GST Updates

Decoding the concept of Sale in Transit in GST- Part II

This series of articles seeks to analyse the concept of Sales in Transit as envisaged in GST.  The article throws light on how provisions of Section 10(1)(b) of the IGST Act lays down the concept of place of supply between the supplier and the Third Party vis-à-vis the recipient.

 1. Points for determination: Following are the three points for determination around which entire article would revolve

 a) Place of Supply

b) Location of Supplier of Goods

c) Location form where the supplier has to seek registration

 

Let’s try to understand the above three points in detail before moving ahead in the article:

1.1. Section 10(1)(b) of the IGST Act: Let’s try to analyse provisions of Section 10(1)(b) of the IGST Act with the help of an Example:

Case Study:

Consider an Eg. A in Delhi purchased goods from B in Mumbai. However, before the movement of the goods starts, A instructs B to dispatch goods to C in Chennai.

Lets Understand the Transaction Matrix:

The Players Role Played
B-Supplier a)     “B” delivers the goods to “C

b)     B” delivers the goods to C by way of transfer of documents of title to the goods or otherwise.

C-Recipient a)     “C” receives the goods from “B” as per direction of A
A-Buyer i.e. third party a)      “A” gives direction to “B” to deliver goods to “C”

b)     The instruction is given to “B” before or during the movement of the goods.

  • The provision can be divided into three different parts for better understanding:

 a) Part –I:-Where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise.

The provision can be detailed out as follows:

 

Particulars Relevant Extract of the Section Implications on the Provision
Who should have made the delivery of the goods to C Where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise The goods should have been delivered to C by B on the direction of A
When B should have acted upon  the direction of “A” to deliver the goods to “C” Before or during movement of goods B should act as per the instruction of A to deliver the goods to C either before or during the movement of goods
How should the goods be delivered Either by way of transfer of document of title to the goods or otherwise B can transfer the goods to C as per instruction of A by transfer of documents of title to the goods or otherwise.

 

b) Part II: Deeming fiction that goods have been received by the third party i.e. “A” although no physical/actual delivery of goods have been received by “A”

 

Particulars Relevant Extract of the Section Implications on the Provision
Goods should be deemed to have been received by the third party i.e. A It shall be deemed that the said third person has received the goods It shall be deemed that although the goods have been physically received by C but A has also received the goods.

 

c) Part III:-Place of supply of goods between “B” and “A” shall be the principal place of business of “A”. i.e. the place at which it would be deemed that the goods have been received by “A” would be the principal place of business of “A”.

 

Particulars Relevant Extract of the Section Implications on the Provision
Place at which it would be deemed that goods have been received by third party i.e. “A” Place of supply of such goods shall be the principal place of business of such person It shall be deemed that goods have been received by “A” at his principal place of business i.e. Gujarat

d) Conclusion: Basic premise around which Section 10(1)(b) revolves around the basic premise as follows:

  1. Who delivers the goods: Supplier i.e. “B”
  2. To whom the goods are delivered by the supplier: Recipient or any other person i.e. “C”
  3. Why the goods are delivered to the recipient by the supplier: Third party i.e. “A” gives the direction to the supplier i.e. “B” either before or during movement of goods to deliver the goods to the recipient i.e. “C”.
  4. How the delivery is affected by the supplier to the recipient: Delivery is effected by way of transfer of documents of title to the goods or otherwise.
  5. How “A” has received the goods: It would be deemed that “A” has received the goods.
  6. Which would be the place at which it would be deemed that goods have been received by “A”: It would be deemed that “A” has received the goods at his principal place of business.

1.2 Location of Supplier of Goods:

The term location of supplier of services has been defined under the law but the term location of supplier of goods has not been defined under the law. However, as the term suggests, we can say Location of supplier of goods is a place where he has goods in his effective control and goods ready to be supplied. The term itself says location form where the goods have been supplied.

 

1.3. Place from where a person has to seek registration

Section 22(1) of the CGST Act provides that

 Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

 The liability for registration is from the place from where the supplier makes the taxable supply. The location of supplier would govern the case of new registration, return filing etc.

 

  1. How Sales in Transit Takes place

 Let’s take two examples for better understanding of how sales in transit takes place and this entire article would revolve around those two examples:

a) Example-1: “A” at Gujarat instructs “B” at Rajasthan to dispatch goods to “C” at Delhi. “B” (Rajasthan) takes out the bilty in favour of “C” (Delhi) and raises the bill wherein “A” (Gujarat) is shown as the buyer and “C” (Delhi) is shown as the consignee.

