Place of Supply of Goods

[SOPL SOPL]

Dear Sir/Madam,

we are supplying goods to our customer (having GSTIN No. starting with 97) . on client instructions we delivered the goods in Andhra pradesh (sea port), from the same port he is taking goods to oil rig.

Our issues;

1. whether the supply is interstate or intrastate ?

[KASTURI SETHI]

Dear Querist,

Where is your firm registered ? Name city and State.

[SOPL SOPL]

State - Andhra Pradesh

[KASTURI SETHI]

It is inter-State supply. IGST is applicable.

[Ganeshan Kalyani]

97 indicates export. It is interstate supply.

[SOPL SOPL]

Dear Sir

Sec 10(1)(i) says 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;

As per client instructions we agreed to delivery goods to Port located in Andhra Pradesh.

From our end movement of goods terminates for delivery to the recipient is Port in Andhra Pradesh.From this port client is taking goods to Oil Rig for which registration taken under 97-Other Territory. For Gst purpose Other Territory is part of India (with 200 nautical miles).

How to understand the line "movement of goods terminates for delivery to the recipient".whether it needs to be understood as

i) place where our delivery terminates to the recipient or

ii) destination of goods i.e ultimate delivery to the recipient

Kindly explain in detail with supporting case laws, circulars if any

[Alkesh Jani]

Dear Experts,

Will Section 9 of IGST Act, be applicable in the instant case, as sea port is within the territorial waters?

On referring The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, Upto 12 nautical miles from base line is of state and from more than 12 to 200 nautical miles is of Central for a costal states.

Thanks

[KASTURI SETHI]

Dear Sir,

My reply is based on the following reasoning :-

1. As informed by you goods are to be delivered to the recipient registered in the jurisdiction of "97-Other territory" This territory is not in Andhra Pradesh. Oil rig is in India but not not in A.P. (Code 37).

2. Goods are invoiced/billed to the recipient registered and located in Other territory-97 which is very much outside A.P. Code -97 neither covers State nor U.T.

3. In this scenario place of supply is under Section 10(1) (b) of IGST Act and not under Section 10 (1)(a) .

4. Section 10(1)(a) is not relevant for you in this scenario. Hence no need to explain the sentence, "movement of goods terminates for delivery to the recipient".

5. Ultimate delivery to the recipient will be relevant even if your buyer instructions you to deliver the said goods within A.P. This is as per (b) of Section 10(1).

In view of the above, IGST is applicable, it being inter-State supply and not intra-State supply.

[KASTURI SETHI]

Sh.Alkesh Jani Ji, Yes. There is a legal and logical logical force in your views. This aspect is also worth examination with the records of the party. Thank you very much for pointing out new avenue and possibility.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

On being pointed out by you, I have further studied about the correct place of supply vis-a-vis jurisdiction

Here is extract of CBIC Flyer No.1 dated 1.1.18. which is to be read with the parameters/provisions of Section 9 of IGST Act.

Nature of Registration

The registration in GST is PAN based and State specific. Supplier has to register in each of such State or Union territory from where he effects supply. Area up to 12 nautical miles in the sea is considered part of the nearest coastal State where the nearest point of appropriate base line is located. Area beyond 12 nautical miles and up to 200 nautical miles, which is not covered under any Union Territory is considered as a separate Union territory for the GST law. A person registered in one State is considered ‘unregistered person’ outside the State. If a person has unit in SEZ or is a SEZ developer and also unit in Domestic Tariff Area (i.e. outside the SEZ) in the same State, then he has to take separate registration for his SEZ unit/as a SEZ developer as a separate place of business of him. If a supplier also wants to distribute credit to his same-PAN entities, then he will take separate registration as ‘input service distributor’ in addition to his registration as ‘supplier’. Unlike service tax regime, the GST law does not have the facility of centralized registration for units across multiple states.

