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EICI–GSTRepresentation

February2017 Page1of42

RepresentationbyTheExpressIndustryCouncilofIndia(‘EICI’)onimportantconsiderationsinframingtheGSTlegislationfortheExpress

(Courier)Industry

March2017



CONTENTSRecommendationsonlegalframeworkforcourierindustryunderproposedGSTLawSr.No Particulars #Page

1 Background 32 Zero-ratingofInternationaltransactions 73 Singlepan-Indiaregistrationforoutputandinputtax 94 ClarificationontheLocationofsupplier

- AlternativeA–TheheadofficeofthecourierCompany- AlternativeB–Theplaceofactualpick-up/deliveryofgoods

13

5 AmendmentinPlaceofsupply 256 Clarificationonlocationofrecipient 307 Placeofsupplyforvalueaddedservice 328 Taxabilityofself-supplies 379 OtherKeyConsiderations 38



BACKGROUND► Courierservice(alsoknownasExpressDeliveryService)referstothetimebounddoor-to-doortransportationanddeliveryofdocuments,gifts,

parcels,spareparts,reports,samples,pharmaceuticals(temperaturecontrolledlogistics),highvaluefashionitems,etc.,withseamlessintegrationofInformationTechnology(IT),providingtrackingtotheendconsumer(hereinafterinterchangeablyusedas‘courierservice’or‘EDS’).

► We,theExpressIndustryCouncilofIndia(‘EICI’),representacrosssectionofmembersfromtheinternationalanddomesticcourier/express

servicecompaniesinIndia.Ourmembersincludeleadingdomesticandinternationalcourierserviceproviders.

► ThemembersofEICIareencouragedbytheintroductionofTheCentralGoodsandServicesTaxBill,2017(‘CGSTBill’),TheIntegratedGoodsandServicesTaxBill,2017(‘IGSTBill’),TheUnionTerritoryGoodsandServicesTaxBill,2017,includingthereleaseoftheprocessesonRegistration,Payments,RefundandReturns;andhopefortheearlyimplementationofGST.AGSTregimealignedwiththeoverallobjectivesofthistaxreformofremovingcascadingimpactoftaxes,unifyingtheIndianmarket,simplifyingadministrationandcompliances,andrationalizingthetaxationrateswillnodoubtprovetobeacatalystforgeneraleconomicgrowth.

► Itisthereforeessentialthatsector-specificissuesaretakencognizanceofandspecificrulesaddressinguniquefeaturesofthesectorareformulatedunderGSTregime.Thenatureofactivitiesofcourierindustrycanbebifurcatedintotwo,namely:

(i) Domesticcouriers,whichincludespickingupanddeliveringwithinIndia(asignificantandgrowingpartofthismarketistheboominge-

commercesector);and(ii) Internationalcourier,whichincludesmovementofparcels/shipmentsfromeitherInsideIndiatooutsideIndia(ieimportshipments)orvice

versa(ieexportshipments)► Thenatureofthecourierbusinessisuniqueandintricate,giventhattheoperationsinvolvetwocontractingparties,apickupdestinationanda

deliverydestinationaswellasapickuphub/warehouseandanotherforthelastmiledelivery.Industryfollowsahubandspokemodel,wheresourcingisfrommultiplelocationsandthereisacentralconsolidatorcalledthe‘Hub’,while‘Spokes’provideservicesthroughthedistributioncenters'acrosslocations.Therefore,acourierservicecannotbeassociatedtoanyoneplace/statebecauseofitsnatureofperformance.Thesamehasbeenexplaineddiagrammaticallybelow:



► Itisevidentfromtheillustrationalongsidethattheserviceisprovidedonaseamlessbasisacrossthecountry.

► AwarehouseoraconveyancelocatedinonestateisusedforperformingacourieractivityonwhichGSTispayableinadifferentstate

► Moreover,itisimpossibletoidentifyand

valuethesupportprovidedbyoneestablishmenttoanother.

► Inaninternationalmovementofgoods,thedoortodoormovementcanbefurtherbifurcatedintothefollowing:

1. Originservices(transportationandancillaryactivitiesinthecountrywheregoodsarepickedup),2. Internationalfreight(porttoporttransportation)and3. Destinationservices(transportationinthedestinationcountryincludingancillaryactivities)

► Thecomplexityinaninternationalmovement,iffurtherbasedonwhoiscontractingforthecourierserviceandwhoispayingforthesame.We

havetabulatedthekeytypesoftransactionsthatoccurinacourierservice

Transaction Movementofparcel Paymentofconsideration Remarks

ExportPrepaid(ExportPP)

ShipmentmovesfromalocationinIndiatoalocationoutsideIndia

TheIndianConsignorinIndiapaysforthecourierservice

ThemaincourierserviceisperformedbytheEDSproviderinIndiaandapartoftheserviceis




sub-contractedtotheforeignnetworkentityasaco-loaderactivity.

