Place of Supply Under GST: IGST vs CGST+SGST

Short answer: 'Place of Supply' is a crucial concept in GST that determines the location where goods or services are considered to be supplied. This location dictates whether a transaction is inter-state (attracting IGST) or intra-state (attracting CGST + SGST). Getting this right is fundamental for correct tax invoicing and compliance, preventing significant penalties and cash flow disruptions from paying the wrong type of GST.

What is 'Place of Supply' in GST?

Place of Supply (PoS) is the location determined by the rules in the IGST Act, 2017, to be the destination or consumption point of goods or services. It is not necessarily the physical location of the supplier or the recipient. The GST framework is destination-based, meaning tax revenue accrues to the state where the supply is consumed. The PoS rules provide the legal basis for identifying this state of consumption.

For example, if you are a consultant in Bengaluru providing services to a client in Delhi, the work might be performed in Bengaluru, but the service is consumed in Delhi. The Place of Supply would be Delhi.

Why is determining the Place of Supply so important?

Determining the correct Place of Supply is critical because it directly dictates which tax is levied on a transaction.

• Intra-State Supply: If the location of the supplier and the place of supply are in the same state, it is an intra-state supply. Both Central GST (CGST) and State GST (SGST) are charged.
• Inter-State Supply: If the location of the supplier and the place of supply are in different states, two different union territories, or a state and a union territory, it is an inter-state supply. Only Integrated GST (IGST) is charged.

Charging the wrong tax (e.g., CGST+SGST instead of IGST) is treated as a non-payment of tax. You will be required to pay the correct tax (IGST) with interest and then separately apply for a refund of the wrongly paid tax (CGST+SGST), leading to a significant blockage of working capital.

How do you determine the Place of Supply for Goods?

The rules for goods, covered under Section 10 of the IGST Act, 2017, are relatively straightforward and are generally tied to the movement of goods.

• General Rule (Section 10(1)(a)): Where the supply involves the movement of goods, the place of supply is the location where the movement of goods terminates for delivery to the recipient. If a supplier in Karnataka ships goods to a buyer in Tamil Nadu, the Place of Supply is Tamil Nadu.
• Bill-to-Ship-to Model (Section 10(1)(b)): Where goods are delivered to a third party on the direction of the buyer, the place of supply is deemed to be the principal place of business of the buyer (the one who gives the instruction), not where the goods are physically delivered. For example, a buyer in Mumbai instructs a seller in Bengaluru to ship goods directly to their customer in Chennai. Here, the Place of Supply for the Bengaluru-to-Mumbai transaction is Mumbai.
• No Movement of Goods (Section 10(1)(c)): Where the supply does not involve the movement of goods (e.g., a generator sold and handed over at the factory itself), the place of supply is the location of such goods at the time of the delivery to the recipient.
• Installation at Site (Section 10(1)(d)): Where goods are assembled or installed at a site, the place of supply is the place of such installation or assembly.

How do you determine the Place of Supply for Services?

Determining the Place of Supply for services is more nuanced and is governed by Section 12 (for domestic transactions) and Section 13 (for cross-border transactions) of the IGST Act, 2017.

General Rule (Section 12(2)):

• For B2B (Business to Business) supplies: The Place of Supply is the location of the registered service recipient. If a software company in Bengaluru provides services to a registered company in Hyderabad, the PoS is Hyderabad, Telangana.
• For B2C (Business to Consumer) supplies: The Place of Supply is the location of the recipient if their address exists on the supplier's records. If no address is on record, the PoS is the location of the service supplier.

However, there are specific rules for certain services that override this general principle.

Service Category	Place of Supply (PoS)	Governing Section (IGST Act)
General Rule (B2B)	Location of the recipient of services	Sec 12(2)(a)
General Rule (B2C)	Location of recipient (if address on record); else, location of supplier	Sec 12(2)(b)
Services related to Immovable Property (Architects, Interior Decorators, Hotel Accommodation)	Location of the immovable property or boat or vessel	Sec 12(3)
Restaurant & Catering Services	Location where the services are actually performed	Sec 12(4)
Admission to an Event (Cultural, artistic, sporting, educational, amusement)	Place where the event is actually held, or the park is located	Sec 12(6)
Transportation of Goods (For a registered person)	Location of such registered person	Sec 12(8)(a)
Transportation of Goods (For an unregistered person)	Location at which goods are handed over for transportation	Sec 12(8)(b)

What is the difference between Inter-State and Intra-State supply?

The key distinction lies in comparing the 'Location of Supplier' with the 'Place of Supply'.

• Intra-State Supply: Location of Supplier and Place of Supply are in the same state (e.g., Supplier in Bengaluru, PoS in Mysuru -> both in Karnataka). CGST + SGST is applicable.
• Inter-State Supply: Location of Supplier and Place of Supply are in different states (e.g., Supplier in Bengaluru, Karnataka; PoS in Pune, Maharashtra). IGST is applicable.

Supplies to or from a Special Economic Zone (SEZ) developer or unit are always treated as inter-state supplies, attracting IGST, even if the SEZ is located in the same state as the supplier.

