INTRODUCTION
Goods and Services Tax (GST) is a uniform, single tax implemented to bring numerous benefits to every sector and to consumers in our country, who have suffered from multiple tax liabilities. Now, GST has become one of the important pillars of the Indian economy. But first, what is GST?
GST is a unified tax system that combines goods and services into a single tax to strengthen the economy. Article 366(12A) states that the Goods and Services Tax is levied on every good and service, except liquor for human consumption.[1]
The previous tax regime upheld various indirect taxes levied unevenly by the Central and State Governments. This is why GST replaced multiple indirect taxes with a unified tax, reducing complexity across goods and services under the principle of “One Nation, One Tax.”[2]
GST was first coined back in 2000 by Dr. Vijay Kelkar and his committee, but it was implemented in India on 1 July 2017 through the 101st Constitutional Amendment. [3]The Goods and Services Tax was finally implemented nationwide.
TYPES OF TAXES?
Intra-state GST: The central government levies and collects tax in the form of CGST, and the state government levies and collects tax in the form of SGST, where both the recipient (buyer) and the supplier (seller) reside in the same state or union territory in accordance with the IGST Act, 2017 [4]
State/UTGST: SGST is levied by the state on intra- state supplies, but UTGST is levied on the union territories, even collected along with CGST on intra-state goods and services.[5]
Inter–state GST: Integrated goods and services tax (IGST) refers to a tax in which the supplier (Seller) and the recipient (buyer) live in different states and union territories. In terms of section 5(1) of the IGST Act 2017, IGST is levied on the supply of goods and services or both. [6]
INTER-STATE SUPPLY UNDER SECTION 7 OF THE IGST ACT 2017
Under section 7 (1), 7 (2), and 7 (5) of the IGST Act, 2017, inter-state supply of goods and services between two different states or union territories is defined. In terms of Section 7(1), where the location of the supplier and the place of supply are different, Section 7(2) states that goods imported into territory of India shall be treated as an inter-state supply until they cross the customs frontier of India. [7]
Section 7(5)(a) of the IGST Act, 2017, among other things, states that the supplier is located in India, but the place of supply is outside India. Section 7(5)(b) states that a supply made to or by a SEZ (Special Economic Zone) unit or by an SEZ developer is known as an Inter-state supply.[8]
Example: Kirti Ltd, registered in the state of Gujarat, supplies generators to Harpreet Ltd, an SEZ unit also located in Gujarat. Even though both parties are in the same state, this supply is deemed an inter-state supply and IGST (not CGST/SGST) will apply, because the recipient is an SEZ unit.[9]
INTRA – STATE SUPPLY UNDER SECTION 8 OF THE IGST ACT
Section 8 of the Integrated Goods and Services Tax Act, 2017 lays down the legal framework that deals with Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST)
Section 8(1) should refer to the location of the supplier and the place of supply in the same state or union territory. [10]Section 8(2) provides that services shall be given only when both parties reside in the same state or union territory.[11] However, this does not apply to supplies made by a special economic zone developer (SEZ) and unit, imports and exports, or other supplies generally covered under the IGST Act.
PLACE OF SUPPLY RULES
Section 10 (place of supply): This legal framework sets out the place of supply of goods, covering both intra-state and inter-state supplies. Under Section 10(1)(a), the place of supply is the location where the movement of goods terminates for delivery to the recipient.[12] Under Section 10(1)(b), the place of supply is the location where the goods are delivered to a third person instead of the recipient.[13] Section 10(1)(c) applies when no movement of goods takes place, and the supply is completed at the supplier’s place of business. [14]Section 10(1)(d) applies when the supply involves the assembly or installation of goods. Section 10(1)(e) applies when goods[15] are supplied on board a conveyance, such as an aircraft, train, or motor vehicle.[16]
Section 12 lays down the rules for determining the location of the supplier and recipient in India and for determining the place of supply of services, CGST & SGST or IGST. Generally, the rules state that if the recipient is a registered person, the place of supply is the recipient’s location. If the recipient is unregistered, the place of supply is the address on record. If no address is available, it is the supplier’s location, under Section 12(2) of the CGST. [17]Section 12(3) covers services related to immovable property, and Section 12(4) covers restaurant, catering, personal grooming, fitness, beauty treatment, and health services, all of which are fixed at the place of actual performance rather than the recipient’s location, since these are services that are inherently tied to a physical venue. Sections 12(5) to 12(14) apply the same performance-based logic to a further list of specific services, including training, event admission, event organisation, passenger and goods transport, telecommunication, banking, insurance, and advertisement to the Government, generally fixing the place of supply at the location where the service is performed, the event is held, or the recipient is registered, as the case may be.[18]
Section 13 determines the place of supply of cross-border services, that is, services where either the supplier or the recipient is located outside India. The default rule under Section 13(2) fixes the place of supply at the recipient’s location, but this default gives way to a series of specific exceptions. Physical-presence services under Section 13(3) and services connected to immovable property under Section 13(4) are instead fixed at the place of actual performance or the location of the property, on the reasoning that the service cannot meaningfully be separated from a physical location. Sections 13(6) and 13(7) address services performed across more than one jurisdiction, including within the taxable territory, by apportioning the place of supply accordingly. The remaining sub-clauses apply performance- or recipient-based tests to specific categories: Section 13(8) to banking and intermediary services, Section 13(9) to the transportation of goods, Sections 13(10) and 13(11) to passenger transport and on-board conveyance services, and Section 13(12) to online information and database access or retrieval (OIDAR) services, which is examined further below.[19]
CRITICAL ANALYSIS
Although the IGST Act established a comprehensive legal framework that is practically implemented all over India, three areas of the place-of-supply rules generate the most persistent difficulty in practice: intermediary services, cross-border digital supplies falling under the OIDAR category, and the boundary between composite and mixed supplies. Each is considered in turn below.
