Deciphering the Time of Supply & Place of Supply of Services under GST

The Goods & Service Tax Act (GST), which came into effect from July 1, 2017, has grouped India with a number of growing economies which have adopted similar tax legislations. The main objective of this legislation is to unify the Indian economy and bring the whole population into a common market. Along with the introduction of concepts like input tax credit, by simplifying the Indirect Taxes regime, GST aims to remove the cascading tax effect.

However, because of the lack of clarity, a number of areas of the GST are shrouded in mystery. This article will be attempting to decipher the ‘Time and Place of Supply of Services under GST’. Before delving into the provisions of the Act and understanding their implications, it is first important to observe the importance that the determination of time and place of supply holds for businesses.

A wrong classification of supply in terms of the place of supply in an inter-state transaction can invite penalties because of the wrongful collection of tax. This will be followed by the taxpayer having to follow procedure to pay the correct tax. Furthermore, determination of place of supply helps in knowing the incidence of tax.

Similarly, the determination of time of supply of tax is also of utmost importance to the taxpayers as it allows them to know the rate of tax, value, and due date.

PLACE OF SUPPLY

Under GST, there are three levels of Tax: IGST, CGST & SGST. It is on the basis of the ‘place of supply’ that the respective tax will be levied. If the supply of services happens to be an Intra-State/Intra-Union Territory, then supplier will have to charge CGST/SGST or GST/UTGST, as the case may be. However, if the supply happens to be an Inter-State Supply or a supply between two Union territories or between a Union territory and a State, then IGST would be leviable.

GST is a destination based taxation legislation, which means that the revenue from the tax collection accrues to the place where the goods or services are consumed. Place of Supply is determined with the help of general or specific rule of place of supply. The general rules determine the place of supply with respect to the location of the recipient of the goods or service. The specific rule determines the place of supply with respect to specific rules applicable to the specific situation.

There can arise the following two case-situations which have their set of general rules and specific rules:

(i)   Domestic Transactions: Where location of both the supplier and recipient of service is in India

(ii) International Transactions: Where location of either the supplier or the recipient of service is outside India

Domestic Transactions

Such transactions can be further categorised as inter-state (between different states/UTs) and intra-state (within the same state/UT). According to the General Rule as contained in Section 12(2) of the IGST Act, 2017, when the recipient of service is a registered person, then the place of supply would be the location of the recipient of service. In case the recipient is not a registered person but her address exists on record, then the same would be the location of the recipient. However, when the recipient is neither a registered person, nor has an address on record, then the place of supply shifts to the location of the supplier of service.

The Specific Rules have been provided from Section 12(3) to Section 12(14) of the IGST Act. Following are some of those sections, covering various specific situations:

Section 12(3) - When services are rendered with regards immovable property, accommodation at hotel, for social, religious function etc. or services ancillary to it, then the place of supply (POS) is location at which such immovable property is located. But in case the said property is located outside India, then the POS is the location of the recipient of the service.

Section 12(4) – In case of services in relation to restaurants, caterers, personal grooming, fitness, beauty treatment and health, then the POS is the location at which the services are actually performed.

Section 12(5) – When services are provided in relation to training and performance appraisal, it is the location of the registered recipient that is the POS. In case when the recipient of the service is not a registered person, the location where the service is actually performed is the POS.

Section 12(6) – When services are provided by way of admission to a cultural artistic, sporting, scientific, educational, or entertainment event or amusement park or ancillary service, then the place where the event is actually held is the POS.

International Transactions

The General Rule for such transactions as contained in Section 13(2) state that the default Place of Supply is the location of recipient of service. In case where the location of recipient is not available in ordinary course of business, then POS would be location of supplier of services.

The Specific Rules with regards to such transactions have been provided from Section 13(3) to Section 13(13) of the IGST Act, 2017. Following are some of these provisions, which cover some specific situations:

Section 13(3)(a) – When services are supplied in respect of goods that are required to be made physically available by the recipient of service to the supplier of service, or to a person acting on behalf of the supplier of service in order to provide the service, the POS is the location at which the service is actually performed. The proviso to the same section covers services which are provided from a remote location by way of electronic mean. In this case, the POS is the location where the goods are situated at the time of supply of service.

Section 13(9) – In case of services of transportation of goods, otherwise than by way of mail or courier, the POS is the destination of such goods.

Section 13(10) – In case of passenger transportation services, the Place of Supply is the place from where he passenger embarks on the conveyance for a continuous journey.

Section 13(12) – When services provided are with regards to online information and database access or retrieval services then the location of recipient of such service is the Place of Supply.

TIME OF SUPPLY

The determination of the date on which the charging event occurred, i.e. Time of Supply, is important to calculate and discharge tax liability. Sections 12, 13 and 14 of the CGST Act, 2017 deals with the provisions related to time of supply. Section 20 of the IGST Act enables the applicability of these provisions to the IGST Act as well.

Default Rule

According to the default rule with regards to the time of supply of services, the earliest of the following dates will be considered the time of supply:

(i) Date of issue of invoice by the supplier (provided it is issued in accordance with Section 31(2) of CGST Act) or the date of receipt of payment, whichever is earlier.

(ii) When invoice is not issued in accordance with Section 31(2), the date of provision of service or the date of receipt of payment, whichever is earlier.

(iii) In case the above two provisions do not apply, the date on which the recipient shows the receipt of service in his book of account.

Reverse Charge Basis

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:

(i)  Date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.

(ii) Date immediately following 60 days from the date of issue of invoice or any other legal document in lieu of invoice by the supplier.

When the time of supply cannot be deciphered by either of the above two way, then the time of supply is the date of entry of the transaction in the book of accounts of the recipient.

Associated Enterprises

In the case of supply by associated enterprises located outside India, the time of supply is the date of entry in the books of account of the recipient or the date of payment, whichever is earlier.

Vouchers

Vouchers can be issued for a specific supply or supply which is identifiable at the time of issuance of voucher or a voucher can also be a general purpose voucher, which can be used for multiple purposes. The time of supply is different in case of single purpose voucher and in the case of general purpose voucher. Time of supply in the case of single purpose voucher i.e. case where supply is identifiable at the time of issuance of voucher is the date of issue of voucher. However, in all other cases of supply of vouchers, the time of supply is the date of redemption of voucher.

Residual Provisions

When it is not possible to determine the time of supply under any of the aforesaid provisions, then the time of supply is:

(i)                Due date of filing of return, in case where periodical return has to be filed.

(ii)             Date of payment of tax in all other cases.