Understanding GST Place of Supply Rules for Cross-Border & Inter-State Services

Determining the correct Place of Supply (POS) under the Integrated Goods and Services Tax (IGST) Act, 2017 is critical for Indian service providers and technology companies. Misclassifying an inter-state supply as intra-state (or vice versa) leads to wrongful tax payment under the wrong head and subsequent demand notices with interest under Section 50.

1. General Rule vs. Specific Provisions (Section 12 & 13)

When both the service provider and recipient are located in India, Section 12 of the IGST Act applies. The general rule mandates that the Place of Supply is the location of the registered recipient. If the recipient is unregistered, it defaults to the location of the recipient if the address on record exists, or the location of the supplier.

2. Export of Services Criteria (Section 2(6))

To qualify as a zero-rated export of service without payment of IGST under a Letter of Undertaking (LUT), five conditions must be cumulatively satisfied:

• The supplier of service is located in India.
• The recipient of service is located outside India.
• The Place of Supply of service is outside India.
• Payment for such service has been received in convertible foreign exchange or INR (where permitted by RBI).
• The supplier and recipient are not merely establishments of a distinct person.

3. Common Pitfalls in Inter-State Invoicing

Errors frequently occur in software development contracts, cloud hosting, and management consultancy services where branch offices are involved. Ensure that invoice billing addresses strictly align with the client’s GSTIN registration state to prevent tax disputes during audit assessments.