The Goods and Services Tax (GST) introduced a unified indirect tax regime in India, replacing a multitude of central and state taxes. Under this system, understanding the “Place of Supply” is absolutely crucial, particularly when determining whether a supply is intra-state (attracting CGST + SGST) or inter-state (attracting IGST).
This article explains the importance of place of supply under GST and how it influences the application of State GST (SGST). It covers statutory definitions, practical implications for taxpayers, and scenarios that demonstrate the concept. At the end, you’ll find a mnemonic to help you remember the essentials.
What is Place of Supply under GST?
The Place of Supply refers to the location where goods or services are deemed to be supplied. It determines the type of GST to be charged—CGST and SGST for intra-state supplies and IGST for inter-state supplies.
This is governed under:
- Section 10 to 14 of the IGST Act, 2017
- Rules and clarifications issued by the CBIC (Central Board of Indirect Taxes and Customs)
In simpler terms, the place of supply answers the question: “Where is the transaction considered to have occurred for tax purposes?”
Types of Supply and GST Application
| Type of Supply | GST Applicable | Example |
|---|---|---|
| Intra-State Supply | CGST + SGST | Seller and buyer are in Maharashtra |
| Inter-State Supply | IGST | Seller in Delhi, buyer in Karnataka |
| Export/Import | IGST (with or without refund) | Export of software services from India to USA |
| SEZ Supplies | IGST | Sale to a Special Economic Zone unit |
Correct identification of place of supply ensures that the correct state government receives SGST, which is a state’s revenue share under GST.
Importance of Place of Supply – Why It Matters
1. Determines Type of GST Charged
The place of supply directly affects whether a transaction is treated as intra-state or inter-state:
- Intra-state = CGST + SGST
- Inter-state = IGST
Incorrect classification can lead to wrong tax collection, penalties, and disputes during audits.
2. Ensures Proper Revenue Allocation Between Centre and States
One of the objectives of GST is to ensure that the state where consumption takes place gets its due share of tax revenue. Place of supply ensures destination-based taxation, meaning tax follows the place of consumption.
Example: If a Tamil Nadu-based seller sells goods to a buyer in Kerala, the SGST goes to Kerala, not Tamil Nadu.
3. Avoidance of Double Taxation or Tax Evasion
When place of supply rules are clearly defined and followed:
- Double taxation is avoided
- Tax evasion is minimized
- Transparency and consistency are maintained across the system
This improves taxpayer trust and simplifies compliance.
4. Impacts Input Tax Credit (ITC)
Incorrect determination of place of supply may:
- Result in loss of ITC
- Trigger mismatches in GST returns (GSTR-1 vs GSTR-3B)
- Lead to audit notices or rejection of refunds
Proper place of supply ensures seamless flow of input credit, a core feature of the GST regime.
Place of Supply for Goods – Section 10 & 11 of IGST Act
A. Supply of Goods – General Rules (Section 10)
- Movement of Goods Involved:
- Place of supply is where the goods terminate.
- Example: Goods moved from Gujarat to Punjab; place of supply = Punjab.
- Bill-to Ship-to Transactions:
- Place of supply = location of the third party requesting the delivery.
- No Movement of Goods:
- Place of supply = location of goods at time of delivery.
- Installation at Site:
- Place of supply = location where goods are installed.
- Goods on Board a Vessel, Train, Aircraft:
- Place of supply = where goods are taken on board.
B. Imports and Exports – Section 11
- Import: Place of supply = location of importer (in India)
- Export: Place of supply = location outside India
Place of Supply for Services – Section 12 & 13 of IGST Act
A. Domestic Services (Supplier and Recipient in India) – Section 12
- B2B Transactions:
- Place of supply = location of recipient.
- B2C Transactions:
- Place of supply = location of recipient; if unknown, location of supplier.
- Specific Services (e.g., hotel, event, telecom, transportation):
- Place of supply = location where service is performed or consumed.
B. International Services – Section 13
- If either supplier or recipient is outside India:
- Default: Place of supply = location of recipient
- Specific services like performance-based, admission, intermediary services follow specialized rules
SGST – Role and Relevance
State Goods and Services Tax (SGST) is levied by individual state governments on intra-state transactions. Proper determination of place of supply is critical because:
- SGST collected goes to the state where the supply occurs
- Misidentifying the place of supply can result in misallocation of state revenue
- SGST forms a vital component of state budgets and development programs
Incorrect SGST payments can lead to:
- Denial of ITC to the buyer
- Interest and penalty for the seller
- Jurisdictional disputes between states
Practical Examples
- Online Sale of Goods from Karnataka to Delhi
- Supplier: Karnataka
- Buyer: Delhi
- Movement: Interstate
- Applicable GST: IGST
- Consulting Services from Mumbai to Pune
- Both in Maharashtra
- Applicable GST: CGST + SGST (intra-state)
- Web Development Service from India to USA
- Export of service
- Applicable GST: IGST at zero rate
Summary Table: Place of Supply – At a Glance
| Transaction | Place of Supply | GST Applicable |
|---|---|---|
| Sale of goods within same state | Location of buyer | CGST + SGST |
| Sale of goods to another state | Location where goods terminate | IGST |
| Export of services | Location outside India | IGST (zero-rated) |
| Import of goods | Location of importer | IGST |
| Hotel service | Where hotel is located | CGST + SGST |
| Software service to foreign client | Place of recipient outside India | IGST (zero-rated) |
Mnemonic to Remember – “PLACES”
Use the word PLACES to remember the importance of place of supply:
- P – Proper GST type (CGST/SGST or IGST)
- L – Legal compliance with GST law
- A – Allocation of revenue to correct state
- C – Correct filing and credit of Input Tax Credit
- E – Export and import clarity
- S – State jurisdiction identification
This mnemonic helps in easily recalling why place of supply is central to GST compliance.
