors that include,

Factors

• You can sometimes change a telecom service package from a pre-paid to a post-paid package. But the billing address can be still the same. Likewise, the billing address can be changed, and the repair of software can be done through online as well. In the banking sector, the customers had to visit the branch to get things done, but today, can log on to the official website and complete the work from anywhere. 
• A service provider does not have to decide on a fixed location. Sometimes, the recipient can get the service on the go. Moreover, you can alter the destination of the billing or the billing address if required.
• We can take the example of the construction of a bridge that originates from one state and then ends in another state. You need to consider the length of the bridge. Usually, the length may vary. It won’t be equal or the same for both states. Airlines issue seasonal tickets, that contain 10 tickets that can be used for travel purposes between two cities in India. Travellers can make use of the tickets to travel between the cities of their choice.

It is interesting to note that the services are evolving and may pose newer challenges to the state codes in determining the place of supply. You can see that 20 years ago, there were no online banking, online transactions, and booking systems available.

What is the place and supply in GST?

As we read above, the main aim of understanding the POS or place of supply is to know where the GST has to be charged or levied. When they levy the GST, the state and central governments share the revenue that they generate, wherever applicable.

When the place of supply is outside the taxable territory (outside India), it is classified as an export subject. That means the buyer can claim refunds as and when they want to. This is provided in the ITC/ IGST on such supply. 

The wrong POS given will result in the wrong category of the supply and eventually lead to the wrong state or UT receiving the revenue. Of course, the mistake can be rectified by ensuring that the right tax is paid (Sec 77 of CGST ACT & SEC 19 of IGST ACT).

We can divide the place of supply under GST into the following categories:

• The place of supply of services.
• The location of the supplier and recipient in India.
• Where the location of the supplier and recipient is out of India.
• Place of supply in case of Imports/exports.

Table 1

Now, there are also cases where the place of supply of goods cannot be determined. In such situations, the place of supply shall be determined in such manner as may be prescribed.

What is the relevance and need for determining place and supply?

According to section 10(1)(a) of the IGST Act, the supplier determines the place of supply of goods as the location of the goods when the movement of goods is completed to the recipient. In this sense, once the seller delivers the goods to the buyer at a particular location, the buyer considers it a place of supply (POS).

It could be a particular state like Gujarat or Maharashtra. According to the GST state codes, the tax is levied. As we may know the state codes in GST is a destination-based indirect taxation system. So, the POS is vital to know the state, city, or town that the destination state, and GST is payable.

• You see, the supply can be intrastate when the location of the supplier, and place of supply are happening in the same state. You have to give both the CGST & SGST.
• Likewise, the supply is interstate when the location of supplier, and place of supply is happening in different states. You have to only pay the IGST.
• Finally, they export the supply when the location of the supplier is in India and the place of supply is outside India.

Types of Supply and GST Implications

We can say that POS is a central concept in GST Laws. As you may also know India follows the dual GST model. Here the Central Government and the State Government can charge the tax on the common tax base. 

So, an Indian citizen will have to pay four kinds of tax. They are GST-IGST, UTGST, CGST, and SGST. The Central Government charges the IGST and CGST. However, the State Governments or Union territories charge the SGST and UTGST.

The GST that you have to pay for a particular transaction depends on the location of the supplier and the place of supply. If the location of the supplier and place of supply is the same, then it is an intra-state supply, and the tax charged is CGST+SGST/UTGST.

Likewise, when the location of supplier, and place of supply are in two different states, then it becomes an inter-state supply. The tax charged is IGST.

Also Read: Place Of Supply And Taxation In Bill-To/Ship-To Transactions: GST Rates And Compliance

What is the role of supply under GST?

The role of supply under GST is quite simple. The supply has to be taxable for it to attract GST. The taxable supply is actually the supply of goods or services that can be taxed. Of course, there can be some exemptions to the specified goods or services.

It can also be done for a specified category of persons who are making the supply. Likewise, we may want to understand the definition of goods. Goods or services are a kind of movable property other than money.

However, they can include actionable claims and things attached to land. They can agree to sever these when the supply is done. Likewise, services refer to activities other than goods and securities that involve using money in various modes, transitioning from one form to another, for which someone charges a separate fee.

For instance, a transfer of goods would be a supply of goods. However, people take the transfer of rights in goods without transferring the title as services. It can be in money or kind. The good news is that the Central Government or a State Government is offering the subsidies.

In this case, the person who has made the payment does not matter. That is because the deposit is provided in respect of the supply of goods or services or both. But we can’t consider them as payment.

Conclusion

This is it. We have come to the end of our discussion on the role of GST state code determination in the place of supply. We understood the importance of the place of supply (POS), how do you determine the place of supply, the place of supply within the state, and the provision of GST relating to the determination of the place of goods supplied?

Read also about the place and supply in GST, its relevance and need for determining place and supply, and finally, the role of supply under GST.e

Also Read: Understanding GST Time of Supply for Goods and Services

Also Listen: GST: A Global Tax Revolution, Its Impact and Future Prospects

FAQs

• Why is the place of supply important?

The place of supply of goods is a crucial element in understanding if the transaction taking place is inter-state, import-export, or intra-state. It helps in knowing the kind of tax that has to be paid including, central (CGST) and state (SGST) taxes, or integrated tax (IGST).

• How do you determine the place of supply?

The place of supply is determined by noticing the location of the goods when it is being delivered to the buyer. So, if someone does not move the products during a transaction, they assume the place of supply as the location of the product during the delivery to the buyer.

• What happens when the location of the supplier and the place of supply are in two different states?

It is an interesting development, but there is a solution. If a supplier operates from one state and provides services to another state, the supply is known as inter-state supply of services. This happens, when the location of the supplier, and the place of supply happen in different States.

• How do you identify if supply involves supply of goods and supply of services?

Sometimes, there can be a transfer of right in goods. This may happen without the transfer of title. In that case, we call it a supply of service. When you are using the transportation services, then you have the right to use the service. However, the ownership rights remain with the transportation company.

• What is Supply Under GST?

If a situation arises where the third person receives the goods, the business of the third party will be considered as the place of supply. For example, if the place of supply has taken place in Mumbai, Maharashtra, then the same state CGST & SGST is charged.

• What is the POS rule in GST?

The POS rule or the place of supply rule in GST specifies that the authorities will treat international transactions as the place of supply. This is when the service recipient’s location is determined, and when the service recipient’s location is not given, the supplier’s location is the place of supply.

• What is a state code?

The GST assigns a unique code to each state as a state code. This way, you can understand the GST state code. It represents regions including provinces, states, and even countries.

• Who determines the GST state code?

Unique numbers that every state or UT serially assigns determine the GST state code. The GST state code for Maharashtra is 27, and the GST state code for Karnataka is 29.

Sumith Roul Content Writer

Sumith Roul has post-graduation in computer science from Vellore Institute of Technology (VIT), then he decided to become a content writer. He has a writing career spanning more than 18 years, and He has worked with several international clients. His work involves several niches including GST, finance, stock market, and so on. I have designed & worked on several hundred product reviews, blogs, PRs, and other forms of content as well.

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