Place of Supply Rules Under GST – Practical Scenarios for Businesses

Ever been confused about whether to charge CGST/SGST or IGST on an invoice? The answer lies in one of the most critical concepts of the GST regime: the place of supply rules. Getting this right is not just about correct invoicing; it’s fundamental for GST compliance, claiming Input Tax Credit (ITC), and avoiding penalties. For small businesses, a mistake here can directly impact cash flow and lead to unnecessary complications with tax authorities. This guide will demystify the place of supply rules in India by breaking them down into simple terms and walking you through practical scenarios GST India that businesses like yours face every day.

What are the Place of Supply Rules and Why Do They Matter?

Before diving into specific examples, it’s crucial to understand why this concept is the cornerstone of the Goods and Services Tax system. The entire structure of GST—whether Central, State, or Integrated tax is levied—hinges on correctly identifying the place of supply. This determination dictates which government receives the tax revenue and ensures the seamless flow of credit across the supply chain, which is a fundamental promise of the GST framework. For any business, a firm grasp of these rules is the first and most important step towards accurate tax calculation and filing.

The Core of GST: Determining the Nature of Supply

The ‘place of supply’ is the mechanism used to determine if a transaction is ‘Inter-State’ (between two different states or union territories) or ‘Intra-State’ (occurring within the same state). This distinction is what determines the type of GST you must charge on your invoice, a crucial element for compliance. The logic is straightforward but has significant implications for how tax is collected and distributed. Understanding place of supply GST is, therefore, non-negotiable for any business operating in India.

Here’s a simple breakdown:

Type of Supply	Condition	Taxes Applicable
Intra-State Supply	Location of Supplier and Place of Supply are in the same state.	CGST (Central GST) + SGST (State GST)
Inter-State Supply	Location of Supplier and Place of Supply are in different states.	IGST (Integrated GST)

Impact on Your Business’s Bottom Line

Ignoring or misinterpreting the place of supply rules can have severe financial consequences that go far beyond a simple clerical error. The tax authorities treat incorrect tax payment very seriously. For instance, if you charged and paid CGST/SGST on a transaction that was supposed to be an inter-state supply requiring IGST, the government considers the correct tax (IGST) as unpaid. This can lead to a demand for the full IGST amount, along with interest and potential penalties, creating a significant and unexpected liability for your business.

Furthermore, this mistake directly affects your customers and the entire Input Tax Credit (ITC) chain. The recipient of your goods or services can only claim ITC if the correct tax type is mentioned on the invoice. An incorrect tax charge means they cannot claim the credit, which disrupts their financial planning and can damage your business relationships. Mastering these GST compliance scenarios India is therefore essential for maintaining healthy cash flow and strong customer trust.

Place of Supply Rules for Goods (Section 10 of IGST Act)

When dealing with tangible products, the rules are generally more straightforward as they are tied to the physical movement of the items. The overarching principle is that the place of supply is the location where the movement of the goods terminates or where they are finally delivered. This destination-based principle is fundamental to how GST is levied on the sale of goods across the country. Let’s explore the most common scenarios businesses encounter.

The General Rule: Where Movement of Goods Terminates

The default and most common rule for the supply of goods is that the place of supply is the location where the goods are delivered to the recipient. This is the final destination point where the possession of the goods is transferred. It doesn’t matter where the order was placed or where the buyer is located; what matters is where the goods physically end their journey. This rule simplifies tax determination for a vast majority of B2C and B2B transactions involving direct shipment.

Here are some GST place of supply examples to illustrate this:

• Scenario 1 (Intra-State): A laptop seller in Mumbai, Maharashtra, receives an order from a customer in Pune, Maharashtra. The seller ships the laptop to the buyer’s address in Pune. Since the location of the supplier (Mumbai) and the place of supply (Pune) are both in Maharashtra, this is an Intra-State supply. The seller will charge CGST + SGST on the invoice.
• Scenario 2 (Inter-State): The same seller in Mumbai receives an order from a buyer in Bengaluru, Karnataka. The laptop is shipped from Mumbai to Bengaluru. Here, the location of the supplier (Maharashtra) and the place of supply (Karnataka) are in different states. This is an Inter-State supply, and the seller must charge IGST on the invoice.

Special Case 1: The “Bill-to, Ship-to” Model

This is a very common business model, especially in supply chains involving distributors, resellers, or drop-shipping arrangements. In a “Bill-to, Ship-to” transaction, there are three parties involved: the supplier, the person who orders and is billed for the goods (the ‘bill-to’ party), and the person who ultimately receives the goods (the ‘ship-to’ party). The GST law provides a specific rule for this scenario to prevent confusion.

