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Place of supply rule in GST

Place of supply rule in GST

This place of supply rules discussed in the sections below is based on draft regulations released by department of finance on 30 April 2010 on the website of Canada Revenue agency

1. Place of supply rules for Tangible Personal Property   (Goods)

Deemed delivery of goods

For purposes of the place of supply rules that apply to supplies of good, where an agreement for a supply of goods is entered into but the property is never delivered to the recipient, the property is deemed to have been delivered where the property was to be delivered, as the case may be, under the terms of the agreement.

General rules – sales of goods

There is no change to the current place of supply rules for supplies of goods by way of sale. A supply by way of sale of goods is deemed to be made in a area if the supplier delivers the property or makes it available in the area to the recipient of the supply.
The application of this place of supply rule is generally based on the area in which legal delivery of the goods to the recipient occurs. However, for purposes of the rule, property is also deemed to be delivered in a particular area, and not in any other area, if the supplier either:

  • ships the property to a destination in the particular area that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or
  • Sends the property by mail or courier to an address in the particular area.

Example 1

A bank orders cheques to be shipped by the supplier directly to all its branches situated across India. GST applies to the supply of cheques that are shipped to the branches of the bank that are situated in the participating area at the particular rate specified in that particular area.

Example 2

A store in Chennai agrees to sell goods to a purchaser in Delhi Based on the terms of delivery in the agreement for the sale of the goods, legal delivery of the goods to the purchaser occurs in Delhi. Because legal delivery of the goods to the purchaser occurs in Delhi, the supply of the goods is made in Delhi and is subject to GST at a specified rate in Delhi.

Example 3

A store in Delhi agrees to sell goods to a purchaser in Utter Pradesh. Based on the terms of delivery in the agreement for the sale of the goods, legal delivery of the goods to the purchaser occurs in Delhi. However, the supplier agrees to have the goods shipped to the purchaser in Utter Pradesh. Although legal delivery of the goods to the purchaser occurs in Delhi, delivery of the goods to the purchaser is considered to occur in Utter Pradesh because the supplier ships the goods to an address in Utter Pradesh. The supply of the goods is therefore made in Utter pradesh and GST will apply at a specified rate in Utter Pradesh.
 

Example 4

A supplier in Mumbai makes a supply by way of sale of a good to company in Delhi. Based on the terms of delivery for the sale of the good, legal delivery of the good to the purchaser occurs in Mumbai. The supplier sends the good by courier to an address outside India. Although the supply of the good is made in Mumbai, the supply of the good is same as an export because the supplier sends the good by courier to an address outside India.

Delivery of goods on exercise of with the option to purchase

A recipient of a supply by way of lease, licence or similar arrangement that exercises an option to purchase the good under the arrangement is for greater certainty considered to take delivery of the good supplied by way of sale at the place and time where the recipient ceases to have possession of the good as a lessee and begins to have possession of the good as a purchaser. In this case, the place of supply will be based on the place where the recipient begins to have possession of the good as a purchaser rather than the place where the recipient first obtained possession of the good as a lessee.
 

Rentals and leases-three months or less

A supply of property otherwise than by way of sale under an arrangement under which continuous possession or use of the property is provided for a period of no more than three months is deemed to be made in the area in which the supplier delivers the property or makes it available to the recipient of the supply.

The application of this place of supply rule is generally based on the area in which legal delivery of the goods to the recipient occurs. However, for purposes of this rule, the property is also deemed to be delivered in a particular area, and not in any other area, if the supplier either:

  • ships the property to a destination in the particular area that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or
  • Sends the property by mail or courier to an address in the particular area.

Example-5

You rent a video camera from a store in Delhi, to use while traveling through several areas. The rental agreement is for two weeks. Delhi is the place of supply, and GST applies on the rental.

Rentals and leases-more than three months

For GST purposes, where a supply of property is made by way of lease, license or similar arrangement for an amount that is attributable to a period (referred to as a “lease interval”) that is the whole or a part of the period during which possession or use of the property is provided under the arrangement, a separate supply of the property for a separate amount is deemed to be made by the supplier and received by the recipient for each lease interval. Furthermore, the supply for each lease interval is deemed to be made on the earliest of the first day of the lease interval, the day on which the lease payment attributable to that interval becomes due and the day that payment is made.

A supply of goods (other than a specified motor vehicle) by way of lease, licence or similar arrangement for more than three months is deemed to be made in a area if the ordinary location of the property, as determined at the time the supply is made is in the area. A separate supply of the property is deemed to be made for each lease interval on the earliest of the first day of the lease interval, the day on which the lease payment attributable to that interval becomes due and the day that payment is made.
For purposes of the place of supply rules, the ordinary location of property is deemed to be the location where the supplier and the recipient mutually agree that the ordinary location of the property is to be at a particular point in time. In other words, the mutual agreement of the supplier and recipient will be determinative even where the property is actually located at a different place at the relevant time than what had been agreed upon. The mutual agreement of the parties may change from time to time.