First, intermediary services under Section 13(8) remain the single most litigated determination in cross-border supply. Because the place of supply for an intermediary is fixed at the location of the supplier rather than the recipient, an Indian back-office or support entity that merely facilitates a contract between a foreign principal and a foreign customer is taxed as though the service were rendered domestically, even though the underlying transaction is genuinely export-oriented. This produces a real economic distortion: export-focused business process and IT-enabled service providers frequently find themselves liable to GST despite receiving payment in convertible foreign exchange, precisely because they are re-characterised as intermediaries rather than principal suppliers. The distinction between “arranging or facilitating” a supply and “providing” it independently is not defined with precision in the Act, which leaves considerable discretion to tax authorities and has generated inconsistent departmental positions.
Second, Section 13(12) treats online information and database access or retrieval (OIDAR) services as supplied at the location of the recipient, so that a foreign platform supplying digital content to an unregistered Indian consumer must itself register and account for IGST. The practical difficulty lies in enforcement rather than drafting: a non-resident supplier with no physical presence in India is difficult for the department to identify, monitor, or compel to register, and the statutory presumptions used to determine whether a recipient is “in India” rely on indicators, such as billing address, device location, and payment method, that are comparatively easy to manipulate or misstate. The result is a compliance gap that disproportionately affects small and medium digital businesses that do register, while less compliant foreign suppliers face little practical risk of detection.
Third, transactions that bundle goods and services, such as the supply and installation of equipment under Section 10(1)(d), or event-related services spanning multiple states under Section 12(7), routinely straddle more than one sub-clause of Sections 10, 12, and 13. Where a single commercial arrangement could plausibly be characterised under two different sub-clauses, taxpayers face a genuine risk of double taxation if two states independently claim the transaction, or of under-taxation if neither does. The statute resolves conflicts between competing categories only inconsistently, and taxpayers are frequently left to self-assess a position that may later be challenged on audit. Addressing these three problem areas, through clearer statutory tests for “facilitation” in intermediary supplies, stronger cooperative-enforcement mechanisms for OIDAR compliance, and express tie-breaker rules for overlapping sub-clauses, would do more to reduce disputes than further amendment of the place-of-supply provisions in isolation.
CHALLENGES
There are various practical and legal challenges under the GST regime, despite the comprehensive statutory framework established by the IGST Act 2017. These include issues in determining intra-state and inter-state transactions, especially for online services and e-commerce cross-border transactions, where states frequently impose penalties or dispute the payment of wrong tax.
SUGGESTION
To reduce such irregular problems, the government should make the place of supply simpler and easier to understand; the guidance should be clear on complex transactions so that consistent disputes on GST law, authorities, and courts will be reduced; regular online programs and awareness, and better use of technology can help taxpayers improve GST compliance.
CONCLUSION
The determination of the nature of supply is crucial to the Indian GST regime. Sections 7, 8, 10, 12, and 13 of the IGST Act help determine whether a transaction is an intra-supply or an inter-state supply, and whether CGST, SGST, or IGST will be charged. The place of supply rules under the IGST Act ensure the correct implementation of input tax credit, although the overall provisions of the IGST Act play a vital role in the efficient functioning of the GST system in India.
Author(s) Name: Diksha Ale (Hemvati Nandan Bahuguna Garhwal University)
References:
[1] Constitution of India, art 366(12A).
[2] Constitution (One Hundred and First Amendment) Act 2016.
[3] Government of India, Report of the Task Force on implementation of the Fiscal Responsibility and Budget Management Act,2003 (Ministry of Finance 2003); Constitution (One Hundred and First Amendment) Act 2016.
[4] Central Goods and Services Tax Act 2017, s 9; Integrated Goods and Services Tax Act 2017, s 8.
[5] Union Territory Goods and Services Tax Act 2017, s 7.
[6] Integrated Goods and Services Tax Act 2017, 5(1).
[7] Integrated Goods and Services Tax ACT 2017, ss 7(1), 7(2).
[8] Integrated Goods and Services Tax Act 2017, s7(5)(a)-(b).
[9] Integrated Goods and Services Tax Act 2017, s 7(5)(b).
[10] Integrated Goods and Services Tax Act 2017,s 8(1).
[11] Integrated Goods and Services Tax Act 2017, s 8(2).
[12] Integrated Goods and Services Tax Act 2017, s 10(1)(a).
[13] Integrated Goods and Services Tax Act 2017, s 10(1)(b).
[14] Integrated Goods and Services Tax Act 2017, s 10(1)(c).
[15] Integrated Goods and Services Tax Act 2017, s 10(1)(d).
[16] Integrated Goods and Services Tax Act 2017, s 10(1)(e).
[17] Integrated Goods and Services Tax Act 2017, s 12(2); Central Goods Services Tax Act 2017, s 2(14).
[18] Integrated Goods and Services Tax Act 2017, ss 12(3)-12(4).
[19] Integrated Goods and Services Tax Act 2017 , s 13.
