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Determination of Location of Supplier and Place of Supply in relation to Immovable Properties

(with examples)

Type of Supply?

Place of supply of services is the most crucial factor in GST since it creates a division of supply into two categories namely

a) Inter-State Supply

b) Intra-State Supply

What is supply of services?

Section 7(3) of IGST Act defines supply of services as below-

"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."

Therefore it is important to determine the Place of Supply of Services.

 

How to determine Place of Supply of Services in relation to Immovable Properties?

Section 12(3) of IGST Act deals with services in relation to immovable properties. The same is read as below.

"The place of supply of services,–– (a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or (b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or (c) by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or (d) any services ancillary to the services referred to in clauses (a), (b) and (c),  shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located: Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient. Explanation.––Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed.

 

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Example 1) Mr. A has its registered office in Delhi and having immovable properties in Delhi and Maharashtra. And both of the properties have been rented out to the clients located in the respective states. What will be the tax implications in GST?

(i) Treatment in GST for Property located in Delhi

Location of Supplier – Delhi

Place of Supply – Delhi (Since Property is located in Delhi)

Nature of Supply – Intra State Supply

Type of GST applicable – CGST & SGST

 

(ii) Treatment in GST for Property located in Maharashtra

Place of Supply – Maharashtra (Since Property is located in Maharashtra)

Here before reaching to the conclusion we need to understand the below points –

a) What is Location of supplier?

b) What is the registration requirement for supplier?

Registration requirement for Supplier – Any Supplier of services or goods is required to take registration in the State, from where he is making supplies of goods or services. Registration requirement for supplier is not dependent on the “Place of supply”. Therefore Supplier is not mandatorily required to take registration in the State where place of supply is happening as per law. However he may go for the voluntary registration in that state depending on the advantages available to him. (To be discussed below).

Section 22 - Persons liable for registration. "(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:"

In the above example Mr. A is having its registered place of business in Delhi. And in our opinion, he may claim his Delhi’s principal place of business as the location from where supply is being made as per Section 2(15)(a) of IGST Act, 2017.

Scenario 1) If Mr. A chooses NOT to take registration in Maharashtra. Then location of supplier shall be the principal place of business registered in Delhi i.e. Delhi State. And in that case this service shall be treated as Inter-State Supply from Delhi to Maharashtra and accordingly IGST shall be levied on the same.  

Location of Supplier – Delhi

Place of Supply – Maharashtra (Since Property is located in Maharashtra)

Nature of Supply – Inter State Supply

Type of GST applicable – IGST

Advantages for not taking registration in Maharashtra?

Supplier shall be required to file returns only for Delhi GSTIN. And no separate returns will be required for Maharashtra.

Dis-advantages for not taking registration in Maharashtra?

If supplier (A) is taking any input services in relation to that property in Maharashtra from the local vendors in that state, then they would be charging him, Maharashtra SGST & CGST. And because A is not registered in Maharashtra, he would not be able to claim its input against his output GST liability in Delhi.  

____

Scenario 2) If Mr. A chooses to take registration in Maharashtra. Then location of supplier shall be the place of business registered in Maharashtra i.e. Maharashtra State. And in that case this service shall be treated as Intra-State Supply and accordingly CGST & SGST shall be levied on the same. 

Location of Supplier – Maharashtra

Place of Supply – Maharashtra (Since Property is located in Maharashtra)

Nature of Supply – Intra State Supply

Type of GST applicable – CGST & SGST

Dis-advantages for taking registration in Maharashtra?

Supplier shall be required to file extra returns for Maharashtra GSTIN also.

Advantages for taking registration in Maharashtra?

If supplier (A) is taking any input services in relation to that property in Maharashtra from the local vendors in that state, then they would be charging him, Maharashtra SGST & CGST. And now because A has got himself registered in Maharashtra, he would be able to claim its input against his output GST liability in Maharashtra. 

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Example 2) Mr. A is having its registered office in Delhi and having immovable property located in Maharashtra. And the same has been rented out to the client (B) whose registered office is also in Delhi. What will be the tax implications in GST?