Therefore, even if the original written agreement for a supply of property specified that the property will be located in a particular area, the parties may mutually agree subsequent to the signing of the contract that the property is to be moved at a particular time to a location in another area in which case the latter location will be the ordinary location of the property at that particular time.

Example-6

A national leasing company leases a photocopier to a consulting firm situated in New Delhi for a four-year period to which monthly payments are required. The photocopier is initially stored and maintained at the consulting firm’s office in New Delhi. During the second monthly lease interval, the firm expands its operations to Haryana and with the agreement of the lessor relocates the photocopier to the firm’s new office in Haryana. In this case, the payment for the first month lease intervals is subject to GST in Delhi, and the third lease interval is subject to GST in Haryana.

2. Place of supply rules for real property

To determine whether the GST applies to a taxable supply of real Estate Property and at what rate, we have to determine where the Real Estate Property is situated.

Example-7

A company based in Delhi sells one of its warehouses situated in Delhi to a company in Mumbai. The supply of the warehouse is made in Delhi. The GST will apply at Specified rate of GST in Delhi.

Example-8

Under a lease agreement, a company in Mumbai leases a commercial building situated in Mumbai to a company in Delhi for a period of ten years.  Each lease interval is considered made in Mumbai since the building is situated in that area. The GST will apply to each lease interval at a specified rate in Mumbai.

Supply of real property partly in a Area

To determine whether the GST applies to a taxable supply of real property and at what rate, we have to determine where the real property is situated. The part of the real property that is situated in the particular area, and the part of the real property that is situated in the other area are each considered to be a separate taxable supply made for a separate amount equal to the portion of the total amount for all the property that is reasonably attributable for each part of the real property. As a result, it is only the part of the real property that is situated in the participating area that will be subject to GST.

Example-9

A company in Noida is selling a commercial building to a company Delhi. The building is situated in Delhi and Noida. The part of the real property that is situated in Delhi and Noida are each considered to be a separate taxable supply of real property for an amount equal to the portion of the total amount for all the property that is reasonably attributable for the part that is situated in each area. The sale of the part of the real property that is situated in Delhi is therefore made in Delhi and the GST will apply at a specified rate in Delhi. The sale of the part of the real property that is situated in Noida is therefore made in Noida and GST will apply at a specified rate applicable in Noida.

3. Place of supply rules for intangible persona. Property (IPP)

There are significant changes to the place of supply rules for supplies of IPP. Although the general rules in most cases continue to be based in large part on where the IPP can be used, the place of negotiation will no longer be a factor, and greater emphasis will be placed on the location of the recipient of the supply of the IPP. Specific place of supply rules will apply to supplies of IPP that relate to goods, real property and services.

Deemed supplies of IPP

Where a supply of IPP is made by way of lease, license or similar arrangement for an amount that is for a period (referred to as a “lease interval”) that is the whole or a part of the period during which possession or use of the IPP is provided under the arrangement, a separate supply of the IPP for a separate amount is considered to be made by the supplier and received by the recipient for each lease interval. Furthermore, the supply for each lease interval is considered to be made on the earliest of the first day of the lease interval; the day on which the lease payment for that interval becomes payable and the day that payment is made. The separate supplies of the IPP that are considered to be made for each lease interval can be subject to GST at a different rate to the extent that those supplies can be considered made in a different area based on the application of the place of supply rules for IPP.

Place of supply rules for services

There are a number of significant changes to the current place of supply rules for supplies of services. The rules for supplies of services are generally based on the home or business address of the recipient (or another address of the recipient) obtained by the supplier in the normal course of business except for certain types of services for which specific place of supply rules will apply.

Deemed performance of service

For purposes of the place of supply rules that apply to services, where an agreement for a supply of a service is entered into but the service is never performed, the service is deemed to have been performed where the service was to be performed, as the case may be, under the terms of the agreement.
The new rules for determining in which area a supply of a service is made are described below.

Deemed supplies of services

Where a supply of a service is made for an amount that includes a payment that is for a period (referred to as a “billing period”) that is the whole or a part of the period during which the service is or is to be rendered under the arrangement, a separate supply of the service for a separate amount is considered to be made by the supplier and received by the recipient for each billing period.

Furthermore, the supply for each billing period is considered to be made on the earliest of the first day of the billing period, the day on which the payment for that period becomes due and the day that payment is made. The separate supplies of the services that are considered made for each billing period can be subject to GST at a different rate to the extent that those supplies can be considered made in a different province based on the application of the place of supply rules for services.

Place of supply rule in GST

RULES UNDER COMPANIES ACT 2013

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