SECTION 9. Supplies in territorial waters. - Notwithstanding anything contained in this Act, -

(a) where the location of the supplier is in the territorial waters, the location of such supplier; or

(b) where the place of supply is in the territorial waters, the place of supply,

shall, for the purposes of this Act, be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

If we read above conjointly, the nearest point of the appropriate baseline is within 12 nautical miles beyond 12 is outside State or U.T. In other words, Other territory-97 is to be treated as outside State.

Now the place of supply depends upon where oil rig is located in Territorial Waters. Whether within 12 nautical miles or beyond 12 nautical miles ? If within 12 nautical miles CGST/SGST is applicable and if beyond 12 nautical miles IGST is applicable

It is worthwhile to go through the following FAQ released by CBIC on 15.12.18.

Q9. What is a State in the context of GST?

Ans. The definition of Union Territory in Article 366(30) of the Constitution means any Union Territory specified in the First Schedule of the Constitution and includes any other territory comprised within the territory of India but not specified in that Schedule. The territorial water is not referred to in the First Schedule of the Constitution, and therefore, as per the Constitutional provision, territorial waters up to twelve nautical miles is part of Union Territory.

In case of Great Eastern Shipping Company v. State of Karnataka and Ors. on 23 January, 2004 - 2004 (1) TMI 649 - KARNATAKA HIGH COURT before Karnataka High Court, the Court held that State of Karnataka had taxation powers over territorial waters. The matter was appealed against before the Supreme Court and the Supreme Court in Civil Appeal No. 3383/2004 - 2016 (1) TMI 1395 - SUPREME COURT has stayed the order of the High Court. The Hon’ble Supreme Court on 13-1-2016 while hearing this case had observed as follows : “any pronouncement of the court would have far reaching implications not only for central state relationship but the federal character and separation of legislative powers of the union and the States”.

The GST Council in its ninth meeting held on 16th January, 2017 took the decision that the territorial water within the twelve nautical miles shall be treated as the territory of the Union of India unless the Hon’ble Supreme Court decides otherwise in the on-going litigation on the issue but the power to collect the State tax in the territorial waters shall be delegated by the Central Government to the States.

Accordingly, for supplies in territorial waters, section 9 of IGST Act gives powers to States to levy GST. Section 9 is reproduced below :

Notwithstanding anything contained in this Act,-

(a) where the location of the supplier is in the territorial waters, the location of such supplier; or

(b) where the place of supply is in the territorial waters, the place of supply, shall, for the purposes of this Act,

be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

Further, explanation clause to section 25(1) of CGST Act, 2017 on registration provisions provides that every person who makes a supply from the territorial waters of India shall obtain registration in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

I am looking forward to your response.

[KASTURI SETHI]

I amend my reply as under:-

"Now the place of supply depends upon where oil rig is located in Territorial Waters. Whether within 12 nautical miles or beyond 12 nautical miles ? If within 12 nautical miles CGST/SGST is applicable and if beyond 12 nautical miles IGST is applicable."

The above should be read as under :

Now the place of supply depends upon where the buyer/recipient is located/registered.Whether within 12 nautical miles or beyond 12 nautical miles ? If within 12 nautical miles CGST/SGST is applicable and if beyond 12 nautical miles IGST is applicable."

The words, 'oil rig' is replaced by the words, 'the buyer/recipient'.

[SOPL SOPL]

Dear Sir, as per our understanding in our case section 10(1)(b) is not applicable

Sec 10(1)(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, 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;

Above section applies only if three parties (Supplier, third party,recipient) are involved in a transaction and supplier of goods supplies on the direction of third person i.e bill to ship model.Here supplier raises invoice on third party and third party raise invoice on recipient.

Kindly provide your comments on above.

[KASTURI SETHI]

Suppose A is supplier registered in A.P. B is his customer registered in Telangana. B instructs A to deliver the goods to C in A.P. It will be inter-State supply despite the goods are delivered in the same State i.e. A.P. This supply will not be intra-State supply Now how C disposes of goods, A has nothing to do with that. A's actual buyer is B and not C. To whom the supplier raises the bill and who makes the payment to the supplier are determinant factors.

