How to Determine the Place of Supply of a Service

By Registrationwala

20th April 2017

 

Talking about the prevailing tax structure, the provision of a taxable service is subject to service tax. It is applicable on the services irrespective of them being an interstate or an intrastate service and is levied by the Central Government.

But with the introduction of the GST tax regime, which is a destination based consumption tax; tax will accrue to the state where the supply is consumed. That is, under GST the place of service will determine the type of tax to be applied on the service. Therefore, the determination of the place of supply of service is significant.

The rules applied for determining the place of supply of services differs from that of the rules applied for determining the place of supply of goods. While in the case of goods, the place of supply is determined by the movement of goods. The place of supply depends on various factors. Since a service is intangible in nature there is no fixed way or manner for its supply. In certain cases of supply of service, the location of the supplier and/or recipient may not be ascertained or fixed.

The following stanzas are going to outline- how do we ascertain or determine the place of supply of a service.

1.  When a service is supplied to a registered person:

In the current tax framework, service tax is applicable, when a taxable service is provided to a registered person within the same state or outside the state.

To illustrate, FAB India, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing services to Rampant Apparels, whose registered place of business is Hyderabad, Telangana. Being a taxable service, Service Tax (including Swachh Bharat Cess and KrishiKalyanCess) @ 15% will be charged on this transaction.

While in the case of GST regime, the place of supply is to be determined to identify the type of GST to be charged.

When a taxable service is supplied to a registered person (regular/composition dealer), the registered place of business of the recipient will be the place of supply.

  •     Supply to a registered person within the same state

When a service is supplied to a registered person within the same state, the taxes applicable are CGST and SGST.

To say, Global Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Matelots Fashions, a registered apparel manufacturer in Cuttack, Odisha.

        Location of supplier: Bhubaneswar, Odisha  

        Place of supply: Cuttack, Odisha

In the above inserted table, the supplier and the place of supply are at the same State, which is known as Intra-State Supply, the applicable taxes are CGST (Central goods and Service Tax) and SGST (State Goods and Service Tax).

  •        Supply to a registered person in a different state

Where a service is supplied to a registered person in a different state, the tax applicable is IGST (Integrated Goods and Service Tax)

For instance, Global Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Rampant Apparels, whose registered place of business is Hyderabad, Telangana.

The above inserted table depicts an inter-state supply of service where the supplier is located at Bhubaneswar, Odisha and the Place of supply is Hyderabad, Telangana.

The tax applicable is IGST.

In the present Tax structure, there lies no difference when it comes to levying tax on the basis of a recipient being registered or not. Service Tax is applicable to an unregistered person too when a service is provided to him.

While in the case of the GST regime, when a service is supplied to an unregistered person, there can be 2 instances:

First Instance: The address of the recipient exists in the records of the supplier.

Second Instance: The address of the recipient does not exist in the records of the supplier.

First Instance: When a service is supplied to an unregistered person whose address exists in the supplier’s records, the place of supply will be the location of the recipientin the supplier’srecords.

  •    Supply within the same state

When a service is supplied to an unregistered person whose address exists in the supplier’s record and is within the same state, the taxes applicable are CGST and SGST.

To illustrate,

Global Designers, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing services to Rampant Clothing, an unregistered dealer.

In the records of GlobalDesigners, the address of Rampant Clothing is in Puri, Odisha.

The Location of supplier isBhubaneswar, Odisha. Whereas, the place of supply of service is Puri, Odisha

Since, this is an intra-state supply- the taxes applicable will be CGST and SGST.

  •   Supply to a different state

When a service is supplied to an unregistered person whose address in the supplier’s records is in a different state, the tax applicable is IGST.

For example:Global Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Latent Apparel, an unregistered dealer. In the records of Global Designers, the address of Latent Apparel is in Kolkata, West Bengal.

In the above enumerated example the Location of the supplier isBhubaneswar, Odisha and the place of supply isKolkata, West Bengal. Since, this is an inter-state supply and the tax applicable is IGST.

Second instance: When a service is supplied to an unregistered person whose address is does not exist in the supplier’s records, the place of supply will be the location of the supplier.

 To say, GlobalDesigners, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing service to a customer, whose address is not available in their records.

Thelocation of Supplier isBhubaneswar, Odisha and the place of Supply: Bhubaneswar, Odisha

This is an intrastate supply, and the taxes applicable are CGST and SGST.

The above outlined are the general rules for determining the place of supply of services.

While in the GST regime, a person supplying services is not eligible to be registered as a composition dealer, the GST Council in its meeting on 4th March, 2017 stated: small hotels, restaurants and dhabas with an annual turnover less than Rs. 50 Lakhs can registered themselves as composition dealers, which is yet to be incorporated in the GST law.

 

How to Determine the Place of Supply of a Service

2017-04-20