GST Place of Supply Disputes: IGST vs CGST/SGST Errors
📌 Quick Answer
Place of supply under Sections 10-14 of the IGST Act determines whether a transaction is inter-state (IGST) or intra-state (CGST+SGST/UTGST). An incorrect determination results in tax paid under the wrong head — IGST instead of CGST+SGST or vice versa. Section 77 of the CGST Act and Section 19 of the IGST Act provide the remedy: the incorrectly paid tax is refunded, and interest is not charged on the correct head if total tax at the correct rate was paid. However, place of supply disputes involve significant complexity — particularly for services, bill-to-ship-to transactions, and cross-border supplies. At Virtual Auditor, we resolve place of supply disputes through advisory opinions, SCN replies, refund applications, and appellate representation.
📖 Definition — Place of Supply (GST): Place of supply is the deemed location of the supply for the purpose of determining which tax applies. If the place of supply is in the same state as the supplier’s location, the supply is intra-state — CGST + SGST/UTGST applies. If the place of supply is in a different state from the supplier’s location, the supply is inter-state — IGST applies. The place of supply rules are contained in Sections 10-14 of the IGST Act, 2017.
📖 Definition — Location of Supplier/Recipient: Under Section 2(15) of the IGST Act, the location of the supplier is the registered place of business (or the place from which the supply is made, if different). Under Section 2(14), the location of the recipient is the registered place of business (or the place where the supply is received, if different). For unregistered persons, the location is the usual place of residence or the place of receipt of services.
Place of Supply Rules: Goods — Sections 10 & 11
Section 10: Domestic Supply of Goods
Section 10 of the IGST Act prescribes the place of supply rules for goods supplied within India (both supplier and recipient are in India).
| Scenario | Section | Place of Supply |
|---|---|---|
| Supply involves movement of goods | 10(1)(a) | Location where movement terminates for delivery to recipient |
| Bill-to-ship-to (delivery to third party on direction) | 10(1)(b) | Principal place of business of the third person (the one who directs delivery) |
| Supply without movement (ex-works, installed goods) | 10(1)(c) | Location of goods at the time of delivery to the recipient |
| Goods assembled/installed at site | 10(1)(d) | Place of installation or assembly |
| Goods supplied on board a conveyance | 10(1)(e) | Location where goods are taken on board |
Section 11: Import and Export of Goods
For goods imported into India, the place of supply is the location of the importer — Section 11(a). For goods exported from India, the place of supply is the location outside India — Section 11(b). This ensures that imports attract IGST (collected at customs) and exports are zero-rated.
Place of Supply Rules: Services — Sections 12 & 13
Services create the most complex place of supply disputes. Section 12 covers domestic services (both supplier and recipient in India). Section 13 covers cross-border services (either supplier or recipient is outside India).
Section 12: Domestic Services — Default and Specific Rules
| Service Category | Section | Place of Supply (Registered Recipient) | Place of Supply (Unregistered Recipient) |
|---|---|---|---|
| Default rule (general services) | 12(2) | Location of recipient | Location of recipient (if available), otherwise location of supplier |
| Immovable property-related | 12(3) | Location of the immovable property (or intended location if under construction) | |
| Restaurant, catering, personal grooming | 12(4) | Location where services are actually performed | |
| Training, performance, admission to events | 12(5)/(6)/(7) | Location of recipient (registered) | Location where event is held |
| Transportation of goods | 12(8) | Location of recipient | Location where goods are handed over for transport |
| Passenger transportation | 12(9) | Place where passenger embarks for the continuous journey | |
| Telecommunication services | 12(11) | Location of fixed-line: installation address. Post-paid mobile: billing address. Pre-paid: selling agent address or recharge location | |
| Banking/financial services | 12(12) | Location of recipient on records of the supplier | |
| Insurance services | 12(13) | Location of recipient on records of the supplier | |
Section 13: Cross-Border Services
When either the supplier or recipient is outside India, Section 13 applies. The default rule under Section 13(2) is that the place of supply is the location of the recipient. Specific rules apply for:
- Performance-based services (Section 13(3)): Place of supply is where the services are physically performed — this includes services supplied in respect of goods required to be made available, or services supplied to an individual requiring physical presence
- Immovable property-related (Section 13(4)): Location of the immovable property
- Admission to events (Section 13(5)): Place where the event is held
- Multiple locations across countries (Section 13(6)-(7)): Specific apportionment rules
- Banking, intermediary, transportation (Section 13(8)): Place of supply is the location of the supplier — this is an exception to the general rule and is the source of significant disputes, particularly for “intermediary” services
- OIDAR services (Section 13(12)): Location of the recipient
The IGST vs CGST/SGST Error: Section 77 and Section 19 Remedy
When a taxpayer determines the place of supply incorrectly and pays IGST instead of CGST+SGST (or vice versa), the financial consequence can be severe — the correctly applicable tax is demanded with interest, while the wrongly paid tax must be claimed as refund separately. However, Sections 77 and 19 provide relief.
