Annexure 2

Location of supplier of service and  Location of recipient of services [Sections 2(15) and 2(14) of the IGST Act]

A2. Provisions to determine Location of supplier of service and Location of recipient of service

A2.1 The ‘location of supplier of services’ and ‘location of recipient of services’ are most relevant to determine the nature of supply – whether intra-State or inter-State. The provisions to determine the LS and LR are explained below.

A2.2 The ‘location of the supplier of services’ [Section 2(15) of IGST Act] is to be determined by applying the following 4 rules in seriatim.

Notes:

1. Place of business includes
   • Place from where business ordinarily carried on and includes warehouse, godown, any other place where goods are stored or goods/services are provided/ received
   • Place where Account books are maintained
   • Place where taxable person engaged in business through agent

   [Section 2(85) of CGST Act]

2. “Fixed establishment” means a place (other than the registered place of a business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services or to receive and use services for own needs. [Section 2(50) of CGST Act]. In a nutshell, three factors are determinative of a ‘fixed establishment’: (i) a place; (ii) people, (iii) with a degree of ‘permanence’ [the three PPPs like a three piece suit!]. The definition has almost all the attributes of a PoB. In fact, all FEs would be a PoB.
3. ‘usual place of residence’, means –
   1. In case of an individual, the place where he ordinarily resides;
   2. In other cases, the place where the person is incorporated or otherwise legally constituted. [Section 2(113) of CGST Act].

A2.3 The ‘location of the recipient of services’ [Section 2(14) of IGST Act] is to be determined by applying the following 4 rules in seriatim.

A2.4 The following rules apply as to establishments:

1. Establishment outside India and Establishment in India are treated as separate persons [Clause (i) of Explanation 1 to Section 8 of IGST Act].
2. Establishment in a State/UT¹ and Establishment outside that State/UT are treated as separate persons [Clause (ii) of Explanation 1 to Section 8 of IGST Act]
3. A person carrying on business though a branch, agency or representational office in a territory shall be treated as having establishment in the territory [Explanation 2 to section 8 of IGST Act].
4. Where LS/PoS is in the territorial waters (12 nautical miles from Indian shores), the LS/PoS would be in the coastal State/UT where the nearest point of appropriate baseline is located [Section 9 of IGST Act].

Establishment most directly concerned in providing/receiving a supply

A2.5 The rules provide that where services are supplied/ received from more than one establishment, whether Place of Business or fixed establishment, the PoB/establishment most directly concerned with the supply/receipt of the service would be relevant. This provision is going to pose a Big Challenge. There will be several instances where the contract with the client will be with the Head Office but the Services may be provided from the several branches in different States. The client also may have several offices in different states, which are being serviced by the Service provider. The issue is what would the LS and LR qua the transaction – the contracting office or actual performing/ receiving office. WHO is providing service to WHOM and from WHERE? This will be the most crucial question to be answered. What will be the factors to be taken into account to arrive at a conclusion. This is an issue which is being pondered world over by all the nations having GST. But generally, it concerns cross-border transactions. However, in India, it would be relevant for Domestic Inter-State supply also. Each State may say that the supply is from their State. If it goes into litigation, the assessee cannot ask the two States to settle between themselves, but may have to pay the GST in one State and claim refund in another State if matter goes against him in an adjudicating forum – thus perhaps leaving the poor assessee in a SORRY STATE.

A2.6 In order to ascertain the ‘establishment more directly concerned in provision of supply’, the test adopted is to consider the significance of the activities performed by the establishments in question and the part they play in their contribution to the service supplied. [Chinese Channel (Hongkong) Ltd. vs. Commissioners of Customs and Excise (1998) Simon’s Tax Cases 347 (High Court of Justice – Queens Bench Division, UK)]. In this context when the erstwhile Place of Provision of Services Rules, 2012 were introduced, the CBEC’s Education Guide has given guidance as 
follows:

“This will depend on the facts and supporting documentation, specific to each case. The documentation will include the following:—

• the contract(s) between the service provider and receiver;
• where there are no written contracts, any written account (documents, e-mail etc.) between parties which sets out in detail their understanding of the oral contract;
• details of how the business fits into any larger corporate structure;
• the establishment whose staff is actually involved in the execution of the job;
• performance agreements (which may be indicative both of the substance and actual nature of work performed at a particular establishment).”

However, we are still left with the issue whether establishment in Contracting State or the establishment in the Performing State is more important to determine where is the LS or LR. In the author’s view, unless the context otherwise requires, the establishment contracting with the client may be more relevant.

1. UT = Union Territory