ImportPrepaid(ImportPP)

ShipmentmovesfromalocationoutsideIndiatoalocationinIndia

TheforeignConsignoroutsideIndiapaysforthecourierservice

Themaincourierserviceisperformedbythenetworkentityandthedestinationservicesaresub-contractedtotheIndiancouriercompanyasaco-loaderactivity.

ExportCashCollect(ExportCC)


TheforeignConsigneeoutsideIndiapaysforthecourierservice

Themaincourierserviceisperformedbythenetworkentityandtheoriginservicesaresub-contractedtotheIndiancouriercompanyasaco-loaderactivity.

ImportCashCollect(ImportCC)


TheIndianConsigneeinIndiapaysforthecourierservice

ThemaincourierserviceisperformedbytheEDSproviderinIndiaandapartoftheserviceissub-contractedtotheforeignnetworkentityasaco-loaderactivity.Further,therecouldalsobeasituationwheretheshipmentmovesfromalocationoutsideIndiatoanotherlocationoutsideIndiaandtheIndiancustomerinIndiapaysforsuchcourierservice.

► InIndia,theGSTsoughttobeleviedhasadualstructurewherebycomplianceswouldneedtobeundertakenforeverystate-levelregistration.

Giventhatthemajoroperationsofacouriercompanyareseamlessinnature,itisextremelyimportanttounderstandwherewouldGSTbepayable,onwhatvalueandthecompliancereportingrequirementsthereof.Further,thepaymentoftaxandtheactualusageofcapitalassetsarenotentirelyaligned,whichwouldleadtocreditblockages.

► EDSisalabour-intensivesectorprovidingemploymenttomillionsofpeopleandisalsoanintegralandimportantpartofthelogisticsindustry.Therefore,theEDSsectorisrequiredtobetreatedsensitivelyinordertoensureoptimalbenefittotheeconomy.



► Withaviewtostreamlineexistingchallenges,theneedofthehouristoaligntheprinciplesoftaxationtotheconceptofdestinationbasedconsumptiontax,aswellasinternationallyacceptedtaxationguidelineswhichareeasytocomplyandadminister.Specifically,inthecourierindustry,tohaveataxationregimethatisambiguousorisnoteasytocomplywithcouldmeanacontinuingboosttotheunorganisedsector(whichexistsinthisindustry).

► Giventheabove,themembersofEICIseektoengagewithyourgoodofficeinrespectofthefollowingessentialfactorsintheGSTregime:

ü Sensitivetreatmenttocourierservicesbasedoninternationalacceptedguidelinesü Clearandunambiguousrulestoenablecomplianceandmitigatecascadingoftaxes

► Wehaveoutlined,inthisnote,ourkeysubmissionscovering,interalia,thefollowingaspects:

(a) Zero-ratingofinternationalmovementofgoods(b) SinglePANIndiaregistration(c) DeterminationofLocationofserviceprovider(d) DeterminationofPlaceofSupply(e) Otheroperationalandproceduralconsiderations

► ItisrequestedthatthisrepresentationmaybereadinconjunctionandcontinuationwiththeearlierrepresentationfiledbyEICIdatedAugust

2016withyourgoodoffice.



RecommendationsforthelegalframeworkfortaxingcourierservicesundertheproposedGSTlaw:1. Zero-ratingofInternationaltransaction1.1 Inthemodernworld,economicactivityisgloballyintegratedandtradeisanincreasinglyimportantcomponentofacountry’sGDP.Logisticshubs

arecentrepiecesforsuchtradingfunctionsandidentifyingsuchhubsisimportantforoccupiers,developers,andinvestors.

1.2 Recognisingtheabove,Indiatoohasbeenincreasinglylookingatwaystoputitselfontheglobalmapasagrowinglogisticshub;thereby,increasingintegrationwithglobaltradeandsupplychains,betterutilizationofnationaltransportassets,morecompetitiveexports,lowercostsforimports,aswellasincreasedemploymentopportunities.

