Place of supply of Online services-GST Circular dated 31.12.2024

The CBIC issued Circular No. 242/36/2024-GST on December 31, 2024, to address concerns regarding the mis-interpretation of provisions related to the place of supply for online services under GST. There are instances where suppliers, providing online services to unregistered recipients (either directly or through e-commerce operators), failed to correctly record the recipient's State as the place of supply on their invoices. This non-compliance, stemming from a misunderstanding of section 12(2)(b) of the IGST Act, 2017, and rule 46 of the CGST Rules, 2017, has resulted in revenue being allocated to the wrong States.

This blog delves into the key clarifications provided in the circular to ensure proper compliance and accurate declaration of the place of supply for such transactions.

Let’s understand the details!

Circular No. 242/36/2024-GST dated 31th December, 2024

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GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

GST POLICY WING

F. No. CBIC-20001/14/2024-GST                                                                     New Delhi: 31.12.2024

Circular No. 242/36/2024-GST

To,

The Principal Chief Commissioners/ Chief Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Sub: Clarification on the place of supply of Online Services supplied by the suppliers of services to unregistered recipients-reg.

1. References have been received from field formations regarding non-compliance of provisions of mandatory recording of correct place of supply on the invoices by the suppliers in respect of online services provided by them, either themselves or through electronic commerce operators, to unregistered recipients due to wrong interpretation of provisions of section 12(2)(b) of Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as "IGST Act") read with rule 46 of Central Goods and Services Rules, 2017 (hereinafter referred to as "CGST Rules"). 

It has also been mentioned that in such cases of taxable online supplies of services to unregistered recipients, registered suppliers are required to mention the State name of the recipient on the invoice, irrespective of the value of such supply, and declare the place of supply of such services as the State of the recipient as per the provisions of clause (i) of section 12(2)(b) of IGST Act but many suppliers are not recording the State name of the unregistered recipient on the invoice and are declaring place of supply of such services as the location of the supplier as per clause (ii) of section 12(2)(b) of IGST Act. This results in the wrong declaration of the place of supply, resulting in a flow of revenue with respect to the said supply to the wrong State. The request has been made to clarify the issue so as to ensure the correct declaration of the place of supply by the suppliers of such services to unregistered recipients.

2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in the exercise of its powers conferred by section 168(1) of the Central Goods and Services Act, 2017 (hereinafter referred to as "CGST Act") hereby issues the following clarification.

3. Legislative provisions:

3.1 As per sub-section (17) of section 2 of the IGST Act, 'online information and database access or retrieval services' means:

"services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply impossible to ensure in the absence of information technology and includes electronic services such as, -

(i) Advertising on the internet;

(ii) Providing cloud services;

(iii) Provision of e-books, movies, music, software, and other intangibles through telecommunication networks orthe  internet;

(iv) Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;

(v) Online supplies of digital content (movies, television shows, music and the like);

(vi) Digital data storage; and

(vii) Online gaming, excluding online money gaming as defined in clause (80B) of section 2 of the Central Goods and Services Tax Act, 2017 (12 of 2017);"

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3.2 The term 'electronic commerce' has been defined under section 2(44) of the CGST Act, as follows:

"electronic commerce" means the supply of goods or services or both, including digital products over digital or electronic networks;

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3.3 The term 'electronic commerce operator' has been defined under section 2(45) of the CGST Act, as follows:

"Electronic commerce operator" means any person who owns, operates or manages a digital or electronic facility, or platform for electronic commerce;

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3.4 Sub-section (2) of section 12 of the IGST Act, reads as follows:

"(2) The place of supply of services, except the services specified in sub-sections (3) to (14), -

(a) Made to a registered person shall be the location of such person;

(b) Made to any person other than a registered person shall be, -

(i) The location of the recipient where the address on record exists; and

(ii) The location of the supplier of services in other cases."

