GST: CBIC Issues Clarification on Place of Supply for Online Services to Unregistered Recipients [Read Circular]

The Central Board of Indirect Taxes and Customs ( CBIC ) has issued a clarification on the place of supply for online services provided to unregistered recipients, addressing concerns regarding non-compliance with mandatory invoicing requirements under the Integrated Goods and Services Tax Act, 2017 (IGST Act) and the Central Goods and Services Tax Rules, 2017 (CGST Rules). 

It was clarified that when services are provided to an unregistered person, the place of supply will be the location of the recipient, provided their address is available on record. If the recipient's address is not available, the place of supply will be considered the location of the supplier.

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Reports stated that some suppliers incorrectly declared the place of supply as their location instead of the recipient's state, leading to revenue misallocation.

As per the clarification, for taxable online services provided to unregistered recipients, the State of the recipient must be recorded on the invoice, regardless of the value of the supply. This requirement concurs with clause (i) of section 12(2)(b) of the IGST Act, which stipulates that the place of supply for services to unregistered recipients should be the location of the recipient. However, many suppliers have mistakenly been recording the place of supply as the location of the supplier, which has caused issues in the flow of revenue to the incorrect State.

The board has clarified that “Section 12 of the IGST Act provides that except in cases specified in sub-sections (3) to (14) of the said section, when the services are supplied to a registered person, the place of supply of services shall be the location of the recipient and when the services are supplied to an unregistered person, the place of supply of the said services shall be the location of the recipient, if his address is available on record, and shall be the location of the supplier, if the address is not available on record.”

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Section 31(2) of the CGST Act mandates that a registered person providing taxable services must issue a tax invoice that includes details such as the service description, value, tax charged, and other prescribed particulars. 

Rule 46 of the CGST Rules states the specific information that must be included on the tax invoice. Clause (f) of this rule stipulates that for supplies made to unregistered recipients, certain details must be recorded, and the proviso to clause (f) further requires that in cases involving the supply of online money gaming, or services provided by or through an electronic commerce operator or a supplier of online information and database access or retrieval services (OIDAR services), the tax invoice must include the recipient’s State name, regardless of the supply’s value. This State name will be considered the recipient’s address on record.

A combined reading of Section 12(2)(b) of the IGST Act, Section 31(2) of the CGST Act, and Rule 46(f) confirms that suppliers must record the recipient’s State name on the tax invoice for services provided to unregistered persons, specifically for online money gaming, electronic commerce, or OIDAR services. The State name is considered the recipient’s address, and the place of supply is determined based on the recipient's location.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Moreover, the definitions of 'electronic commerce' and 'electronic commerce operator' under Sections 2(44) and 2(45) of the CGST Act, along with Rule 46(f), clarify that all online services provided to unregistered recipients via digital networks, whether by the supplier’s platform or an independent electronic commerce operator, must adhere to these requirements. Therefore, suppliers must record the recipient's State name on the invoice, irrespective of the supply value, and report the place of supply in their GSTR-1/1A.

To ensure the correct recording of the recipient's State name on tax invoices for online services supplied to unregistered persons, suppliers must establish a mechanism to collect this information from the recipient before providing the services. 

The recorded State name will be treated as the recipient's address for determining the place of supply under section 12(2)(b)(i) of the IGST Act, which designates the recipient's location as the place of supply. If a supplier fails to issue an invoice with the correct details, including the recipient's State name, they may face penalties under section 122(3)(e) of the CGST Act, clarified the board. 

To Read the full text of the Order CLICK HERE

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