When the Goods and Services Tax (GST) came into effect in 2017, it replaced multiple indirect taxes with one unified tax system. But even after years of implementation, one area that often confuses taxpayers and businesses is — the Place of Supply.
Understanding the concept of “place of supply” is crucial under GST, because it helps identify where a transaction is taxed, and whether CGST + SGST/UTGST or IGST will apply. Simply put, it determines which state gets the tax revenue.
GST: A Destination-Based Consumption Tax
GST is designed as a destination-based tax, meaning the tax is collected at the place where goods or services are consumed, not where they are produced. So, the “place of supply” shows the destination of consumption.
For example, if a company in Delhi sells machinery to a business in Maharashtra, the goods are consumed in Maharashtra — making it the place of supply. Hence, IGST will apply on this inter-state transaction.
The concept ensures that tax revenue goes to the state where the product or service is actually used.
Why Determining Place of Supply Is Important
The concept might sound simple, but it plays a critical role in the GST framework. The place of supply helps determine:
- Whether a transaction is intra-State (within the same state) or inter-State (between different states).
- Which tax components apply — CGST + SGST/UTGST or IGST.
- Which state receives the tax revenue.
- How Input Tax Credit (ITC) will be claimed by the recipient.
A wrong classification can lead to paying tax under the wrong head, refund complications, and blocked working capital.
Why Place of Supply Rules Differ for Goods and Services
For Goods
Determining the place of supply for goods is usually simpler, as goods are tangible and their movement can be easily traced.
For example:
- If goods are shipped from Gujarat to Rajasthan, the place of supply is Rajasthan — the destination where goods are delivered.
For Services
Services are intangible, and that makes determining their place of consumption more complicated. For instance:
- A consultant in Delhi can provide services to a client in Bengaluru over email.
- A telecom operator can serve a customer anywhere, irrespective of location.
- An airline ticket may be used across multiple states.
Because of such complexities, proxies are used — like the location of the supplier, recipient, or where the service is performed — to determine the place of supply.
Factors That Affect the Place of Supply of Services
Services can be delivered in many ways — online, onsite, through mobile apps, or across borders. Hence, identifying where the service is actually consumed can be tricky. The law uses certain reference points to determine the correct location. These include:
- Location of the service provider
- Location of the recipient
- Place where the activity is performed
- Place where the service is consumed
- Place or person who receives the benefit
Depending on the type of service, the most relevant factor (or combination) is used to define the place of supply.
Separate Rules for B2B and B2C Transactions
GST law treats B2B (Business-to-Business) and B2C (Business-to-Consumer) transactions differently:
- B2B Transactions: - These involve two registered businesses. The taxes paid can be claimed as Input Tax Credit (ITC) by the recipient, so such transactions are merely a pass-through. In most B2B cases, the location of the recipient determines the place of supply.
- B2C Transactions: - Here, the buyer is an unregistered person (a consumer). Since no ITC can be claimed, the tax collected actually reaches the government. Therefore, in B2C cases, the place where the service or goods are consumed becomes the place of supply.
Legal Framework under GST Law
The Integrated Goods and Services Tax (IGST) Act, 2017, specifically Chapter V (Sections 10 to 13), lays down the rules for determining the place of supply:
- Section 10: Place of supply of goods within India
- Section 11: Place of supply of goods imported into or exported from India
- Section 12: Place of supply of services where both supplier and recipient are in India
- Section 13: Place of supply of services where one of the parties is outside India
These provisions include both general and specific rules to handle different business situations — from simple local sales to complex cross-border service transactions.
The Role of “Location of Supplier” and “Place of Supply”
To identify whether a supply is intra-State or inter-State, two things must be determined:
1. Location of the Supplier
2. Place of Supply
- If both are in the same state, it’s an intra-State supply — subject to CGST + SGST.
- If they are in different states, it’s an inter-State supply — subject to IGST.
For example:
“A company in Tamil Nadu sells goods to a customer in Kerala — the place of supply is Kerala, making it an inter-State transaction.”
Why Correct Determination Matters
Incorrect determination of the place of supply can cause:
- Payment of wrong tax (CGST/SGST instead of IGST or vice versa).
- Extra paperwork to claim refunds.
- Temporary blockage of funds.
- Non-compliance penalties.
Even though no interest applies if tax is paid under the wrong head (once corrected), the process can delay credit flow and create confusion.
That’s why businesses are advised to verify the place of supply for each transaction type — especially those involving multiple states, agents, or digital delivery.
Final Thoughts
The concept of Place of Supply lies at the heart of the GST system. It ensures that tax revenue reaches the correct state — where consumption actually happens.
For goods, the determination is straightforward — where the goods are delivered. For services, it depends on the type of service, the relationship between supplier and recipient, and how and where the service is consumed.
With evolving technologies, online platforms, and global service delivery, determining the place of supply has become more dynamic. Staying updated with the latest provisions and notifications — like those in October 2024 — helps businesses remain compliant and avoid tax disputes.
