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Determining Place of Supply when there is Movement of Goods

Before GST, excise was collected by Central Government at the place of production, then VAT was collected by the state government at the point of sale, and also entry taxes/octroi was collected by certain state and district municipalities – and all this led to too many complexities in the taxation system. With GST on board, all complexities related to collecting taxes by multiple governments at multiple places, has been replaced with a DESTINATION based tax, thereby introducing the concept of ‘place of supply.’ It plays a vital role in deciding the nature of tax to be levied on the movement of goods and services.

As understood earlier there are 3 types of GST i.e.,

  • IGST (Integrated GST)
  • CGST (Central GST)
  • SGST (State GST) which is replaceable by UTGST (Union Territory GST) in case of UTs

With a few examples listed below, let us now understand how will the place of supply be determined when there is movement of goods-

Example 1: When a registered tax payer is supplying goods/services on intrastate basis he is paying CGST + SGST

For example, ‘A’ from Bangalore, Karnataka supplies electronic items to ‘B’ from Mysore, Karnataka. Since the location of supplier (A) is Bangalore, Karnataka and the place of business of ‘B’ is in Bangalore, Karnataka – the movement of the electronic items also terminate in Bangalore, hence Bangalore, Karnataka will be considered as the place of supply.

Example 2: When a registered tax payer is supplying goods/services on interstate basis he is paying IGST

For example, ‘A’ from Bangalore, Karnataka supplies electronic items to ‘C’ from Noida, UP. Since the location of supplier (A) is Bangalore, Karnataka and the place of business of ‘C’ is in Noida, UP, hence Noida, UP will be considered as the place of supply.

Example 3: When place of business and place of supply are different

For example, ‘D’ from Mumbai, Maharashtra receives an order from ‘E’ in Goa for certain electronic items, and ‘E’ further confirms that the delivery of the electronic items ordered will be at another business outlet of ‘D’ which too is in Mumbai and not at E’s place of business. Since the location of the supplier (D) is in Mumbai, Maharashtra and the place of business considering the delivery of items is now happening at D’s outlet, therefore the place of supply also becomes Mumbai in Maharashtra. The taxes charged in this case of intrastate supply will be CGST + SGST.

Hence, from where the products are being supplied or what is the place of supply determines which kind of tax will be applicable.

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