Under the current indirect tax regime, any taxable service being provided or rendered is subject to payment of service tax. Service tax is levied centrally and thus is charged irrespective of whether the service has been provided on an intrastate or interstate basis. However, the GST regime has taken one step forward as the place of supply of service under the GST ascertains the type of tax applicable on such service – based on the idea that GST is a ‘destination based consumption tax’. In other words, the tax accrues in the state where the supply has been received or consumed and thus it becomes important to determine where the supply of service has been rendered.

There are several rules to understand how the supply of services is different from the supply of goods. The supply of goods is dependent on the movement of these goods. However, several factors such as the supply of service being intangible in nature, there being no fixed method of delivery, and the location of the supplier and the recipient being either undeterminable or not fixed, come into play when deciding the place of supply of services.

We have discussed broadly two scenarios to understand the place of supply of services i.e., the supply of services rendered to a registered person and an unregistered person as follows –

Registered Person –

• Service tax is applicable under the indirect tax regime in case of a taxable service being rendered to a person registered within the same state / outside the state.
• F&M Clothing registered in Maharashtra provides design services to Lara Fashion in Madhya Pradesh. Since the provision of such a service is taxable, 15% of such service tax will be charged on this transaction.
• Under the GST regime, the place of supply is used to determine the tax levied on the transaction. Taking the same example, the registered place of business of the recipient, i.e., Madhya Pradesh will be the place of supply.

Unregistered Person –

• Service tax is applicable under the indirect tax regime in case of a taxable service being rendered to an unregistered person.
• Under the GST regime, there may be two scenarios for determining such supply rendered to an unregistered person i.e., when the record of the supplier has the recipient’s address and when the record of the supplier does not have the recipient’s address.
• When the record of the supplier contains the address of the recipient, then the place of the supply shall be ascertained by the location of the recipient as provided in such records.
• When the record of the supplier does not contain the address of the recipient, then the place of the supply will be the location of the supplier of the service itself.

It is pertinent to note that under the GST regime, any person who is rendering or supplying services may not register himself as a composite dealer. Nonetheless, as per the decision of the GST Council on March 4, 2017, small hotels, dhabas and restaurants that have an annual aggregate turnover not exceeding INR 50 lakhs may register themselves as composite dealers and gain benefits thereto. However, this aspect has not been incorporated into the GST law yet and we await a government notification to the same effect.

To sum up, these are some general principles to be applied when one is determining the place of supply of services. There are also some specific rules and principles that are required to be followed, covered by us in other articles.