There are instances where the 'Place of Supply' could be in India, even though the invoice is raised by an Indian entity on a foreign customer. Examples include:

• intermediary services provided to overseas customer for commission / brokerage;
• freight incurred in India and billed by a freight forwarder on a foreign customer;
• charges (for cargo handled in India) billed to a customer in non-taxable territory.

In all these examples, since the recipient (viz., customer) is located outside India, the 'Place of Supply' should be decided as per Section 13 of the Integrated Goods and Services Tax (IGST) Act. Also, in most of the aforesaid cases, the 'Place of Supply' and 'Location of Supplier' could be in the same State.

The object of this post is to determine the nature of supply (i.e., whether it is an inter-state or intra-state supply) in situations where both 'Place of Supply' and 'Location of Supplier' are in the same State. [Hence, determination of 'Place of Supply' is not detailed in this article.]

Section 8(2) ibid (relevant to intra-state supply of services) reads that:

"Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State ... shall be treated as intra-State supply".

Note that Section 8(2) begins with the words "Subject to the provisions of section 12…”. This means Section 8(2) is applicable only where the ‘Place of Supply’ is determined by Section 12 ibid. However, in the aforesaid cases, the ‘Place of Supply’ is determined as per Section 13 (since the recipient is an overseas customer). Hence, Section 8(2) is not applicable to the aforesaid cases. That is, the above transactions are not intra-state supplies even though the ‘Location of Supplier’ and the ‘Place of Supply’ are in the same State.

 Further, extract of Section 7 ibid (relevant to inter-state supply of services) is produced here under:

“(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in—

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.

(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.

(5) Supply of goods or services or both,—

(a) when the supplier is located in India and the place of supply is outside India;

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”

From the above extract, it is apparent that the aforesaid cases do not fall under either sub-sections (3) or (4), or clauses (a) or (b) of sub-section (5), of Section 7. Similarly, they are not covered under Section 8(2) too, as analysed herein above. Hence, vide Section 7(5)(c), services to foreign customer (with 'Location of Supplier' and 'Place of Supply' in the same State) are inter-state supplies.

Such amounts billed to a foreign customer (where the 'Location of Supplier' and 'Place of Supply' are in the same State), being inter-state supplies, should be filled in 'B2C (Large)' / 'B2C (Others)' tabs in GSTR-1. Similarly, Table 3.2 of GSTR-3B should also be filled for such inter-state taxable supplies to unregistered persons.

If an user (say, registered in Tamil Nadu) fills the above tab(s) in GST returns (say, with "Place of Supply" in Tamil Nadu), the GSTN portal would not allow the user to pay IGST. Hence, the user is forced to:

• pay CGST+SGST (which is not in accordance with law); or
• pay IGST with 'Place of Supply' wrongly selected (with intent) as '97-Other Territory'.

In re: Sabre Travel Network India Private Limited, the applicant facilitated the sale of software (belonging to its foreign parent) to Indian subscribers. Similarly, in re: Mrs. Vishakhar Prashant Bhave, the applicant received commission in convertible foreign exchange for rendering intermediary services between an exporter abroad receiving such services and an Indian importer. In both these cases, the Authority for Advance Ruling (AAR) of Maharashtra, after a thorough analysis vide Orders dated July 26, 2018 and August 10, 2018 respectively, ruled that:

• the 'Place of Supply' is in India vide Section 13(8)(b); and
• these transactions should be taxed as inter-state supply u/s.7(5)(c) and hence liable to IGST.

In re: Bilcare Limited too, the applicant supplied services (in respect of goods made physically available by the recipient to the supplier of services in order to provide the services). Yet, the same AAR (Maharashtra), in this case vide Order dated April 26, 2019, ruled that:

• the 'Place of Supply' is in India vide Section 13(3)(a);
• but, such services should be taxed as intra-state supply u/s.8(2).

It is surprising that the AAR, in re: Bilcare Limited, neither referred nor analysed the opening phrase "Subject to the provisions of Section 12" in Section 8(2). Summarily, it ruled that "Since the 'place of supply' and the 'service provider' are in the same State, CGST and SGST are payable for this transaction". Even if an Advance Ruling Authority of another State had ruled to the contrary, it would have been less surprising.

Further, the Government (vide FAQs on Banking, Insurance and Stock Brokers' Sector dated December 27, 2018) has simply clarified the aforesaid transaction as intra-state supply, without much analysis, as detailed herein below:

"25. Would intermediary services provided to an offshore client and services provided by a banking company to its offshore account holders be treated as an intra-State supply or an inter-State supply for payment of GST?

