Recently, a circular dated 26.06.2024 (Ref: Circular No. 209/3/2024 – GST) was issued to clarify the place of supply for supplies made to unregistered persons (Circular). This Circular is in furtherance to a notification dated 29.09.2023 (Ref: Notification 02/2023 – Integrated Tax) which amended certain provisions of the Integrated Goods and Services Tax Act, 2017 (IGST Act). The said amendment introduced clause (ca) to Section 10(1) of the IGST Act, to inter alia prescribe that the place of supply for supplies made to an unregistered person would be the location as per the address of the relevant person as recorded in the invoice.
It is pertinent to note that as per the amended clause read with the Circular, where billing address is different from the address of delivery, the place of supply of goods, particularly being supplied through e-commerce platform to unregistered persons, shall be the address of delivery of goods recorded on the invoice and not the billing address. The clarification is in line with the intention of insertion of Section 10(1)(ca) of the IGST Act i.e., the revenue should flow to the State where the goods are being consumed.
However, this clarification is quite contrary to the already existing provisions for ‘bill to ship to’ transaction in case of supplies made to a registered person. In other words, as per Section 16(2)(b)(i) of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Section 10(1)(b) of the IGST Act, in a ‘bill to ship to’ transactions where the bill to and ship to parties are located in different States, the place of supply is the location of the ‘bill to’ party and tax is accordingly discharged. Accordingly, the taxpayers have been paying CGST and SGST where the goods are delivered to an unregistered person located in another State.
It will now be interesting to see the practice adopted by the departmental authorities for recovering taxes where the taxpayers have discharged CGST and SGST instead of IGST or vice versa, since Section 10(1)(ca) of the IGST Act has been inserted with effect from 01.10.2023 and the Circular has been issued on 26.06.2024. Thus, the taxpayers are left to guess the correct legal position for the transactions that took place between the two abovementioned dates. Will they face tax demands for the past period, or would the issue be regularized on as is basis in terms of the proposed Section 11A of the CGST Act?
Since this new Section 10(1)(ca) supersedes Section 10(1)(a) of the IGST Act, the place of supply would now be the location where the movement ends for delivery. The subject of what constitutes ‘supply involving movement’ is very debatable because goods are considered to entail movement only when they involve movement, either before or after supply and final delivery. This Circular also attempts to lay down the same position that is prescribed under Section 10(1)(a) of the IGST Act, so what is the difference?The Circular states that the clarification would apply to e-commerce transactions where the individual placing the order wishes to transfer the products to a third party in another State. However, the place of supply controversy for over-the-counter sales remains unresolved. Would this clarification solely apply to transactions made online?
Another issue that remains open is that if the clarification provided in the Circular is considered to be retrospective, whether the taxpayers can claim refund of the taxes paid under the heads of CGST and SGST and pay tax under the head of IGST for the past period by taking shelter under Section 77 of the CGST Act and seek waiver from payment of interest? Or can the taxpayers contest the same considering the already existing provisions and the practice adopted by them for making payment of tax?
It appears that the Circular supersedes the provisions of the IGST Act and is issued to solve a problem that never existed in the first place. This causes further confusion in the industry regarding how to actually put these clarifications into practice, as they do not attempt to address many significant issues presently faced by the industry, instead addressing a non-existent problem which only results in increased complications and confusion.
Brijesh Kothary, Partner and Saundarya Sinha, Associate at Khaitan & Co.
