The inability of the Goods & Services Tax (GST) Administration to determine the ‘Place of Supply’ for over the counter (OTC) sales can potentially result in more and more litigations. GST is a destination-based tax in which a consumer will bear the final tax and the State where consumption has taken place will get the revenue. For the taxation purpose, a concept called ‘Place of Supply’ is used and accordingly CGST (Central Goods & Services Tax) and SGST (State Goods & Services Tax) or Integrated Goods & Services Tax (IGST) is levied. CGST & SGST are levied in case of supply within the State while IGST is levied if supply is outside the State. Section 10 of IGST Act deals with norms related with ‘Place of Supply.’
However, there is a catch. If a buyer buys goods over the counter in a State and then transports it to some other State, then how will ‘Place of Supply’ be defined? This matter was discussed last year during the GST Council meeting held at Goa. In fact, prior to the Council meeting, the Law Committee of the Council met but there was no consensus. The same happened at the Council meeting too and the matter was referred back to the Law Committee for considering the issue afresh after obtaining opinion of the States in writing along with reasons thereof.
Experts think more and more delay would spell trouble for the assessees. Rajat Mohan, Senior Partner with AMRG, said even after over 30 months of GST implementation, the Centre has not been able to give any clarity on tax allocation for supply of goods in case of OTC. And this shows the immaturity of law and authorities. “Place of supply would be a major area for tax litigation posing problems not only for the taxpayer but also would lead to inter-government disputes which do not have any clear mechanism of redressal,” he said. During the Council’s meeting, a draft circular was placed which proposed to clarify that when goods are supplied on OTC basis but the supply involves further movement of goods which is arranged by the recipient, the expression “movement of goods terminates” would mean the place where the movement of goods terminates when the goods reaches the place of registration of the recipient or to the address that has been declared in the tax invoice, as the case may be.
It was, accordingly, proposed to clarify that the place of supply in case of such supplies, that is where the recipient is registered or the address declared in the tax invoice (in case such recipient is not registered) in a State other than the State in which the supplier is located, will be determined in accordance with the IGST Act. Accordingly, such supplies would be treated as inter-State supplies.
States such as Punjab and Himachal Pradesh favoured that such OTC supplies must be treated as intra-State supplies where the supply was made to an unregistered person and the recipient’s address was not available on record, and inter-State supplies where the address of recipient is available. But States such as Haryana and Delhi opposed the proposal saying it went beyond related section of the Act and such a mechanism would affect the revenue flowing in as GST revenue.
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