Place of Supply of Services

In the current tax regime, the provision of a taxable service is subject to service tax.  Service tax is levied by the Central government and is applicable irrespective of whether the provision of service is interstate or intrastate.

However, under GST, the place of supply of service will determine the type of tax applicable on the service. This is based on the concept of GST being a ‘destination based consumption tax’, where tax will accrue to the State where the supply is consumed. Hence, it is important to determine the place of supply of services.

The rules for determining the place of supply of services are different from the rules for determining the place of supply of goods. In case of goods, the movement of goods largely decides the place of supply. Services, being intangible, have no fixed manner of delivery. Also, in certain cases of supply of service, the location of the supplier and/or recipient may not be fixed or even ascertainable.

In this blog, we will discuss how to determine the place of supply of services.

When a service is supplied to a registered person

In the current regime, when a taxable service is provided to a registered person within the same state or outside of the state, Service Tax is applicable.

For example: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing services to Rajesh Apparels, whose registered place of business is Hyderabad, Telangana. Being a taxable service, Service Tax (including Swachh Bharat Cess and Krishi Kalyan Cess) @ 15% will be charged on this transaction.

In the GST regime, the place of supply must 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.

For example: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Murali Fashions, a registered apparel manufacturer in Cuttack, Odisha.

Location of supplier: Bhubaneswar, Odisha

Place of supply: Cuttack, Odisha

This is an intra-state supply and the taxes applicable are CGST and SGST.

Supply to a registered person in a different state

When a service is supplied to a registered person in a different state, the tax applicable is IGST.

For example: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Rajesh Apparels, whose registered place of business is Hyderabad, Telangana.

Location of supplier: Bhubaneswar, Odisha

Place of supply: Hyderabad, Telangana.

This is an interstate supply, and the tax applicable is IGST.

When a service is supplied to an unregistered person

In the current tax regime, Service Tax is applicable when a service is provided to an unregistered person. There is no distinction in the charge of tax based on whether the recipient is registered or unregistered.

In the GST regime, when a service is supplied to an unregistered person, there can be 2 scenarios:

Scenario 1: The address of the recipient exists in the records of the supplier

Scenario 2: The address of the recipient does not exist in the records of the supplier

Scenario 1: 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 recipient in the supplier’s records.

Supply within the same state

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

For example: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing services to Ramesh Clothing, an unregistered dealer. In the records of Manish Designers, the address of Ramesh Clothing is in Puri, Odisha.

Location of supplier: Bhubaneswar, Odisha

Place of supply: Puri, Odisha

This is an intrastate supply, and the taxes applicable are 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: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, supplies fashion designing services to Lakshmi Apparel, an unregistered dealer. In the records of Manish Designers, the address of Lakshmi Apparel is in Kolkata, West Bengal.

Location of supplier: Bhubaneswar, Odisha

Place of supply: Kolkata, West Bengal

This is an inter-state supply and the tax applicable is IGST.

Scenario 2: When a service is supplied to an unregistered person whose address does not exist in the supplier’s records, the place of supply will be the location of the supplier

Example: Manish Designers, whose registered place of business is Bhubaneswar, Odisha, provides fashion designing service to a customer, whose address is not available in their records.

Location of Supplier: Bhubaneswar, Odisha

Place of Supply: Bhubaneswar, Odisha

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

Note: In GST, a person supplying services is not eligible to register as a composition dealer. However, the GST Council decided in its 11th meeting on 4thMarch ‘17 that small hotels, restaurants and dhabas with annual turnover less than Rs. 50 Lakhs can register as composition dealers. This is yet to be incorporated in the GST Law.

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