1.3 Oneofthekeyprerequisitesfortheaboveisthetreatmentofinternationaltrade–boththetariffandnon-tariffbarriers.TheproposedGST

regimesaddlesinternationalcouriertransactionswithtax(bothinboundandoutbound)resultinginanadditionalburdenwhichmayactasanimpedimenttothegrowthofsuchtransactions(explainedbelowinParagraph4below).Oneofthekeyobjectivesofanytaxationregimeistoensurethatthereisnodoubletaxationofanysuppliesandthatnotaxesareexportedoutofthecountrytherebyburdeningtheexportsofgoods/servicesfromsuchcountrywithlocaltaxes(makingthelocalgoods/servicesuncompetitiveintheinternationalmarket).

1.4 Keepinginmindtheabove,mostdevelopedGST/VATlegislationszerorateinternationalfreighttransportationservices(whichincludescourier)i.e.bothexportandimporttransactions,arezerorated.Further,mostcountriesalsozerorateancillaryactivitiessuchashandling,loading,unloading,etc.,providedincourseofinternationalfreighttransportation.Thetreatmentofinternationalfreighttransportationmaybeexplainedbasisthefollowingthreeprinciplesthatsetouttherationalefollowedbyothercountrieswithaviewtodevelopcross-bordertradesandminimizetariffbarriers:

1. Principle1:Zero-ratingofInboundandOutboundmovementofgoods:

i) Withregardtointernationalcouriertransactions(asisthecaseevenforfreighttransportationservices),allinboundandoutboundshipments

arezerorated.Forinstance,inMalaysiaGST,zero-rating1forinternationalfreighthasbeenprovidedasfollows:

1GoodsandServiceTax(zero-ratedSupply)Order2014



QuoteTransportservicesinrelationtopassengerorgoods-a. FromaplaceoutsideMalaysiatoanotherplaceoutsideMalaysia;b. FromalastexitpointinMalaysiatoanyotherplaceinothercountry;orc. FromaplaceoutsideMalaysiatothefirstentrypointinMalaysia

Unquote

ii) Suchamechanismwouldrectifythepresentissuesbeing:

a. Doubletaxationofcourierservicesincaseofinboundshipmentsb. Exportoftaxesandpossiblecascadingoftaxesonexportshipments

2. Principle2:Zero-ratingofancillaryservicesasapartofinternationalfreight

i) Servicesinrelationtoandancillarytothetransportofgoodsfromoneplacetoanother,totheextenttheyrelatetoInternationalfreight

mustalsobeZero-rated.

ii) SuchserviceswouldtypicallyincludeLoading,unloading,handlingservices,warehousingfees,excessweightcharges,refrigerationandpackingfees,etc.

iii) Forinstance,underAustraliaGST2,servicesthatfacilitatetheinternationaltransportareGSTfreeandincludeservicesthatarecarriedoutinorderforgoodstobedeliveredtotheirplaceofconsignmentortoadestinationoutsideofAustralia.Servicesthatfacilitatetheinternationaltransportofgoodsbytransportsuppliersincludedsuppliesofloading,unloading,handling,insuranceandotherservices.

3. Principle3:Conditionsforzero-rating:

2GSTandinternationalfreighttransportonAustralianTaxationOfficewebsite



i) Theexportstatusshouldnotbeincumbentuponreceiptofconsiderationinforeignexchange,asitresultsincascadingoftaxeseventhoughthegoods/servicesmaybeconsumedoutsideIndia(aspertheplaceofsupplyprinciples).

TheZero-ratingprovisionsforsomeofthematureGSTjurisdictionshavebeenenclosedherewithasAnnexureAOurRecommendations

1.5 WithaviewtoIndiabecomingalogisticshub,itisimperativethattheinternationaltransactionsarenotburdenedwithanytaxes.Forensuring

thesame,thefollowingneedstobeimplementedundertheGST:

i. InternationalmovementofgoodsintoIndiaandfromIndiashouldbezerorated.Followingexportrelatedtransactionsalsotobezerorated:

ii. Ifthesupplierisinvolvedinprovisionoflocaltransportationservicesonly:

a) Servicetobezero-ratedifsuppliedtoanoverseascustomerongoodsforexportb) Servicetobezero-ratedifprovidedtoanoverseascustomerinbusinesscapacityforthefirstlegofimport

iii. Incidentalservicesforgoodstobedeliveredtotheirplaceofconsignment-includedsuppliesofloading,unloading,handling,insuranceandotherservices.

iv. Exportstatusnottobeincumbentuponreceiptofconsiderationinforeignexchange2. Singlepan-Indiaregistrationforoutputandinputtax

