A co, a dealer in hardware goods, located in Maharashtra receives an order from B co, located in Karnataka. The order is for the supply of 100 aluminium ladders, with an instruction to ship the ladders to C co , located in Tamil Nadu. B co is a customer of A co.
There are two parts to this transaction:
- First part of the transaction – between A co and B co: A co is the supplier of ladders and B co is the buyer. Accordingly, A co bills the transaction to B co, and as per the instruction, ships the goods to C co in Tamil Nadu.
- Second part of the transaction – between B co and C co : B co is the supplier and C co is the buyer. B co bills the transaction to C co , and endorses the lorry receipt (goods shipped in a lorry by A co in favour of C co . This lorry receipt (LR) will enable C co to take the delivery of the goods.
Treatment of Bill to – Ship to transactions under GST
Under GST, the place of supply of goods is very critical to determine the transaction as interstate or intrastate.
In GST, if the goods are supplied by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person.
Thus, IGST shall be charged since the receiver of the goods shall be deemed to be B co. and the place of supply shall be considered as karnataka irrespective of the fact that actual goods have been delivered to Tamil Nadu.
Current regime: how Bill to – Ship to transactions are taxed.
In Bill to -Ship to transactions, there is a first sale and a subsequent sale. In the current regime, tax should be levied on both parts of the transaction – on the first sale by A co to B co , and the subsequent sale by B co to C co.
However, in order to avoid tax being calculated multiple times through the course of the transaction, exemptions are provided on subsequent sales. These exemptions however, are subject to the furnishing of the prescribed forms. To get the exemption on the subsequent sale, a declaration Form E1 has to be issued by the first seller, and C-Form has to be issued by the buyer for levy of CST at a reduced rate of 2%.
