Ex-Factory Sale under GST Regime – Where is Place of Supply under?. Suppose a factory is located at a place in Gujarat. Said factory receives an order from a customer having registered place of business at Mumbai for supply of goods. However as per terms of order the sale shall be done on ex-factory basis i.e. property in goods will pass to buyer at the factory gate in Gujarat and seller or buyer at the request of the seller shall arrange for transportation of goods to Mumbai. Thus movement of goods is contemplated under the contract and property in goods passes at the factory gate. In this case where will be the place of supply ? Factory gate in Gujarat or registered place of business of buyer in Mumbai ? If it is Gujarat, it shall be an intrastate supply of goods and hence supplier shall charge CGST & SGST of Gujarat. In this case, the buyer will not be able to claim the credit of said taxes as he is not registered in Gujarat. Let us examine this issue in detail. Now check more details “Ex-Factory Sale under GST Regime” from below….
Ex-Factory Sale under GST Regime
LEGAL PROVISIONS
Sec. 10(1)(a) of IGST Act, 2017 contains provisions related to determination of place of supply of goods where the supply involves movement. Said provision is reproduced below for ready reference:
“10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under –
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person,the place of supply of such goods shall be the location of the goods at the time movement of goods terminates for delivery to the recipient.”
Hence as per above provision, place of supply shall be location where movement of goods terminates for delivery to the recipient.
Recipient has been defined u/s 2(93) of CGST Act, 2017 as follows:
“(93) “recipient” of supply of goods or services or both, means-
- (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
- (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
- (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied”
Hence as per above definition recipient also includes an agent acting on behalf of such recipient
Coming to our issue, can it be said that transporter in case of ex-factory sale is an agent of the buyer as property in goods has already passed to the buyer at factory gate and thus the place of supply shall be the factory gate where delivery to recipient has taken place ?
Reasoning
In our opinion transporter is not an agent of the buyer on following grounds:
1. The Carriage by Road Act, 2007 has been enacted for the regulation of common carriers, limiting their liability and declaration of value of goods delivered to them to determine their liability for loss of, or damage to, such goods occasioned by the negligence or criminal acts of themselves, their servants or agents and for matters connected therewith. No person can engage in the business of a common carrier, unless he has a certificate of registration.
A “common carrier” has been defined under the Carriage by Road Act as a person engaged in the business of collecting, storing, forwarding or distributing goods to be carried by goods carriages under a goods receipt or transporting for hire of goods from place to place by motorised transport on road, for all persons indiscriminatingly and includes a goods booking company, contractor, agent, broker, and courier agency engaged in the door-to-door transportation of documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles, but does not include the Government.
Under the Carriage by Road Rules, 2011 as amended, issued under Carriage by Road Act, the liability of common carrier for loss or damage to any consignment is limited to 10 times of the freight paid or payable provided such amount shall not exceed the value of the goods declared in the goods forwarding note
Sec. 148 of Indian Contract Act, 1872 defines bailment. It is defined as the delivery of possession of goods from one person to another for some purpose upon a contract. And when the purpose would be completed, the goods would be returned or otherwise disposed of according to the direction of the person who had delivered them.
Question before the Bombay High court in 1878 in case of Kuverji Tulsidas v. Great Indian Peninsular Railway Company (1878-1880) ILR 3-4 Bom 73 was whether common carriers should be considered as bailee. It was held that the definition of bailment u/s 148 of Indian Contract Act, 1872 is large enough to include bailment for carriage.
It must also be noted that an agent has a right to represent the principal or to act on his behalf. A transporter has no right to represent the buyer. Hence we can conclude that the transporter cannot be considered as agent of the buyer.
2. Kind reference is also invited to Explanation 1 to Sec. 3 to CST Act, 1956. Said explanation is reproduced below for ready reference:
“Explanation-1″ – Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.”
Hence even as per said explanation, transporter is a bailee and not an agent of buyer. Buyer can be said to have received the goods only when the goods are delivered by the transporter at his place of business.
CONCLUSION
Based on above reasoning, in our opinion in case of ex-factory sale where movement has been contemplated of goods through a transporter in the contract whether arraged by buyer or seller, place of supply shall be the place of business of buyer. Thus in our case, for ex-factory sale at Gujarat to customer based in Mumbai, place of supply shall be Mumbai where goods have been received by the recipient and IGST shall be payable by the supplier..
It may be noted that under the contract of supply if movement of goods is not contemplated, as per Sec. 10(1)© of IGST Act, 2017 place of supply shall be the location of goods.
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Nicely written, thank you. I would like to add another scenario on this – what if the recipient(buyer) located in mumbai carries the goods by himself to mumbai in a private vehicle for which there can’t any documentary evidence like LR, RR or airway? would the levy still remain IGST or (SGST+CGST)? Thanking in advance once again.