2.1 Courierservicesareuniqueonaccountofthefollowingreasons:

a. Courierservicesareprovidedseamlesslyacrossgeographicalboundaries.Further,onadaytodaybasis,billionsofdeliveriesaremade

acrossIndiansubcontinentandinternationally.



b. Courierservicesareevolvingtocatertonewclientbusinessesandtheirchangingsupplychains.Thesignificantshiftandevolutionofcourierservicesisincumbentonthechangingeconomyandgrowingindustries.Aclassicexampleofthesameisthee-commercesectorwhichhaschangedthewayandmannerinwhichcourierservicesareprovidedseamlesslyinanevenfurtherincreasedtimesensitivemanner.Inthefuturewithgrowingneedforjustintimedelivery,theadventofdeliveriesthroughdronesappearstobejustaroundthecornerintheIndianmarket.Suchdevelopmentswouldonlymeanthatthecourierserviceswillbethatmuchlessconstrainedbystateboundaries.

c. Actualperformanceofserviceandusageofservices/goodsmaynotbeentirelyalignedtoplaceofsupplyofservicewheretheoutputtax

accrues.Further,inthecontextofcourierservices,itisimpossibletotrackstatelevelperformanceofservices.

2.2 Giventheabove,itisevidentthatdualGSTregistrationwouldhavethefollowingimpact:► CascadingofTaxes

Thecascadingtaxcostwillalsobecomeanunintendedrealityascreditofgoods/serviceswillbeblockedgiventhattheprocurementandusageofgoodsandserviceswillnotnecessarilybegeographicallyalignedwiththeprovisionofservices

► Ambiguityinrelationtopaymentoftaxes

Inordertomeetstatelevelcompliances,thecourierservicecompanieswouldnotonlyneedtodeterminetheperformanceofservice,thelocationofservicereceiver(whichcouldbedifferentfromlocationofconsignorandconsignee),andalsothelocationoftheserviceprovider.Theabovewillresultinmaterialambiguitywithregardtostate/typeofGSTpaymentisrequiredtobemade.

► Increaseincompliances

IfsuchsinglepanIndiaregistrationacrossStatesisnotallowed,multipleregistrationsandtheresultantmultipleassessments/investigations/auditswouldresultinadramaticincreaseoftaxcomplianceeffortasalsotaxuncertaintyandlitigation.Furthermore,courierservicecompanieswouldbesaddledwithhostofcompliancestobeundertakenforeachState-wiseregistrationandthiswouldrequiresignificantchangesintheITsystemsandprocedurestoensurecompliance.



2.3 HavingmultipleState-wiseregistrationsforeachlevy(i.e.CGST,SGST,UTGSTandIGST)coulddrasticallydiminishthesynergybenefitsthatGSTregimeisotherwisesettobring.Theenvisagedadvantagesofconsolidatingwarehousesandbenefitsofbetterresourceutilisationaswellaseconomiesofscalemaynotbeareality,astheindustrywouldbeforcedtotakeintoaccounttaxconsiderationssuchasminimumleakageofcredits,etc.

2.4 Separately,incaseofCentralisedprocurementofgoodsandservicesatheadofficeandprovisionofoutputservicesacrossStates,itwouldnotbe

uncommonforinputcreditstoexcesstheoutputtaxliabilityintheStatewheretheheadofficeislocated.InsuchcaseswheretheinputtaxcreditinaStatefarexceedstheoutputtaxliabilityinthesaidState,itwouldresultinsignificantcreditblockagesinindividualStatesandworkingcapitalinefficienciesifcollationofsuchcreditsandutilizationthereofacrossStatesisnotallowed.

Mechanicsofpan-Indiaregistration

2.5 Therefore,giventhenatureofexpressservices,expresscompaniesshouldbeallowedtoobtainpan-Indiasingleregistrationforoutputtaxand

inputtax.Themechanicsofthisstructurehavebeenexplainedbelow:

► ExpresscompanieswouldchargeIGSTforexpress/courierservicesprovidedacrossStates(exceptintheStatewhereexpresscompanyiscentrallyregistered).

► Further,irrespectiveofplaceofsupply,allvendorsofexpresscompaniesshouldinvoicetheexpresscompaniesatthelocationwheresuch

expresscompanyhasobtainedcentralisedregistration.

► Incaseofexemptedsupply,expresscompanywouldbeliabletopayanamountonsuchexemptedsupplyintheStateinwhichsuchexemptedsupplyhasbeenmade.Suchamountmaybecomputedasaspecificpercentageofvalueofexemptedsupplyoronproportionateturnoverbasis.

