The Goods and Services Tax (GST) has undergone multiple amendments over recent times, bringing along both clarity and confusion. The recent clarification from a circular issued on June 26, 2024 (Circular No. 209/3/2024 – GST), concerning the place of supply for unregistered persons, has left many businesses questioning whether this new update simplifies GST compliance or adds more complexities.
Background: Place of Supply for Unregistered Persons
GST is a consumption-based tax, meaning it’s charged where goods or services are actually consumed. The challenge often arises in transactions involving different locations for billing and delivery, such as in ‘bill-to-ship-to’ arrangements. The circular aims to clarify this situation for unregistered persons, following amendments made on September 29, 2023 (Notification 02/2023 – Integrated Tax).
As per the amendment, Clause (ca) was added to Section 10(1) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), specifying that the place of supply for unregistered persons would be the delivery address recorded in the invoice. This seems straightforward, but it’s far from simple when compared to existing provisions for registered persons.
Contradiction in Clarifications
The new amendment and circular introduce a divergence in how place of supply is treated for unregistered versus registered persons in ‘bill-to-ship-to’ transactions. Under Section 16(2)(b)(i) of the Central Goods and Services Tax Act, 2017 (CGST Act), in conjunction with Section 10(1)(b) of the IGST Act, the place of supply in ‘bill-to-ship-to’ transactions is based on the billing address when goods are supplied to registered persons. However, the recent amendment changes the rule for unregistered persons, basing the place of supply on the delivery address instead.
This discrepancy leaves taxpayers wondering about their tax obligations, especially for transactions that occurred between the effective dates of the amendment and the issuance of the circular. Will they face tax demands for any errors during this period, or will it be regularized as per the proposed Section 11A of the CGST Act?
Potential Challenges for Taxpayers
Taxpayers are left to interpret these overlapping rules, risking discrepancies in how they file taxes. If taxpayers have already discharged Central GST (CGST) and State GST (SGST) based on previous provisions, could they now face demands for paying Integrated GST (IGST) instead? Section 77 of the CGST Act may offer some relief by allowing taxpayers to claim refunds if they mistakenly paid CGST and SGST instead of IGST, but the path to getting such refunds is rarely straightforward.
Another point of concern is the confusion regarding over-the-counter sales versus e-commerce sales. The circular primarily addresses transactions where goods are ordered online and shipped to a third party in another state. However, it fails to explicitly mention whether the same rules apply to in-store purchases where the billing and shipping addresses differ.
A Solution to a Non-Existent Problem?
Many in the industry argue that this circular attempts to address a problem that didn’t truly exist, only adding layers of complication. Businesses are now questioning if the circular supersedes the existing provisions of the IGST Act or if it merely adds to the confusion. While the intention behind the clarification seems to be simplifying compliance and ensuring revenue reaches the state where goods are consumed, the lack of coherence with existing laws creates a confusing landscape for compliance.
What Should Taxpayers Do?
With all the confusion surrounding this amendment, it’s advisable for taxpayers to:
- Carefully assess each transaction involving different billing and delivery addresses.
- Consult a tax professional to determine the correct tax treatment and avoid potential penalties.
- Monitor further updates from the GST Council, as future clarifications might resolve these ambiguities.
The latest GST amendments have undoubtedly raised questions about consistency and practicality. The lack of alignment between existing provisions for registered and unregistered persons complicates an already challenging area of compliance, particularly for businesses involved in interstate transactions.