Gst series #7

How to Determine the Place Of Supply Of Services

GST is destination based tax i.e consumption tax, which means tax will be levied where goods and services are consumed and will accrue to that state.

Under GST, there are three levels of Tax, IGST, CGST and SGST and based on the ‘’place of supply’’ so determined, the respective tax will be levied. IGST is levied where transaction is inter-state, and CGST and SGST are levied where the transaction is intra-state. For understanding

• Place of Supply for Services the following two concepts are very important namely:
• location of the recipient of services
• location of the supplier of services

1. Domestic Transactions
These are the transactions where both the parties i.e the supplier as well as recipient of service are in India. Domestic transactions can be further categorized as below:
Inter-State (i.e between two different states)
Intra-State (i.e within the same state)

General Rule for Domestic Transactions

In general, the place of supply for services will be the location of the service recipient (the recipient needs to be a registered person). In cases, where service is provided to an unregistered person, the place of supply will be the:
location of the service recipient (if the address is available on record)
location of service provider (if location of recipient is not available)
The special cases under this classification will be discussed in detail in next article.

2. International Transactions
These are the transactions where either of the service recipient or the provider is outside India. Transactions in which both the recipient as well as provider are outside India are not covered here.

General Rule for International Transactions

The place of supply, for services treated as international transactions, will be:
the location of service recipient
the place of supply shall be location of the supplier, in case where the location of service recipient is not available.

Time of Supply under Reverse Charge

Reverse charge means the liability to pay tax is by the recipient of goods/services instead of the supplier. In case of reverse charge, the time of supply shall be the earliest of the following dates:

the date of payment
OR
the date immediately after sixty (60) days from the date of issue of invoice by the supplier (30 days for goods)
If it is not possible to determine the time of supply using the above rules, then the time of supply shall be the date of entry in the books of account of the receiver of service.
For the first clause, the date of payment shall be earlier of:
the date on which the recipient entered the payment in his books
OR
the date on which the payment is debited from his bank accounts

When Supplier is Located Outside India
In case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be:
the date of entry in the books of account of the receiver
OR
the date of payment, whichever is earlier

Time of supply for vouchers
In the case of supply of vouchers, the time of supply is determined as:
the date of issue of voucher, if the supply can be identified at that point
OR
the date of redemption of voucher, in all other cases

When the time of supply cannot be determined, then it will be:
the date on which a periodical return has to be filed
OR
the date on which the CGST/SGST is paid, in any other case

In the GST regime, the tax collection event will be the earliest of the dates as given above. The various events like issuing an invoice or making a payment in case of supply of goods/ services or completion of event, in case of supply of service Triggering the tax levy, confirms that the government wants to ensure the tax is collected at the earliest point of time. This will be altogether a new concept for the current VAT and central excise taxpayers.

Valuation of supply under GST
GST will be charged on the ‘transaction value’. Transaction value is the price actually paid (or payable) for the supply of goods/services between unrelated parties (i.e., price is the
sole consideration).

The value of supply under GST shall include:

• Any taxes, duties, cess, fees and charges levied under any act, except GST. GST Compensation Cess will be excluded if charged separately by the supplier.
• Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price.
• The value will include all incidental expenses in relation to sale such as packing, commission etc.
• Subsidies linked to supply, except Government subsidies will be included.
• Interest/late fee/penalty for delayed payment of consideration will be included.

Value of Supply where Consideration is Not Wholly in Money

Businesses operate in a dynamic model and we have witnessed innovative schemes wherein a buyer is required to pay the partial amount in cash and the rest in kind, such as when exchanging used goods for a new product. As a general principal, value of supply will be the amount of consideration received in money from the buyer.

However, there can be cases when partial consideration is in money and the rest` is in kind. In such scenario, the value of supply shall be:

• Open Market Value of such supply. OMV will be the amount which is fairly available in open market. 
• If the open market value is not available, the value of supply will be the sum of the total of consideration in money and any such further amount in money as is equivalent to the consideration not in money if such amount is known at the Time of supply. In simple words the monetary value of partial consideration will be added to monetary consideration, to sum up to total consideration.
• If the value is not determinable under the points above, the value of supply of goods or service or both will be equivalent to that of like kind and quantity. Here the taxable person can refer to similar goods or services or both for determining the value of supply.
• If the value is not determinable under all the above clause, the value shall be the sum total of consideration in money and such further amount of money that is equivalent to consideration not in money as determined on the basis of Cost Method or Residual Method.