Location of Supplier – Delhi

Place of Supply – Maharashtra (Since Property is located in Maharashtra)

Location of Recipient – Delhi (Not Relevant)

Nature of Supply – Inter State Supply (Although the location of Receiver is Delhi but the same is not relevant. Since the location of Supplier is Delhi and Place of Supply is Maharashtra. Therefore it will be treated as Inter-State Supply)

Type of GST applicable - IGST

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Example 3) Mr. A is having its registered office in Delhi and having immovable property located in Delhi. And the same has been rented out to the client (B) whose registered office is in Maharashtra. What will be the tax implications in GST?

Location of Supplier – Delhi

Place of Supply – Delhi (Since Property is located in Delhi)

Location of Recipient – Maharashtra (Not Relevant)

Nature of Supply – Intra State Supply (Although the location of Receiver is Maharashtra but the same is not relevant. Since the location of Supplier is Delhi and Place of Supply is also Delhi. Therefore it will be treated as Intra-State Supply)

Type of GST applicable – CGST & SGST

Please note that B would not be able to set off Input CGST & SGST paid in Delhi, against output tax liability in Maharashtra.

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Example 4) ABC Pvt. Ltd. having it’s registered office in Delhi is constructing a building in Maharashtra. The interior decoration of the building is being done by XYZ Pvt. Ltd., whose registered place of business is Maharashtra.

Determine the GST liability for the supply of interior decoration service?

Location of Supplier - Maharashtra

Place of supply – Maharashtra (Even though the Recipient‘s registered place of business is Delhi, however the place of supply shall be the location of the building, i.e. Maharashtra)

Nature of Supply – Intra State Supply

Type of GST applicable – CGST & SGST

Please note that ABC Pvt. Ltd. would not be able to set off Input CGST & SGST paid in Maharashtra, against output tax liability in Delhi.

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Example 5) Mr. Jack (an employee of ABC Pvt Ltd. whose registered place of business is Bangalore, Karnataka) comes to Delhi for an official seminar and takes accommodation and lodging in Five Star Hotel in Delhi.

Determine the GST liability for the supply of accommodation & lodging services by Hotel?

Location of Supplier - Delhi

Place of supply – Delhi (Even though the Recipient‘s registered place of business is Karnataka, however the place of supply shall be the location of Hotel i.e. Delhi)

Nature of Supply – Intra State Supply

Type of GST applicable – CGST & SGST

Please note that ABC Pvt. Ltd. would not be able to set off Input CGST & SGST paid in Delhi, against output tax liability in Karnataka.

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Example 6) ABC Pvt Ltd. whose registered place of business is Bangalore, Karnataka books a Five Star Hotel in Delhi for a function / conference / seminar / cultural program etc.

Determine the GST liability?

Location of Supplier - Delhi

Place of supply – Delhi (Even though the Recipient‘s registered place of business is Karnataka, however the place of supply shall be the location of Hotel i.e. Delhi)

Nature of Supply – Intra State Supply

Type of GST applicable – CGST & SGST

Please note that ABC Pvt. Ltd. would not be able to set off Input CGST & SGST paid in Delhi, against output tax liability in Karnataka.

Author's Note: In the GST regime, Input CGST & SGST paid in one state cannot be set-off against output GST liability in other state. Therefore based on the quantum and nature of input and output, businesses need to re-plan their tax territories.  

Thanks. Examples are good.

Concept has been made very clear

Why is the location of supplier not the fixed establishment I.e. Immovable property in Maharashtra ?

Can't the property in Maharashtra considered as fixed establishment theeby resulting in LOS to be Maharashtra in 2nd case

Replied to SARTHAK

Hello,

Suppose, if a person has property in multiple states, then how would you apply PE concept in that situation?

I believe example 1 is wrong.

We can never charge IGST in case of Immovable property.

Replied to Ankit

Hello,

Can you pls substantiate your views with reference to law?

In that example, Supplier is reistered in delhi and having a property in Maharashtra. So according to law IGST is the only option.

Please provide your views with reference to sections / rules, so that we can do further analysis.

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