How to Determine the Place of Supply in Case of Bill to-Ship to Transactions

By Registrationwala

1st May 2017

 

Talking about the Bill to – Ship to standard, the billing and shipping of goods is done between two states and entities. To refrain the cascading of multiple taxes through the series of the transaction, the first sale will be taxable, and any consequent sale thereby, during the movement of goods would be exempted from any tax imposition.

Today, Bill to – Ship to transactions are a commonplace episode.

To make it more apparent and easy to comprehend,an illustration has been outlined below for Bill to- Ship to transactions.

Global Traders, a dealer in hardware goods, situated in Maharashtra receives an order from Mansa Traders, which is placed at Karnataka. The order is for the supply of 100 aluminum ladders, with a stipulation to ship the ladders to Prime Hardwares, located in Tamil Nadu which is a customer of Mansa Traders.

There are two parts to this transaction:

  • First part of the transaction- between Global Traders and Mansa Traders: 

Global Traders is the supplier of the aluminum ladders, while Mansa Traders is the buyer.
In this case Global Traders bills the transaction to Mansa Traders and according to the stipulation Mansa Traders ships the goods to Prime Hardwares located in Tamil Nadu.

  •  Second part of the transactionbetween Mansa Traders and Prime Hardwares: 

In this case, Mansa Traders is the supplier and Prime Hardwares is the buyer. Mansa Traders bills the transaction to Prime Hardwares, and affirms the lorry receipt (goods shipped in a lorry by Global Traders) in favor of Prime Hardwares. The lorry receipt (LR) will enable Prime Hardwares to take the delivery of the goods.

Now, antecedently proceeding to figure out what Bill to- Ship Transactions in GST is, one needs to comprehend how these transactions are taxed under the prevailing tax framework.

Bill to-Ship to transactions is taxed under the present tax regime?

In Bill to -Ship to transactions, first sale is done followed by a consequent sale.In the current tax framework, tax is levied on both parts of the transaction – on the first sale by Global Traders to Mansa Traders, and the subsequent sale by Mansa Traders to Prime Hardwares.
On the other hand to bypass taxes calculated multiple times through the course of the transaction, exemption is provided on the consequent sales. These exemptions however, are subject to the furnishing of the prescribed forms. To get the exemption on the consequent sale, a declaration Form E1 has to be issued by the first seller, and C-Form has to be issued by the buyer for levy of CST at a reduced rate of 2%

To illustrate,Global Traders bills to Mansa Traders, and ships the goods to Prime Hardwares. Global Traders issues Form E1 to Mansa Traders and the C form is produced by Mansa Traders for availing CST @ 2%.

Subsequently, Mansa Traders bills to Prime Hardwares against C Form without charging tax, and endorses the Lorry Receipt in favor of Prime Hardwares.Mansa Traders bills to Prime Hardwares against C Form without charging tax, and endorses the Lorry Receipt in favor of Prime Hardwares.

Treatment of Bill to – Ship to transactions under GST

Under GST, the place of supply of goods is very critical to actuate the transaction as interstate or intrastate. Correspondingly, the applicable taxes can be levied.

In GST, if the goods are outfitted by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person.

Global Traders is a dealer in hardware goods, located in Maharashtra. They received an order from Mansa Traders, situated in Karnataka, to supply 100 aluminum ladders, with stipulation to ship the ladders to Prime Hardwares, placed at Tamil Nadu.

In the above enumerated example, on the instruction from Mansa Traders, Global Traders ships the aluminum ladders to Prime Hardwares located in Tamil Nadu. Here, Mansa Traders is deemed as the third person or third party. Henceforth, the place of supply will be the principal place of business of the third person i.e., Karnataka. Respectively, Global Traders charges IGST on billing to Mansa Traders. The second part of transaction between Mansa Traders and Prime Hardwares will also be interstate, and IGST will be charged.

To understand this further, various instances have been outlaid below:

Instance-1 

Instance-1

In the above-mentioned instance, on the instruction from Mansa Traders, Global Traders ships the aluminum ladders to Prime Hardwares located in Karnataka. Here, Mansa Traders is presumed to be the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Maharashtra. Accordingly, Global Traders charges CGST+ SGST on billing to Mansa Traders. The second part of transaction between Mansa Traders and Prime Hardwares will be interstate, and IGST will be charged.

Instance-2

Instance - 2

The principal place of business of the third party in the above outlaid instance is Karnataka, and the place of supply is also Karnataka, which is an interstate transaction and therefore liable for IGST.

The second part of the transaction between Mansa Traders and Prime Hardwares will be intrastate, and CGST+SGST will be charged.

 

How to Determine the Place of Supply in Case of Bill to-Ship to Transactions

2017-05-01