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3.5 As per sub-section (2) of Section 31 of the CGST Act,

"(2) A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed:"

3.6 Rule 46 of CGST Rules provides as below:

"46. Subject to rule 54, a tax invoice referred to in section 31 shall be issued by the registered person containing the following particulars, namely, -

(f) Name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is unregistered and where the value of the taxable supply is less than fifty thousand rupees and the recipient requests that such details be recorded in the tax invoice;

Provided that in cases involving the supply of online money gaming or in cases where any taxable service is supplied by or through an electronic commerce operator or by a supplier of online information and database access or retrieval services to a recipient who is unregistered, irrespective of the value of such supply, a tax invoice issued by the registered person shall contain the name of the State of the recipient and the same shall be deemed to be the address on record of the recipient;..."

4. Clarification:

4.1 Section 12 of the IGST Act provides that except in cases specified in sub-section (3) to (14) of the said section, when the services are supplied to a registered person, the place of supply of services shall be the location of the recipient and when the services are supplied to an unregistered person, the place of supply of the said services shall be the location of the recipient, if his address is available on record, and shall be the location of the supplier if the address is not available on record.

4.2 Section 31(2) of the CGST Act provides that a registered person providing taxable services must issue a tax invoice with details like the service description, value, tax charged, and such other particulars as may be prescribed.

4.3 Rule 46 of CGST Rules provides the particulars required to be mentioned on the tax invoice. Clause (f) of the said rule provides for mentioning some details on the invoice in case of supplies made to unregistered recipients. Further, proviso to clause (f) of rule 46 of the CGST Rules provides that in cases involving the supply of online money gaming or involving the supply of any taxable services by or through an electronic-commerce operator or by a supplier of online information and database access or retrieval services, to an unregistered recipient, irrespective of the value of the said supply, the tax invoice issued by the registered supplier must contain the recipient's State name. It has also been provided in the said proviso that such State name shall be deemed to be the address on record of the recipient.

4.4 A conjoint reading of clause (b) of sub-section (2) of Section 12 of the IGST Act, sub-section (2) of Section 31 of the CGST Act and proviso to rule 46(f) of CGST Rules leads to a conclusion that in respect of supply of services made to unregistered persons, irrespective of the value of the said supply, the supplier is required to mandatorily record the name of the State of the unregistered recipient on the tax invoice, in cases involving supply of online money gaming or supply of taxable services by or through an electronic commerce operator or supply of online information and database access or retrieval (OIDAR) services. Recording of the name of State of the unregistered recipient on the tax invoice in respect of such supply of services shall be deemed as the address on record of the recipient for the purpose of determination of place of supply of the said services under section 12(2)(b) of IGST Act. Accordingly, in such cases, the place of supply of such services shall be considered as the location of the recipient of the services as per provisions of clause (i) of section 12(2)(b) of the IGST Act.

4.5 It is also observed that a combined reading of the definitions of 'electronic commerce' and 'electronic commerce operator' as per section 2(44) and section 2(45) of the CGST Act, along with rule 46(f) of CGST Rules, leads to an understanding that all services supplied to unregistered recipients over digital or electronic network, either by the supplier using his own digital or electronic facility/platform or through any other electronic or digital platform owned and operated by an independent electronic commerce operator, will be covered under proviso to rule 46(f) of CGST Rules.

4.5.1 It is, accordingly, clarified that provisions of the proviso to rule 46(f) of CGST Rules shall be applicable in respect of all the online supplies of services supplied to an unregistered recipient, in addition to the supply of online money gaming and OIDAR services. Some examples of such services are subscriptions to e-newspapers and e-magazines, online subscriptions to entertainment services (e.g. OTT platforms), online telecom services, digital services through mobile applications, etc. Therefore, with respect of the supply of any such online/ digital services, OIDAR services, and online money gaming to unregistered recipients, the suppliers are mandatorily required to record the name of the State of the recipient on the tax invoice, irrespective of the value of supply of such services, and to declare place of supply of the said services as the location of the recipient (based on the name of State of the recipient) in their details of outward supplies in FORM GSTR-1/1A.

