The Central Board of Indirect Taxes and Customs (CBIC) has issued a clarification on the place of supply for online services furnished before the unregistered receiver, addressing the concerns for non-compliance with the obligatory invoicing requirements under the IGST Act, 2017 (IGST Act) and the CGST Rules, 2017 (CGST Rules).
It was cited that if the services are furnished before an unregistered person then the place of supply will be the location of the receiver given that their address is available in the record. If the address of the receiver is not available then the place of supply will be regarded as the supplier’s location.
Important: Free Supply of Goods Under GST: Rules and Provisions
As per the reports, some suppliers erroneously specify the place of supply as their location rather than the state of the recipient directing to the revenue misallocation.
The clarification cited that the recipient state should be recorded on the invoice irrespective of the supply value for the taxable online services furnished before the unregistered receiver. The same pre-requisite concurs with clause (i) of section 12(2)(b) of the IGST Act, which cites that the place of supply for the services to unregistered receivers must be the location of the receiver.
However many suppliers have incorrectly been recording the place of supply as the supplier’s location which renders problems in the flow of revenue to the wrong State.
The board has explained that “Section 12 of the IGST Act provides that except in cases specified in sub-sections (3) to (14) of the said section, when the services are supplied to a registered person, the place of supply of services shall be the location of the recipient and when the services are supplied to an unregistered person, the place of supply of the said services shall be the location of the recipient, if his address is available on record, and shall be the location of the supplier, if the address is not available on record.”
Section 31(2) of the CGST Act obligates that a registered person furnishing taxable services should provide a tax invoice that contains details such as the service description, value, tax charged, and other prescribed particulars.
It was mentioned by Rule 46 of the CGST Rules that the particular data is to be included on the tax invoice. Clause (f) of this rule mentioned that for the supplies made to the unregistered receiver, specific information is to be recorded and the tax invoice should comprise the receiver’s State name, regardless of the supply’s value. The recipient’s address on record will considered the State name.
A combined reading of Section 12(2)(b) of the IGST Act, Section 31(2) of the CGST Act, and Rule 46(f) verifies that the suppliers should record the State name of the receiver on the tax invoice for the furnished services to the unregistered persons, particularly for the services such as electronic commerce, OIDAR, etc. The name of the state regards the recipient’s address, and the place of supply is defined based on the recipient’s location.
Also, the descriptions of ‘electronic commerce’ and ‘e-commerce operator’ under Sections 2(44) and 2(45) of the CGST Act, along with Rule 46(f), cited that all the online services given before the unregistered receiver through the digital networks, whether through the platform of the supplier or an independent electronic commerce operator, must follow to these requirements.
Hence the suppliers are required to record the receiver’s particular State name on the invoice, irrespective of the supply value, and report the place of supply in their GSTR-1/1A.
To ensure the precise recording of the State receiver’s name on tax invoices for the online services provided before the unregistered individuals then the suppliers are required to build a process to gather the same data from the receiver to furnish the services.
The recorded state name would be regarded as the address of the receiver to find the place of supply u/s 12(2)(b)(i) of the IGST Act, which sets the location of the receiver as the supply place.
If a supplier is unable to provide an invoice with the true information along with the state name of the receiver then they might face penalties u/s 122(3)(e) of the CGST Act, as per the board.
