Bill to Ship Transactions and its Place of supply in GST regime: In today’s business Bill to – ship transactions are often occurrence. The main benefit of any subsequent sale during the movement of goods is exempt from tax leads to do a proper tax planning’s in current regime.
Bill to Ship Transactions and its Place of supply in GST regime
In the Bill to – Ship to model, the billing and shipping of goods are done to entities and two states.
For example :
M/s. Sonu Ltd, a dealer in automobile goods, located in Maharashtra receives an order from M/s. Monu Ltd , located in Gujarat. The order is for the supply of 5,000 qty of automobile part, with an instruction to ship this goods to M/ s. Natu Ltd (Customer of M/s.Monu Ltd), located in Karnataka.
There are two transactions involved in this example:-
| Transaction-1 | Transaction-2 |
| Between Sonu Ltd. and Monu Ltd.: | Between Monu Ltd. and Natu Ltd.: |
| Sonu Ltd. is the supplier & Monu Ltd. is the buyer. Accordingly, Sonu Ltd. will bill the transaction to Monu Ltd., and as per the instruction ships the goods to Natu Ltd. in Karnataka | Monu Ltd. is the supplier & Natu Ltd. is the buyer. Monu Ltd. bills the transaction to Natu Ltd., and endorses the lorry receipt (goods shipped in a lorry by Sonu Ltd.) in favour of Natu Ltd. |
| Taxes: CST 2% | Taxes: NIL |
| Forms: Monu Ltd. – C Form | Sonu Ltd. – E-1 Form |
| Forms:-Natu Ltd. – C Form | Sonu Ltd. – Lorry Receipt |
In the above illustration, Sonu Ltd. bills to Monu Ltd., and ships the goods to Natu Ltd. Sonu Ltd. issues Form E1 to Monu Ltd. as against the C form produced by Monu Ltd for availing CST @ 2%. Subsequently, Monu Ltd. bills to Natu Ltd. against C Form without charging any tax, and endorses the Lorry Receipt in favour of Natu Ltd.
Bill to – Ship to transactions in Current regime
In Bill to -Ship to transactions, there is two transaction a first sale and a subsequent sale. In the current regime, tax should be levied on both parts of the transaction.
However, in order to avoid tax being calculated multiple times through the course of the transaction, exemptions are provided on subsequent sales. These exemptions however, are subject to the furnishing of the prescribed forms under CST Act. To get the exemption on the subsequent sale, a declaration Form E1 has to be issued by the first seller, and C-Form has to be issued by the buyer for levy of CST at a reduced rate of 2%.
Bill to – Ship to transactions in GST regime
Under GST, the place of supply of goods is important to determine the transaction as interstate or intrastate and accordingly, the applicable taxes can be levied.
In GST, if the goods are supplied by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person.
Place of supply for Bill to – Ship to transactions is defined under GST under Section 10 (b) of IGST;
(b) 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, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;
We will consider the same example in GST regime.
In the example, on the instruction from Monu Ltd., Sonu Ltd. ships the goods to Natu Ltd. located in Karnataka. Here, Monu Ltd. is deemed as the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Gujrat. Accordingly, Sonu Ltd. charges IGST on billing to Monu Ltd. and in second part of transaction between Monu Ltd. and Natu Ltd. will also be interstate, and IGST will be charged.
Let us discuss further with various scenarios along with understanding purpose
Considering the GST provisions, it is very important to have an accurate determination of place of supply for below reasons:
- Wrong classification of supply between interstate or intra-state and viceversa may lead to hardship to the taxpayer as per section 19 of IGST Act and section 70 of CGST Act.
- The taxpayer will have to pay the correct tax along with interest for delay on the basis of revised/correct classification.
- Also, correct determination of place of supply will help us in knowing the incidence of tax.
- Where wrong taxes have been paid on the basis of the wrong classification, refund will have to be claimed by the taxpayer
Lastly, it is very important to understand first the main purpose of transaction in proposed Bill to – Ship to transactions, as it will define the place of supply under GST regime and taxes will be applicable accordingly.
Example
| Supplier | Bill to (Third party) | Ship to (Recipient) | Place of Supply | GST |
| Maharashtra | Maharashtra | Maharashtra | Maharashtra | CGST+SGST |
| Maharashtra | Karnataka | Maharashtra | Karnataka | IGST |
| Maharashtra | Maharashtra | Karnataka | Maharashtra | CGST+SGST |
| Maharashtra | Karnataka | Karnataka | Karnataka | IGST |
Author = CMA Amit Devdhe
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