CBIC Provides Clarity on Determining Place of Supply for Services of Transportation of Goods, Advertising Sector and Co-Location [Read Circular]

The Central Board of Indirect taxes and Customs (CBIC), vide circular no. 203/15/2023-GST, issued on 27th October 2023 has provided clarity on various services. The services is as follows:

1. supply of service of transportation of goods, including through mail and courier;
2.  supply of services in respect of the advertising sector; and
3. supply of the “co-location services”.

A. Place of supply in case of supply of service of transportation of goods, including through mail and courier

Issue: Sub-section (9) of section 13 of Integrated Goods and Services Tax Act, 2017 (IGST Act) has been omitted vide section 162 of Finance Act, 2023 which will come into effect from 01.10.2023. After the said amendment, doubts have been raised as to whether the place of supply in case of service of transportation of goods, including through mail and courier, in cases where location of supplier of services or location of recipient of services is outside India, will be determined as per sub-section (2) of section 13 of IGST Act or will be determined as per sub-section (3) of section 13 of IGST Act.

The CBIC has clarified that the location for determining the place of supply of services, in cases where the service provider or the recipient is outside India, is governed by Section 13 of the IGST Act. Previously, Sub-section (9) of Section 13 stipulated that for services related to transporting goods (excluding mail or courier), the place of supply would be the destination of the goods if either the service provider or the recipient was located outside India. However, this sub-section has been removed as part of the Finance Act, 2023, effective from October 1, 2023.

It is clarified that after this amendment takes effect, the place of supply for transportation services (excluding mail and courier) in situations where the service provider or recipient is outside India will be determined based on the default rule outlined in Section 13(2) of the IGST Act, rather than the performance-based services rule in Section 13(3) of the same act.

Consequently, if the location of the recipient is known, the place of supply will be the recipient’s location. If the recipient’s location is not readily available in the regular course of business, the place of supply will be the service provider’s location.

Furthermore, the place of supply for mail or courier services was not explicitly covered by Sub-section (9) of Section 13 before its amendment/omission. Consequently, the same principles as mentioned above will continue to apply for determining the place of supply for mail or courier services. If the location of the recipient is known, the place of supply will be the recipient’s location, and if it’s not readily available in the regular course of business, the place of supply will be the service provider’s location.

B. Place of supply in case of supply of services in respect of advertising sector

There were two Issues which needed clarifications.

Issue 1: There may be a case wherein there is supply (sale) of space or supply (sale) of rights to use the space on the hoarding/ structure (immovable property) belonging to vendor to the client/advertising company for display of their advertisement on the said hoarding/ structure. What will be the place of supply of services provided by the vendor to the advertising company in such case?

The board stated that the structure or hoarding placed on the land is considered immovable because it’s embedded in the earth. Services related to the sale of space on such immovable property or granting rights to use it are governed by section 12(3)(a) of the IGST Act. According to this section, the place of supply for services directly related to immovable property, including those provided by architects, interior decorators, surveyors, engineers, estate agents, or services coordinating construction work, is determined by the location of the immovable property.

Therefore, the place of supply for services involving the sale of space on a hoarding or structure for advertising or granting rights to use such advertising space will be the location where that hoarding or structure is situated.

Issue 2: There may be another case where the advertising company wants to display its advertisement on hoardings/ bill boards at a specific location availing the services of a vendor. The responsibility of arranging the hoardings/ bill boards lies with the vendor who may himself own such structure or may be taking it on rent or rights to use basis from another person. The vendor is responsible for display of the advertisement of the advertisement company at the said location. During this entire time of display of the advertisement, the vendor is in possession of the hoarding/structure at the said location on which advertisement is displayed and the advertising company is not occupying the space or the structure. In this case, what will be the place of supply of such services provided by the vendor to the advertising company?

The board mentioned that since the vendor is providing a service to the advertising company and not selling advertising space or granting rights to use space on the hoarding/structure (an immovable property), this service doesn’t qualify as a sale of advertising space or the supply of property rights. Consequently, it falls outside the scope of Section 12(3)(a) of the IGST Act. In reality, the vendor is offering advertising services by ensuring the visibility of the advertising company’s ads on their structure, which they either own or have rented at a specified location for a specific duration.

Therefore, these services provided by the vendor to the advertising company are purely related to advertising services, and the place of supply will be determined according to Section 12(2) of the IGST Act.

C. Place of supply in case of supply of the “co-location services”

The co-location services, as clarified, fall under the category of “Hosting and information technology (IT) infrastructure provisioning services” (S.No. 3 of Explanatory notes of SAC998315). These services go beyond merely providing physical space for server/network hardware, including air conditioning, security, fire protection, and power supply. They also encompass a range of services related to hosting and IT infrastructure, such as network connectivity, backup facilities, firewall services, and monitoring, all essential for a recipient business to interact with servers through a web-based interface.

In light of this, CBIC  clarified that co-location services should not be regarded as the rental of immovable property. Consequently, the determination of the place of supply for co-location services should not be based on the provisions of clause (a) of sub-section (3) of Section 12 of the IGST Act. Instead, it should be determined according to the default place of supply provision in sub-section (2) of Section 12 of the IGST Act, which is the location of the recipient of co-location services.

However, in cases where the agreement between the supplier and the recipient only involves renting physical space along with basic infrastructure and the recipient is solely responsible for the upkeep, operation, monitoring, and surveillance of servers and related hardware, these services will be considered as the rental of immovable property. In such instances, the place of supply will be determined in accordance with clause (a) of sub-section (3) of Section 12 of the IGST Act, which is the location of the immovable property.

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