Worked example

Let's consider a practical scenario for a Bengaluru-based business.

Scenario: 'Zenith IT Solutions Pvt. Ltd.', a GST-registered company in Bengaluru, Karnataka, provides software development services to 'Mercury Enterprises', a GST-registered client in Chennai, Tamil Nadu.

• Service: Software Development (a B2B service)
• Location of Supplier: Bengaluru, Karnataka
• Location of Recipient: Chennai, Tamil Nadu
• Invoice Value: ₹10,00,000 + GST

Step 1: Determine the Place of Supply Since this is a domestic B2B service transaction, the general rule under Section 12(2)(a) of the IGST Act applies. The Place of Supply is the location of the registered recipient. Place of Supply = Chennai, Tamil Nadu.

Step 2: Determine the Nature of Supply Compare the Location of Supplier (Karnataka) with the Place of Supply (Tamil Nadu). Since they are in two different states, this is an Inter-State Supply.

Step 3: Calculate the Applicable Tax The applicable tax for an inter-state supply is IGST. Assuming the GST rate for software services is 18%.

• IGST = 18% of ₹10,00,000 = ₹1,80,000.
• CGST = ₹0
• SGST = ₹0

Conclusion: Zenith IT Solutions Pvt. Ltd. must issue a tax invoice charging ₹1,80,000 as IGST. If they mistakenly charged CGST (₹90,000) + SGST (₹90,000), their client in Tamil Nadu would be unable to claim Input Tax Credit (ITC), and Zenith would have to pay ₹1,80,000 in IGST from their own pocket and then file a refund claim for the wrong tax paid.

Common mistakes

1. Charging CGST+SGST based on service location: A common error is for consultants or professionals to charge local taxes (CGST+SGST) for services rendered to an out-of-state client, simply because the work was performed from their home state office. The B2B rule makes the recipient's location the Place of Supply.
2. Ignoring specific rules for immovable property: Applying the general B2B/B2C rule to services like architecture, interior design, or hotel stays is incorrect. The Place of Supply is always where the property is located.
3. Not verifying recipient's GSTIN: Failing to obtain and verify a client's GSTIN for a B2B transaction can lead to treating it as B2C, resulting in the application of the wrong PoS rule and incorrect tax being charged.
4. Incorrectly applying Bill-to-Ship-to for services: The 'bill-to-ship-to' concept under Section 10(1)(b) is specifically for the supply of goods, not services.
5. Assuming wrong tax can be self-adjusted: Paying IGST instead of CGST+SGST (or vice-versa) cannot be rectified by adjusting it in the next GSTR-3B return. Per Section 77 of the CGST Act, you must pay the correct tax and separately file a refund application for the incorrect tax.

How SP & SC helps

Navigating the nuances of Place of Supply rules is critical for GST compliance and efficient cash flow management. Mistakes can lead to interest, penalties, and disputes with the tax authorities. At SP & SC, our expert team provides comprehensive tax consultation services. We help you determine the correct Place of Supply for all your transactions, review your invoicing practices, ensure accurate input tax credit claims, and represent you in case of any GST notices related to incorrect tax payments. We handle the complexities so you can focus on your business.

Frequently asked questions

H3: What is the place of supply for goods sold on e-commerce platforms?

For goods sold via e-commerce, the general rule for goods applies. The Place of Supply is the location where the movement of goods terminates for delivery to the customer. For example, if a seller in Delhi sells a product to a customer in Bengaluru via an e-commerce platform, the PoS is Bengaluru, and the seller must charge IGST.

H3: Is the supplier's bank account location relevant for PoS?

No, the location of your bank account is entirely irrelevant for determining the Place of Supply or your 'location as a supplier'. The location of the supplier is determined by the address registered under GST as your principal place of business.

H3: How are supplies to a Special Economic Zone (SEZ) treated?

Any supply of goods or services to an SEZ developer or an SEZ unit is treated as an inter-state supply. Therefore, IGST is levied. Alternatively, such supplies can be made without payment of tax under a Letter of Undertaking (LUT), treating them as zero-rated supplies.

H3: How is the place of supply determined for passenger transportation services?

For passenger transport, the place of supply is the location where the passenger embarks on the conveyance for a continuous journey. If a person buys a ticket in Bengaluru for a flight from Delhi to Mumbai, the place of supply is Delhi.

H3: What if my unregistered B2C customer's address is not on my records?

As per Section 12(2)(b) of the IGST Act, if you are providing a service to an unregistered person (B2C) and their address is not on your records, the Place of Supply defaults to the location of the supplier of services. In this case, you would charge CGST + SGST.

Get a fixed-fee quote

Understanding and applying the correct Place of Supply rules is non-negotiable for any business. To ensure your business is fully compliant and to avoid costly errors, we invite you to share your documents with us. SP & SC will provide a written fixed-fee quote for a comprehensive GST review and advisory. Contact SP & SC or WhatsApp us at +91 90356 74566. We handle GST compliance, advisory, and litigation end-to-end, so you can have complete peace of mind.