The rule states that it shall be deemed that the ‘bill-to’ party has received the goods, and the place of supply is the principal place of business of this ‘bill-to’ party. It is not the final shipping destination.

• Example: A company in Delhi (“Bill-to” party) places an order with its supplier in Gujarat. It instructs the Gujarat supplier to deliver the goods directly to its customer’s warehouse in Rajasthan (“Ship-to” party).
  • Transaction: The invoice is raised by the Gujarat Supplier on the Delhi Company.
  • Place of Supply: The place of supply for this transaction is Delhi, which is the location of the principal who initiated the order. Therefore, the Gujarat supplier will charge IGST on its invoice to the Delhi company.

Special Case 2: Goods Assembled or Installed at Site

For certain goods like heavy machinery, industrial equipment, or custom installations, the supply is not complete upon mere delivery. The contract often includes the installation and assembly of these goods at the recipient’s premises. In such cases, the place where the work is completed becomes the critical factor for determining the place of supply.

The rule is that the place of supply is the location where the goods are finally assembled or installed. This makes logical sense, as the value addition and completion of the supply happen at that specific site.

• Example: A company specializing in HVAC systems, based in Noida, Uttar Pradesh, wins a contract to supply and install large air conditioning units at a new factory being built in Chennai, Tamil Nadu.
  • Place of Supply: Even though the supplier is in UP, the place of supply is Chennai, Tamil Nadu, as this is where the installation takes place. The Noida company will charge IGST on its invoice.

Place of Supply Rules for Services (Section 12 of IGST Act)

Determining the place of supply for services is often more complex than for goods because services are intangible. The rules are more nuanced and depend heavily on factors like the nature of the service, whether the recipient is registered under GST, and where the service is ultimately consumed. Understanding these specific place of supply rules for businesses is vital for consultants, agencies, and any company in the service sector.

The General Rule: Location of the Recipient

For most services, the default rule hinges on the location of the recipient. However, the rule is applied differently depending on whether the transaction is Business-to-Business (B2B) or Business-to-Consumer (B2C).

• For B2B (Registered Person to Registered Person): The rule is simple and clear. The place of supply is the location of the service recipient as recorded in the GST portal. This makes tracking and ITC claims straightforward for registered businesses.
  • Example: A marketing agency registered in Bengaluru, Karnataka, provides digital marketing services to a software company registered in Hyderabad, Telangana. The place of supply is Hyderabad. Since the supplier and recipient are in different states, the agency will charge IGST.
• For B2C (Registered Person to Unregistered Person): The rule is slightly different. If the address of the unregistered recipient exists in the records of the service provider, that address is the place of supply. If no address is on record, the place of supply defaults to the location of the service provider.
  • Example: An individual from Mumbai (unregistered) hires an interior design firm in Pune for an online consultation. The individual provides their Mumbai address for billing. The place of supply is Mumbai, Maharashtra. As this is an inter-city but intra-state transaction within Maharashtra, the Pune firm would have charged CGST+SGST. However, let’s change the scenario slightly: if the individual was from Delhi and provided their Delhi address, the place of supply would be Delhi. The Pune firm would then charge IGST.

Specific Rules for Common Business Services

The general rule doesn’t apply to all services. The GST Act specifies different rules for certain types of services where the consumption is clearly linked to a specific location.

• Services related to Immovable Property: This includes services provided by architects, interior decorators, surveyors, and hotel accommodation.
  • Rule: The place of supply is the location of the immovable property itself.
  • Example: An architect from Delhi provides design services for a new house being constructed in Jaipur, Rajasthan. The place of supply is Jaipur. The architect will charge IGST.
• Restaurant and Catering Services:
  • Rule: The place of supply is the location where the services are actually performed. If you dine at a restaurant in Goa, the place of supply is Goa, regardless of where you are from.
• Transportation of Goods Services:
  • Rule (B2B): The place of supply is the location of the registered recipient.
  • Rule (B2C): The place of supply is the location where the goods are handed over for their transportation.
• Event-Based Services: This applies to services like organizing conferences, exhibitions, weddings, or cultural events.
  • Rule: The place of supply is the location where the event is actually held.

Practical Case Studies: Applying the Place of Supply Rules

Theory is important, but seeing how these rules apply in real-world situations makes them easier to understand. Here are a few place of supply GST case studies to illustrate the application of these rules in common business scenarios.