4.5.2 For the purpose of recording the name of the State of the recipient on tax invoice in respect of such supplies made to unregistered persons for such online services, the supplier should devise a suitable mechanism to ensure the collection of such details from unregistered recipients before making any supplies to him. As mentioned above, in such cases, the name of the State of the recipient so recorded shall be deemed to be the address of the recipient available on record and thus, for determining the place of supply of the said services, provisions of section 12(2)(b)(i) of IGST Act will be applicable as per which the place of supply shall be the location of the recipient.

4.5.3 It is also mentioned that if the supplier fails to issue an invoice in accordance with the said provisions by not recording correct mandatory particulars, including recording of the name of the State of the unregistered recipient in respect of such supplies, he may be liable to penal action under the provisions of section 122(3)(e) of CGST Act.

5. It is requested that suitable trade notices be issued to publicize the contents of this Circular.

6. Difficulty, if any, in the implementation of this circular may be brought to the notice of the Board. The Hindi version would follow.

(Sanjay Mangal)

Principal Commissioner (GST)

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Key Highlights

1. Key Legislative Provisions:‍

• Section 12(2) of the IGST Act, 2017 states that the place of supply of services made to any unregistered person shall be,-

(i) The location of the recipient where the address on record exists; and

(ii) The location of the supplier of services in other cases.

• Section 31(2) of the CGST Act requires registered persons to issue a tax invoice with specific details.
• Rule 46(f) of CGST Rules details the invoice requirements, particularly the inclusion of the recipient's State for certain online services. Further, proviso to clause (f) of rule 46 of the CGST Rules provides that in cases involving the supply of online money gaming or involving the supply of any taxable services by or through an electronic-commerce operator or by a supplier of online information and database access or retrieval services, to an unregistered recipient, irrespective of the value of the said supply, the tax invoice issued by the registered supplier must contain the recipient's State name. It has also been provided in the said proviso that such State name shall be deemed to be the address on record of the recipient.
• A conjoint reading of all these provisions leads to a conclusion that with respect of the supply of services made to unregistered persons, irrespective of the value of the said supply, the supplier is required to mandatorily record the name of the State of the unregistered recipient on the tax invoice, in cases involving supply of online money gaming or supply of taxable services by or through an electronic commerce operator or supply of online information and database access or retrieval (OIDAR) services.

2. The issue is about suppliers of online services not following GST rules properly when it comes to recording the "place of supply" on invoices for services provided to unregistered customers. As a result, the tax revenue is going to the wrong State, causing errors in tax distribution.

3. Clarification on Invoicing Requirements in the circular:

• Suppliers must mandatorily include the recipient’s State on the tax invoice, irrespective of the supply value, for online services such as OIDAR services, online gaming, digital content, and services provided through electronic platforms.
• The place of supply for these services will be the location of the recipient, as per Section 12(2)(b)(i) of the IGST Act.

4. Examples of Covered Services:‍

• Online gaming, OTT platforms, e-newspapers, and digital services via mobile apps.

5. Action Required by Suppliers:‍

• Suppliers must ensure they collect the recipient's State details before providing services to unregistered persons.
• Non-compliance may lead to penalties under Section 122(3)(e) of the CGST Act.

6. Implementation:‍

• The circular emphasizes the importance of correct invoicing to prevent revenue misallocation.
• A mechanism must be devised by suppliers to collect and record the necessary details of unregistered recipients.

7. Penalties for Non-Compliance:‍

• Suppliers who fail to adhere to the invoicing requirements may face penalties.

Conclusion

The clarification provided in Circular No. 242/36/2024-GST is essential to address the ongoing confusion regarding the correct declaration of the place of supply for online services provided to unregistered recipients. By mandating the inclusion of the recipient’s State on invoices, the circular ensures a uniform approach to compliance and prevents misallocation of revenue across states. Suppliers must take proactive measures to collect and record the necessary details from unregistered recipients before providing services, ensuring that the place of supply is correctly identified as per the law. Non-compliance with these provisions could result in penalties, underscoring the importance of adhering to the updated guidelines.

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