Bilty is directly made by B in favour of C on the instruction of A and the bill is issued by the B containing details of the A as the buyer and C as the consignee. In the given case, goods are being directly dispatched by the supplier to the recipient on the instruction of the third party.

 

b) Example-2: “B”(Rajasthan) supplies goods to “A”(Gujarat). Bilty is taken out in the name of “A”(Gujarat). “A”(Gujarat) without taking the delivery endorses the bilty in Favour of “C” (Delhi).

In the given case, goods are not directly dispatched to “C” (Delhi) but the bilty is first taken out in the name of “A” (Gujarat) and then the bilty is endorsed by “A” Gujarat in favour of “C” (Delhi).

The example can be further sub-divided in two parts as follows:

  • “A” endorses the bilty in Rajasthan and from Rajasthan, he alongwith the endorsed bilty attaches his bill for further movement to Delhi.
  • “A” endorses the bilty once the goods reaches to Gujarat and alongwith the endorsed bilty attaches his bill for further movement to Delhi.

 

  1. Understanding Example 1 and Example 2 vis-a-vis concept of Sale in Transit and provisions of Section 10(1)(b)

Let’s now try to decode Example 1 and Example 2 as stated above in the given backdrop:

Example 1: Goods are delivered by B to C as per the directions received from A before movement of goods. B takes bilty in the name of C and then goods are dispatched directly to C. Therefore, the only action by A in this entire transaction is that of providing direction to B that the goods be delivered to C. The example falls within the conditions prescribed under section 10(1)(b).

Let’s refer the table for further understanding of the supply transaction between A, B and C

S. No. Particulars Supply between A and B Supply Between A and C
1. Location of Supplier Rajasthan Gujarat
2. Place of Supply Gujarat Delhi
3. Place where Supplier needs to be Registered under GST Rajasthan Gujarat

 

Example 2: The situation gets a bit complicated here and the dilemma starts. We need to have a detailed understanding of the sequence of the events which have taken place:

  • A places an order for supply of goods with B.
  • B prepares bill in the name of A.
  • B then dispatches the goods by preparing bilty in the name of A.
  • A then before receiving the goods, endorses the bilty in the name of C.

Lets refer the table for further understanding of the supply transaction between A, B and C

S. No. Particulars Supply between A and B Supply Between A and C
1. Location of Supplier Rajasthan ????
2. Place of Supply Gujarat Delhi
3. Place where Supplier needs to be Registered under GST Rajasthan ????

 

  1. Points for Discussion for arriving at Location of Supplier, Place of Supply and place where supplier needs to get himself registered in GST 

The questions which are now required to be answered with reference to the above discussion are as follows:

  • Whether endorsement of bilty by “A” in favour of “C” and subsequent redirection of the goods to Delhi would at first deemed to be delivery of goods to “A”:- Section 10(1)(b) of IGST Act contemplates a deeming fiction of “A” receiving the goods although “A” never actually receives the goods. A deeming fiction has been sought to be brought to provide that although “A” has not taken delivery of goods but if the conditions given in law are fulfilled, then it would be deemed that A has taken delivery of goods and place of supply for “A” would be the principal place of business of “A”.

However, If it is concluded that “A” has taken delivery, then provisions of section 10(1)(b) do not comes into play because if the goods have been delivered to “A” then there is no requirement for the deeming provision to be brought in place.

  • Whether endorsement of bilty by “A” in favour of “C” and subsequent redirection of the goods to Delhi would be deemed to be termination of movement of goods for the purpose of delivery of goods to “A”.

 

  • Whether at the time when “B” takes out bilty in favour of “A”, provisions of section 10(1)(b) ceases to have any role to play as now “B” cannot deliver the goods to “C” as now all the rights to deliver the goods lies with “A”:- The question becomes important because provisions of Section 10(1)(b) of IGST Act do not comes into play when the goods are not delivered by supplier to the recipient on the direction of the third party. Thus, for the purpose of provisions of Section 10(1)(b) coming into effect, goods should have been delivered by “B” to “C” on the  instructions of “A”.

Section 10(1)(b) of IGST Act revolves around the basic premise that goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise”.

One of the most important ingredients of Section 10(1)(b) of IGST Act is that goods are delivered by the supplier to the recipient by way of transfer of documents of title to the goods or otherwise. It’s not that the third party is delivering the goods to the recipient by any act committed by them. It’s the action which is being taken on the part of the supplier to deliver the goods to the recipient on the direction of the third party.

The next series of article would try to provide answers to the questions as framed above in Para 4.

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