Case Study 1: The E-commerce Seller

• Scenario: A clothing brand based in Surat, Gujarat, sells its products online. To ensure faster delivery, it uses an Amazon FBA (Fulfillment by Amazon) warehouse located in Haryana to store its inventory. A customer from Patiala, Punjab, places an order on the Amazon platform.
• Analysis: The key factor here is the movement of goods. Although the seller is in Gujarat, the goods physically move from the Amazon warehouse in Haryana to the customer’s location in Punjab. According to Section 10 of the IGST Act, the place of supply is where the movement of goods terminates for delivery to the recipient.
• Conclusion: The place of supply is Patiala, Punjab. The Surat-based seller will have to be registered in Haryana (as a place of business) and will charge IGST on the invoice since the supply is from Haryana to Punjab (inter-state).

Case Study 2: The Freelance Consultant

• Scenario: A freelance content writer, who is registered under GST in Kerala, is hired by a large media house registered in Mumbai, Maharashtra, to write a series of articles for their digital platform.
• Analysis: This is a B2B supply of services. The general rule for B2B services applies here. The place of supply is the location of the registered service recipient. The recipient, in this case, is the media house located in Mumbai.
• Conclusion: The place of supply is Mumbai, Maharashtra. Even though the freelancer is providing the service from Kerala, they will charge IGST on their invoice to the media house, as it is an inter-state supply of services.

Case Study 3: The Salaried Individual with a Side Gig

• Scenario: An IT professional working in Bengaluru, Karnataka, starts a side business providing online coaching for competitive exams. Her turnover is currently below the GST registration threshold, so she is unregistered. She provides coaching to a student living in Chennai, Tamil Nadu.
• Analysis: While GST is not currently applicable because her turnover is below the threshold, understanding place of supply GST is crucial for when her business grows and she needs to register. This is covered in our Ultimate Guide to GST Registration for Small Businesses. If she were registered, this would be a B2C supply of services. As she would have the student’s address on record for communication and billing, the place of supply would be the location of the recipient.
• Conclusion (if registered): The place of supply would be Chennai, Tamil Nadu. As the supplier (Bengaluru) and recipient (Chennai) are in different states, she would be required to charge IGST on her fees.

Conclusion: Making Place of Supply Your Compliance Superpower

Correctly identifying the place of supply is a non-negotiable aspect of GST that directly impacts your invoicing, tax payments, and your customers’ ability to claim credit. The core principle differentiates between goods, which are typically destination-based, and services, which are often recipient-based. However, as we’ve seen, there are numerous specific exceptions and rules for certain business scenarios under GST that require careful attention.

Mastering the place of supply rules is a critical skill for any business owner. It ensures you charge the right tax (CGST/SGST or IGST), protects your customer’s ability to claim ITC smoothly, and keeps your business safe from penalties and compliance actions from tax authorities. It transforms a potentially confusing requirement into a tool for seamless financial management.

Navigating the complexities of GST can be challenging. If you need help with your specific business scenarios or want to ensure your GST filings are flawless and optimized, contact the experts at TaxRobo today. Let us handle the compliance so you can focus on growing your business. For official guidelines and detailed legal text, always refer to the CBIC-GST website.

Frequently Asked Questions (FAQs)

Q1. What happens if I charge CGST/SGST instead of IGST by mistake?

Answer: This is treated as a wrongful payment of tax. Under the GST law, you will be required to pay the correct tax (IGST) to the government first. After that, you can apply for a refund of the wrongly paid tax (CGST/SGST). This process can unfortunately block your working capital for a period and may attract interest liabilities on the late payment of the correct tax.

Q2. How is the place of supply determined for services provided by a telecom company?

Answer: The rules for telecom services are specific. For postpaid services (like mobile or landline bills), the place of supply is the billing address of the recipient on record. For prepaid services, the place of supply is the location where the prepayment is received or where the top-up vouchers are sold.

Q3. Are the place of supply rules different for imports and exports?

Answer: Yes, they are treated uniquely. The export of goods or services is considered a ‘zero-rated supply’ under GST. This means that while the supply is taxable, the rate of tax is zero, so no GST is levied on the export invoice. The import of goods is treated as an inter-state supply, and IGST is levied and collected at the time of customs clearance along with customs duties.

Q4. I run a travel agency. What is my place of supply?

Answer: For a travel agent providing booking and related services, the place of supply depends on the recipient’s status. If the recipient is a registered business (B2B), the place of supply is the location of that business. If the recipient is an unregistered individual (B2C), the place of supply is the location of the recipient if their address is on the agent’s record; otherwise, it defaults to the location of the travel agent.