Place of supply plays a vital role under GST as it determines which state shall be entitled to the revenue about the supply of goods or services, e.g., if the supply is made from the Delhi state to Haryana state and Place of supply of such transaction is Delhi then such transaction shall be liable to CGST and SGST and GST from such transaction shall accrue to Delhi Government. Similarly, if the place of supply is Haryana then such transaction shall be liable to IGST and GST shall accrue to the Haryana Government.
On the same lines, the CBIC received representations regarding non-compliance with the mandatory provision of recording the correct place of supply on the invoices in respect of online services provided directly or through e-commerce operators to unregistered persons due to a wrong interpretation of GST law.
Considering the incorrect practice, the CBIC issued a detailed circular clarifying place of supply of Online Services supplied to unregistered recipients vide Circular No. 242/36/2024-GST dated 31st December, 2024.
1. Issue under Consideration:
- In case of supply of taxable online supplies to unregistered recipients, the supplier is required to mention the state name of the recipient as a place of supply as per Section 12(2)(b) of the IGST Act.
- However, many suppliers are instead mentioning the location of the supplier as the place of supply.
- This results in the wrong declaration of the place of supply, resulting in a flow of revenue in respect of the said supply to the wrong State.
2. Relevant Legal Provisions:
- The place of supply for supply of online services shall be determined as per Section 12(2) of the IGST Act, 2017, which is reiterated below:
“(2) the place of supply of services, except the services specified in sub-sections (3) to (14),-
(a) made to a registered person shall be the location of such person;
(b) made to any person other than a registered person shall be, –
(i) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases.”
- As per Section 31(2) of the GST Act, the registered person supplying goods or services is required to issue a tax invoice showing the description, value, tax charged thereon, and such other particulars as may be prescribed.
“(f)…
Provided that in cases involving the supply of online money gaming or in cases where any taxable service is supplied by or through an electronic commerce operator or by a supplier of online information and database access or retrieval services to a recipient who is unregistered, irrespective of the value of such supply, a tax invoice issued by the registered person shall contain the name of the State of the recipient and the same shall be deemed to be the address on record of the recipient;
3. Clarification Issued
The CBIC has clarified that:
a. Correct place of supply
- As per Section 12 of the IGST Act, except in cases specified in sub-sections (3) to (14) of the said section, the following shall be the place of supply:
- Services are supplied to the registered person: location of the recipient;
- Services are supplied to an unregistered person:
- location of the recipient, if his address is available on record,
- location of the supplier, if the address is not available on record.
- As per Section 31(2) of the CGST Act, a registered person providing taxable services is required to issue a tax invoice containing specified particulars.
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- Rule 46 of CGST Rules provides the particulars required to be mentioned on the tax invoice. As per proviso to Clause (f) of rule 46 of the CGST Rules, in case of supply of any taxable services through an e-commerce platform, to an unregistered recipient, the tax invoice must contain the recipient’s State name and such State name shall be deemed to be the address on record of the recipient.
- Therefore, as per the conjoint reading of Section 12(2)(b) of the IGST Act and Rule 46(f) of CGST Rules, concerning the supply of taxable services through an e-commerce platform to unregistered persons, the supplier is required to mandatorily record the name of the State of the unregistered recipient on the tax invoice. Such state name shall be deemed as the address on record of the recipient for determination of place of supply under section 12(2)(b) of the IGST Act.
- Accordingly, the place of supply of such services shall be considered as the location of the recipient of the services. Further, all services supplied to unregistered recipients over digital or electronic networks, either using their own digital or electronic platform or through e-commerce operators, will be covered under proviso to rule 46(f) of CGST Rules.
- Proviso to Rule 46(f) of CGST Rules shall be applicable in respect of all the online supplies of services to an unregistered recipient, in addition to the supply of online money gaming and OIDAR services
b. Furnish correct information in GSTR-1
- The suppliers are mandatorily required to record the name of the State of the recipient on the tax invoice, irrespective of the value of supply of such services, and to declare the place of supply of the said services as the location of the recipient (based on the name of State of the recipient) in their details of outward supplies in FORM GSTR-1/1A.
c. Implement a suitable mechanism to collect such Details
- To record the name of the State of the recipient, the supplier should devise a suitable mechanism to ensure the collection of such details from the unregistered recipient before making any supplies to him.
d. Consequences of non-compliance
- If the supplier fails to issue an invoice under the said provisions by not recording correct mandatory particulars, including recording the name of the State of the unregistered recipient in respect of such supplies, he may be liable to penal action under the provisions of section 122(3)(e) of CGST Act.
4. Conclusion
The distribution of funds among states has always been a matter of litigation and considering the significant increase in Online service industries, GST contribution from such sectors is a major part of total GST revenue. In such cases, mentioning the incorrect place of supply in GST return shall lead to the incorrect distribution of Taxes among the government and suppliers and may subsequently face litigations. CBIC has rightly clarified the situation to bring uniformity.