In the above example, if C makes payment to A on behalf of B, the actual buyer is be B.

Hope above example will help you to understand what is correct place of supply in the scenario given by you in the query.

You may apply above analogy to determine place of supply.

[Alkesh Jani]

Shri Kasturiji Sir,

Pranam,

I am in response to your reply No. 9 dated 15.12.2021. In your language you deserve “Kudos” for detailed analysis made in the instant case. For place of supply, you have already stated in your reply,

“Now the place of supply depends upon where the buyer/recipient is located/registered.Whether within 12 nautical miles or beyond 12 nautical miles ? If within 12 nautical miles CGST/SGST is applicable and if beyond 12 nautical miles IGST is applicable."

In the instant case, as the recipient is registered with other Union territory with State code -97, as the recipient may be beyond 12 nautical miles, which is under the jurisdiction of Central, the place of supply is Inter-state supply and IGST is applicable.

Moreover, IGST is applicable in terms of Section 9 of IGST Act and not as per Section 10 of IGST Act. (in any case there is no revenue loss)

The second query raised at No.5, for termination of delivery of the goods.

In this regard, the Advance Ruling in the case of M/s. Penna Cement Industries Limited - 2020 (6) TMI 162 - AUTHORITY FOR ADVANCE RULINGS, HYDERABAD TELANGANA (GST AAR Telangana) may be referred for determining the place of supply of goods, which states that

“Consequently, the ‘location of supplier’ and the ‘place of supply’ fall under different states and the supply qualifies as inter-State supply. Accordingly, we hold that, the supplier in the stated instance is liable to charge IGST in respect of ex-factory inter-State supplies made by them.”

Of course, the ruling given is applicable only to the applicant and jurisdictional Officer, but interpretation for place of supply can be referred. GST is destination base taxation, the goods should reach the place of the recipient, in case of movement of goods, either by supplier or by recipient, also movement of goods partly by the supplier and partly by the recipient, the destination of the goods is the place of the recipient. Till any other decision of the higher forum is available, above decision can be taken into account to determine the place of supply of goods.

In view of above, IGST is applicable although the delivery of the goods is terminated in the same state.

Sir, It is said ‘Man's greatness lies in his power of thought. Blaise Pascal’ and you got tremendous power of thought.

Thanks

With Due Regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

I fully agree with you. You changed my recourse from Section 10 to Section 9 of IGST Act. That is why, thereafter, I pondered over your suggestion and posted comprehensive reply based on Section 9.

I am overwhelmed with your outpourings for me with regards and support.

 

[SOPL SOPL]

Finally my doubt got cleared with the help of advance ruling made under Sec 10(1)(a) in which it is very clearly mentioned that ultimate destination of goods i.e place where delivery of goods terminates ultimately to recipient from recipient point of view should be considered.

In my case Section 9 is not applicable as my client is not situated in territorial waters (i.e up to 12 nautical miles). That why he registered under 97-Other Territory but not under nearest state Andhra Pradesh. Had he situated within 12 nautical miles he would have taken registration in 37- Andhra Pradesh.

In my case IGST is applicable.

Thank you Alkesh Jani and Kasturi Sethi for your valuable inputs.

AI Summary

Place of supply: recipient's registered location governs GST treatment, making supplies to outside coastal recipients inter state. Where goods are delivered at a State port on the buyer's instructions but the buyer is registered outside the coastal State (other territory), the recipient's registered location governs place of supply. Even if the supplier's movement of goods terminates at a port within the State, GST rules and territorial waters provisions treat a buyer located outside the coastal State as making the supply inter State; accordingly, IGST applies. Advance rulings and guidance on territorial waters support treating ultimate recipient location and registration as decisive, including in bill to/ship to or third party instruction scenarios.