Impact of ‘place of supply’ for services
In this blog, we look at a query on centralised registration and carry forward of CENVAT Credit.
We are a company in the ITeS sector. The supplies made by us are treated as pure services under the existing laws. We understand that the place of supply provisions are very similar to the POPS Rules, 2012 under the service tax law. Will there be any impact of the place of supply provisions under GST law, on us
Yes, the provisions of place of supply under GST and place of provision of service under the service tax law are similar. Yet, there would be a two-fold impact on the company.
Primarily, GST is a destination-based consumption tax. Under the service tax regime, whether the levy is origin-based or destination-based was of low relevance; given that it was a central tax, the complete tax amount was accruing to the Central Government irrespective of the location of the supplier and the location of the recipient, so long as the ‘place of provision of service’ (as determined under the POPS Rules, 2012) was within the taxable territory.
However, under the GST law, GST would be levied simultaneously by the Centre and the State. Where the location of the supplier and place of supply are within the same State (or Union Territory (“UT”)), the supply would be an intra-State supply and consequently, the tax payable on the supply would be Central Tax + State tax; whereas, if the two are in different States (or UTs or one is in a State and the other in a UT), the supply would be an inter-State supply and consequently, the tax payable would be Integrated tax.
Identifying the place of supply of the services would accordingly be relevant for the following:
- To determine the type of tax that the transaction will be subjected to;
- To determine the location where the credits will accrue to the recipient of such ITeS – credits would accrue in the State in which the ‘place of supply’ falls.
For instance, if the company provides ITeS from Bangalore to a recipient located in Noida, the company must indicate on the invoice that the place of supply is ‘Uttar Pradesh’, and the recipient would be eligible to utilise credits of integrated tax arising on this supply to discharge tax on its outward supplies from Noida (and not from any other location, even if it has operations in other locations).