How the Remedy Works
- Section 77 CGST Act / Section 19 IGST Act: A registered person who has paid IGST on a supply that is subsequently determined to be intra-state (or vice versa) shall be refunded the tax so paid, subject to the condition that they pay the correct tax
- No interest liability: If the total tax at the correct rate was paid (albeit under the wrong head), interest is not payable on the demand for the correct tax
- Refund application: The refund of wrongly paid tax must be filed in Form RFD-01 within 2 years from the date of payment
- Practical challenge: The refund may be processed by a different authority (CGST vs SGST), creating coordination delays. The demand and refund should ideally be dealt with simultaneously
💡 Practitioner Insight — CA V. Viswanathan (IBBI/RV/03/2019/12333)
The most contentious place of supply disputes we handle involve three categories. First, bill-to-ship-to transactions under Section 10(1)(b) — where the invoice goes to one state and the goods are shipped to another. The place of supply is the principal place of business of the person who directs the delivery, not the delivery location. Many taxpayers and officers get this wrong. Second, “intermediary” services under Section 13(8)(b) — the place of supply for intermediary services is the location of the supplier, meaning IGST does not apply and export benefits (zero-rating, LUT) are unavailable. The definition of “intermediary” under Section 2(13) of the IGST Act is restrictive, and we have successfully argued in several cases that the services rendered were not intermediary in nature. Third, SaaS and IT services where the service provider is in one state, the customer’s registered office is in another, and the actual users are spread across multiple states — the default rule (location of registered recipient) applies unless a specific rule overrides.
Common Place of Supply Disputes and Resolution
Dispute 1: Bill-to-Ship-to — Who Determines Place of Supply?
Company A (Tamil Nadu) directs Company B (Maharashtra supplier) to deliver goods to Company C (Karnataka). Who is the recipient? Where is the place of supply?
Under Section 10(1)(b), when goods are delivered on the direction of a third person, the place of supply is the principal place of business of the third person (Company A in Tamil Nadu) — not the delivery location (Karnataka). Company B must charge IGST (inter-state supply from Maharashtra to Tamil Nadu). If Company B charges CGST+SGST (treating it as a local Maharashtra supply) or charges IGST with Karnataka as the place of supply, both are incorrect.
Dispute 2: Works Contract on Immovable Property
A construction company registered in Delhi provides works contract services for a building in Mumbai. Under Section 12(3), the place of supply is the location of the immovable property — Mumbai (Maharashtra). The supply is inter-state (Delhi to Maharashtra), and IGST applies. If the company treats it as an intra-state supply within Delhi and pays CGST+SGST, the entire tax is paid under the wrong head.
Dispute 3: IT Services — Default Rule vs Location of Users
An IT company in Bangalore provides cloud-based software services to a company registered in Mumbai. The software is used by employees across India. Under the default rule (Section 12(2)), the place of supply is the location of the registered recipient — Mumbai. The supply is inter-state (Karnataka to Maharashtra), and IGST applies. The location of actual users is irrelevant for B2B registered transactions.
Dispute 4: Intermediary Services — Export or Domestic?
An Indian company provides marketing and customer acquisition services to a foreign company. Is this an export of services (zero-rated) or an intermediary service (domestic, location of supplier)?
If the services qualify as “intermediary” under Section 2(13) of the IGST Act — facilitating or arranging supply of goods/services between two or more persons — the place of supply is the location of the supplier (India), and it is a domestic supply subject to GST. If the services are independent services rendered to the foreign client (not facilitating a supply between third parties), they qualify as export of services and are zero-rated.
The distinction is critical: an intermediary earns commission for facilitating between parties; a service provider renders an independent service. The nature of the engagement letter, the scope of work, and the payment structure determine the classification.