Under clause (b) of section 13(8) of the IGST Act, 2017 the place of supply of such services is the location of the provider of services. As the location of supplier and place of supply are in same State, such supplies will be treated as intra-State supply and Central tax and State tax or Union territory tax, as the case may be, will be payable."

If one has to toe the line of the aforesaid FAQ, the following critical questions pops up:

• Has the Govt. answered the above FAQ, cognisant of the phrase "Subject to the provisions of Section 12 ..." in Sections 8(2) and 7(3)?
• If so, what is the rationale for overriding the said phrase?

A contrary view held by a section of experts is that: (i) reference to Section 12 in Section 8(2) indicates the manner in which POS should be determined; and (ii) if POS is determined vide Section 13 , the operative parts of Section 8(2) should prevail and severe the inoperative parts. That is, Section 8(2) is applicable irrespective of whether POS is determined as per Sections 12 or 13, thereby making the reference to Section 12 ornamental.

If reference to Section 12 in Section 8(2) indicates the manner in which POS should be determined, why did the law-maker not give such references in Section 7(5)(a) or Section 9?

Also, the law-maker had following options: (i) not to refer either Sections 12 or 13 in Section 8(2); (ii) refer both Sections 12 and 13 in Section 8(2); or (iii) refer only Section 12. If the aforesaid view is subscribed, another critical question arises: why the law-maker chose the last option if the intent directed to the first two options. Especially, choosing the first option would have been the easiest for the law-maker.

Let us delve to understand the meaning of the phrase "subject to" from some of the judgments, since that holds the key.

• In South India Corporation (P) Ltd. v. The Secretary, Board of Revenue, Trivandrum & Anr. [1964 AIR 207, 1964 SCR (4) 280], it was held by the Supreme Court that "The expression "subject to" conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject."
• In Ashok Leyland v. State of Tamil Nadu & Anr. [2004(1) SCR 306] too, it was held by the Apex Court that:
  • "79. ... "Subject to" is an expression whereby limitation is expressed. ...
  • 94.  In Black's Law Dictionary, Fifth Edition at page 1278 the expression 'Subject to" has been defined as under: Liable, subordinate, subservient, inferior, obedient to; governed or affected by; provided that; provided, answerable for. ..."
• In K. R. C. S. Balakrishna Chetty & ... vs The State Of Madras [1961 AIR 1152, 1961 SCR (2) 736], while interpreting Section 5 of the Madras General Sales Tax Act, 1939, it was again held by the Apex Court that: "The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, in our opinion, is "conditional upon".
• In Gujarat Narmada Valley Fertilizers Co. Ltd. v. Union of India, the Hon'ble High Court of Gujarat vide Order dated September 30, 2016 held that: "22. When the Legislature, therefore, makes a provision subject to another provision, the former would yield to the latter and in other words, in case of a conflict, the provisions of the latter would prevail. ..."
• In State of Bihar v. Bal Mukund Sah [(2000) 4 SCC 640], the Supreme Court once again reiterated that the words "subject to the provisions of this Constitution" used in Article 309 necessarily means that if in the Constitution there is any other provision specifically dealing with the topics mentioned in the said Article 309, then Article 309 will be subject to those provisions of the Constitution.
• In Union of India & Ors v. Brigadier P.S. Gill too, it was held by the Supreme Court vide Order dated March 23, 2012 that: "11. There is in the light of the above decisions no gainsaying that Section 30 of the Act is by reason of the use of the words "subject to the provisions of Section 31" made subordinate to the provisions of Section 31. The question whether an appeal would lie and if so in what circumstances cannot, therefore, be answered without looking into Section 31 and giving it primacy over the provisions of Section 30. That is precisely the object which the expression "subject to the provisions of Section 31" appearing in Section 30(1) intends to achieve. We have, therefore, no hesitation in rejecting the submission of Mr. Tankha that the expression "subject to the provisions of Section 31" are either ornamental or inconsequential nor do we have any hesitation in holding that right of appeal under Section 30 can be exercised only in the manner and to the extent it is provided for in Section 31 to which the said right is made subject."

In view of the foregoing, it can be concluded that the phrase "subject to" indicates "conditional upon". In that situation, when Section 8(2) is subject to Section 12 and when POS is determined as per Section 13, it is hard to fathom application of Section 8(2).