Is separate GST registration required if a contractor is providing services in different state?
Registration of an entity is the initial basic step one has to follow to carry on supply or any other GST compliances. While one may find the registration process unnecessary and complicated, it is followed by a number of advantages, such as legal recognition as supplier of goods/services, availment of ITC, legal authorisation to collect tax from customers etc.
Entities fulfilling the below mentioned criteria are not required to obtain registration mandatorily
1.In case of Exclusive Supply of Goods
Small businesses having aggregate turnover not exceeding Rs 40 Lakh (Rs 20 lakh if business is in the notified special category states)
2. In case of supply of services or mixed supplies
Small businesses having aggregate turnover not exceeding Rs 20 lakhs (Rs 10 lakh business is in the notified special category states)
Registration in GST is PAN based and State specific. Supplier has to register in each of such State or Union territory from where he supplies. A person registered in one State is considered ‘unregistered person’ outside the State.
If a person is registered in one state and is hired to provide works contract services in another state, will such person be required to be registered in such other case?
Let us refer to the advance ruling of the Karnataka Advance Ruling Authority (AAR) in the case of M/s T & D Electricals (31.03.2020) where the applicant intends to supply goods or services or both from their principle place of business, which is located in Rajasthan for providing services as a work contractor in Karnataka.
Facts of the Case
- The Applicant is registered under the Goods and Services Act, 2017 as works contractor and wholesale supplier in Rajasthan.
- They have been awarded a contract by M/s Shree Cement Ltd for electrical, instrumentation and IT jobs (works contract) at a township for Karnataka Cement Project (a unit of Shree Cement Ltd) in the state of Karnataka.
- The scope of work of the contract includes complete electrical & instrumentation jobs, installation, testing and commissioning at township. The job involves supply of material and installation, testing and commissioning of the same.
- The contractor (applicant) will have to arrange all required tools, materials and manpower/electrician/technician as per the contract.
- The invoices have to be addressed to Karnataka Cement Project and the GSTIN of the Shree Cement Ltd (Karnataka) is required to be mentioned in the invoices.
- The contractor (applicant) does not have any premises in Karnataka. M/s Shree Cement Ltd will only provide temporary small space for office & store in their premises without any written documents.
In view of this, the applicant filed the instant application, as an unregistered person, seeking advance ruling in respect of the following questions:-
- Whether separate registration is required in Karnataka state? If yes, whether agreement would suffice as address proof since nothing else is with the applicant and service recipient will not provide any other proof?
- If registration is not required in Karnataka and if goods are purchased from Rajasthan and shipped directly to the township at Karnataka then whether the dealer in Rajasthan has to charge CGST & SGST or the IGST?
- If registration is not required in Karnataka and if goods are purchased from Karnataka to use the goods at the township in Karnataka then whether the dealer in Karnataka has to charge CGST & SGST or IGST?
- What documents would be required with transporter to transit/ship material at Karnataka site from dealer/supplier of Rajasthan and in case of dealer/supplier is of Karnataka.
Submissions by the Applicant:-
- Section 22 of the CGST Act 2017 provides requirement for registration according to which every supplier shall be liable to be registered under this Act in the state or union territory, other than special category of states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs 20 lakhs.
- Section 2(71) defines location of supplier and in the instant case location of supplier (applicant) is Rajasthan, as the supply is made from Rajasthan.
- Further Section 2(71) also defines location of supplier of services’ and in the instant case the location of the applicant (works contractor) will be the state where his principal place of business is registered (unless he has established office/establishment in the place where the services are supplied)
- The place of supply, in case of works contract services, shall be the location at which the immovable property (construction site) is located, as per Section 12(3)(a) of IGST Act 2017.
- Therefore according to the applicant, they are not required to have any separate GST registration in Karnataka State.
- Section 10(1) of the IGST Act 2017 determines the place of supply of goods, other than supply of goods imported into, or exported from India, which has two clauses i.e. (a) and (b). We understand that clause (b) is applicable to the instant case and hence CGST & SGST should be charged in case when registration is not required and goods are purchased from Rajasthan and shipped directly from dealer of Rajasthan to township at Karnataka. Further if the goods are purchased from a dealer of Karnataka and shipped to the site of Karnataka, then IGST should be charged in terms of Section 10(1)(b) of the IGST Act 2017.
Observations by the AAR
- The applicant herein has got the contract form M/s Shree Cement Ltd., Rajasthan for execution of the same at the location situated in Kalaburagi district of Karnataka State.
- The applicant is a registered person in Rajasthan and with this background has sought advance ruling in respect of the questions mentioned at para 2 supra. We take up each question at a time for discussion.
Is separate registration is required to execute the contract in Karnataka State or not?
- Section 22 of the CGST Act 2017 is relevant to registration and stipulates that every supplier shall be liable to be registered in the state from where the said supplier makes the taxable supply of goods or services or both, subject to the threshold limit of the aggregate turnover in a financial year.
- In the instant case, the applicant intends to supply goods or services or both from their principle place of business, which is located in Rajasthan.
- The applicant has only one principle place of business, for which registration has been obtained and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant.
- Therefore the location of the supplier is nothing but the principle place of business which is in Rajasthan.
- Thus there is no requirement for a separate registration in Karnataka for execution of the contract.
If registration is not required in Karnataka and if goods are purchased from Rajasthan and shipped directly to the township at Karnataka then whether the dealer in Rajasthan has to charge CGST & SGST or the IGST?
- In this situation the supplier i.e. dealer in Rajasthan and the recipient of goods i.e. the applicant, both are situated in the same state of Rajasthan and hence the impugned supply becomes intra-state supply, in terms of Section 8 of the IGST Act 2017.
- The said supply gets covered under Bill to – Ship to transaction, in terms of Section 10(1)(b) of IGST Act 2017.
- Under “Bill To Ship To” model of supply, there are three persons involved in a transaction (‘A’ is the person who has ordered ‘B’ to send goods directly to ‘C’)
- According to section 10 (1)(b) of the IGST Act, where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.
- Thus CGST & SGST has to be charged by the dealer in the relevant invoice. However, the applicant has to charge IGST in their invoice addressed to M/s Karnataka Cement Project.
If registration is not required in Karnataka and if goods are purchased from Karnataka to use the goods at the township in Karnataka then whether the dealer in Karnataka has to charge CGST & SGST or IGST?
- In this situation the supplier i.e. dealer is situated in Karnataka & the recipient of goods i.e. the applicant, is situated in the state of Rajasthan and hence the impugned supply becomes inter-state supply, in terms of Section 7(1) of the IGST Act 2017.
- Further the said supply gets covered under Bill to – Ship to transaction, in terms of Section 10(1)(b) of the IGST Act 2017.
- Thus IGST has to be charged by the dealer in the relevant invoice. However, the applicant also has to charge IGST in their invoice addressed to M/s Karnataka Cement Project (a unit of Shree Cement Ltd.).
Thus it can be concluded that,
It is not required to obtain a separate registration in a separate state, to execute the project in that state, when they are registered in another. However, one is at liberty to obtain the said registration, if they are able & intend to have a fixed establishment at the project site in of the different state.
The dealer from a one state has to charge CGST & SGST when the goods, purchased by the applicant who is registered in the same state as the dealer but are shipped to project site in a different state, under “bill to ship to” transaction in terms of Section 10(1)(b) of the IGST Act 2017.
The dealer in state where the project is taking place has to charge IGST when the goods, purchased by the applicant, are shipped to project site, under bill to ship to transaction in terms of Section 10(1)(b) of the IGST Act 2017.