Dispute 5: Telecommunication Services — Multiple Rules
Section 12(11) prescribes different place of supply rules depending on the type of telecom service:
- Fixed-line: Location where the telecommunication line is installed
- Post-paid mobile: Billing address as per the supplier’s records
- Pre-paid mobile: Address of the selling agent or recharge location
- If the address is not available: Location of the supplier
For a telecom company registered in Delhi providing post-paid services to a subscriber whose billing address is in Haryana, the place of supply is Haryana — inter-state supply, IGST applies. If the billing address changes and is not updated in records, the place of supply determination becomes incorrect for subsequent periods.
Avoiding Place of Supply Errors: Compliance Checklist
- Classify every transaction: Before raising an invoice, determine whether the supply involves movement of goods, bill-to-ship-to, or no movement — each has a different place of supply rule
- For services, identify the specific rule: Do not default to Section 12(2) without checking if a specific rule under Sections 12(3)-(13) applies
- For cross-border services, check Section 13: The default rule (location of recipient) has several exceptions — intermediary, banking, and transportation services follow different rules
- Maintain recipient location records: For unregistered recipients, the place of supply depends on available address records. Ensure your billing system captures the recipient’s state/UT accurately
- Review periodically: Recipient addresses, registration statuses, and GSTIN details change. An annual review of top customers/suppliers for place of supply accuracy is good practice
- Seek an opinion for borderline cases: Where the characterisation is doubtful (intermediary vs independent service, bill-to-ship-to vs direct), obtain a written opinion before filing returns
📋 Summary
Place of supply under IGST Sections 10-14 is the determinant of whether IGST or CGST+SGST applies. Errors result in tax paid under the wrong head — triggering demands, interest (unless Section 77/19 applies), and refund complications. Goods follow physical movement rules (Section 10) with specific treatment for bill-to-ship-to and installed goods. Services follow the recipient-location default (Section 12(2)) with 11 categories of exceptions covering immovable property, restaurants, events, transport, telecom, banking, and insurance. Cross-border services under Section 13 have their own framework with the contentious intermediary exception. At Virtual Auditor, we provide place of supply advisory opinions, handle IGST/CGST-SGST correction proceedings, and represent taxpayers in disputes before adjudicating and appellate authorities.
Frequently Asked Questions
What happens if IGST is paid instead of CGST/SGST or vice versa?
Section 77 of the CGST Act and Section 19 of the IGST Act provide the remedy. The wrongly paid tax is refunded (application in Form RFD-01 within 2 years), and interest is not payable on the correct tax if the total tax at the correct rate was paid under the wrong head. The correct tax must be paid first, then the refund of the wrong tax is claimed. The two processes (payment and refund) often involve different authorities, creating practical delays.
How is place of supply determined for services in GST?
The default rule under Section 12(2) of the IGST Act: for a registered recipient, place of supply is the location of the recipient; for an unregistered recipient, it is the recipient’s location if available, otherwise the supplier’s location. However, 11 categories of services have specific rules that override the default — immovable property (Section 12(3)), restaurants (12(4)), events (12(5)-(7)), transport (12(8)-(9)), telecom (12(11)), banking (12(12)), and insurance (12(13)).
Can an advance ruling be sought for place of supply disputes?
No. Section 97(2) of the CGST Act lists the questions that can be referred to the Authority for Advance Ruling, and “place of supply” is not included. This is a recognised gap in the GST framework. The taxpayer must determine the place of supply based on professional advice, and any dispute is resolved through adjudication and appeal, not through the advance ruling mechanism.
What is the place of supply for bill-to-ship-to transactions?
Under Section 10(1)(b) of the IGST Act, where goods are delivered to a recipient or any other person on the direction of a third person, the place of supply is the principal place of business of the third person (the one who directs delivery). This means the billing entity’s location determines the tax head — not the physical delivery location. This is one of the most frequently misapplied provisions.
How does place of supply work for e-commerce and digital services?
For B2C e-commerce services within India, Section 12(2)(b) applies — place of supply is the location of the recipient as available in the supplier’s records. For OIDAR services from outside India to Indian consumers, Section 13(12) applies — place of supply is the location of the recipient, and the foreign supplier (or intermediary) must register and pay IGST. E-commerce operators may have GST obligations under Section 9(5) for specified services. Contact Virtual Auditor for e-commerce GST compliance advisory.
What is the place of supply for goods delivered in multiple states?
If goods are delivered to multiple locations across states under a single contract, the place of supply is determined separately for each delivery. Each delivery to a different state constitutes a separate supply for place of supply purposes. The invoice should ideally be split state-wise, or a single invoice with state-wise breakup of quantities and values should be raised with appropriate IGST/CGST+SGST allocation.
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