Forexample,inthebelowdiagram,withrespecttoexemptsupply,wehaveassumedthatexpresscompanywouldbeliabletopayanamountof10%ofvalueofexemptedsupply(i.e.Rs.1,500)intheStateinwhichsuchexemptedsupplyismade.Alternatively,amountmayalsobedeterminedoncommoncreditbasedonproportionateexemptedturnover.



► Similarlywithrespecttocertaingoodsorservicesonwhichcreditisnotavailable,expresscompanywouldbeliabletopayanamountintheStatefromwheresuchgoodsorserviceshavebeensuppliedinthemannerasmaybeprescribed.

Forexample,infollowingdiagram,expresscompanyisavailingcreditofRs.100onineligibleinputfromVendorC;however,theamountequaltothecreditavailedonineligibleinputisbeingpaidasIGSTintheStatewhereinactualPoSofsuchsupplyexisted.

► Iftheaforesaidmechanismisfollow,thenallthestateswillgettherevenueallocabletothemandtherewillbenolossofrevenuetoanystate.



2.6 Theaboveguidelineswillensurethatthefollowingconcernsofthecouriercompaniesareappropriatelyaddressed:a. CascadingofTaxesb. Ambiguityinrelationtopaymentoftaxesc. Increaseincompliances

2.7 However,ifthecentralizedPANIndiaregistrationisnotgrantedthenitwouldbeimpossibleforthecouriercompaniestocomplywiththeGSTrequirementsbasistheproposedDraftBills.Therefore,clearguidelinespertainingtothefollowingwillneedtobeissued:a. Thelocationofthesupplierwhichwouldbeconsideredastheestablishmentmostdirectlyconcernedwiththesupplyofserviceb. Theplaceofsupplyrulesinrelationtointernationalmovementofgoodsc. Theplaceofsupplyrulesforaco-loaderactivitywhichisseparatethanacourieractivityd. Rulespertainingtodeterminationofvalueforself-supplies

3. Clarificationonthelocationofthesupplier► Giventheneedtohaveasinglepan-IndiaregistrationundertheGSTforthecourierindustry,itisrecommendedthatsuchcentrallyregistered

officeshouldbeconsideredasthelocationoftheserviceprovider.ThiswouldnotonlyreducetheambiguityindeterminingtheplaceofsupplyandtheapplicableGSTbutwouldalsobeeasytoadminister.However,incasetheabovepropositionisnotacceptable,thenthelocationofthesupplierwouldneedclarificationinthecontextofacouriercompany.

► AsperSection2(15)oftheIGSTBill,the‘locationofthesupplier’hasbeendefinedasfollows:

Quote1) whereasupplyismadefromaplaceofbusinessforwhichtheregistrationhasbeenobtained,thelocationofsuchplaceofbusiness;2) whereasupplyismadefromaplaceotherthantheplaceofbusinessforwhichregistrationhasbeenobtained(afixedestablishment

elsewhere),thelocationofsuchfixedestablishment;3) whereasupplyismadefrommorethanoneestablishment,whethertheplaceofbusinessorfixedestablishment,thelocationofthe

establishmentmostdirectlyconcernedwiththeprovisionofthesupply;and4) inabsenceofsuchplaces,thelocationoftheusualplaceofresidenceofthesupplier;



Unquote

► Aspertheaforesaiddefinition,thelocationofthesupplierofserviceisthe“establishmentmostdirectlyconcernedwiththesupply”.ThisphrasehasnotbeendefinedundertheGSTlawandcanbeunderstoodwithreferencetothefollowingexplanations:a. AspertheEducationGuideissuedon20June2012,thisexpressionshouldbeinterpretedinthefollowingmanner:

Quote5.2.7Howwilltheestablishment"mostdirectlyconcernedwiththesupply"bedetermined?Thiswilldependonthefactsandsupportingdocumentation,specifictoeachcase.Thedocumentationwillincludethefollowing:-� thecontract(s)betweentheserviceproviderandreceiver;� wheretherearenowrittencontracts,anywrittenaccount(documents,� correspondence/e-mailetc)betweenpartieswhichsetsoutindetailtheirunderstandingoftheoralcontract;� inparticular,forsuppliers,fromwhichestablishmenttheservicesareactuallyprovided;� inparticular,forreceivers,atwhichestablishmenttheservicesareactuallyconsumed,effectivelyusedorenjoyed;� detailsofhowthebusinessfitsintoanylargercorporatestructure;� theestablishmentwhosestaffisactuallyinvolvedintheexecutionofthejob;� performanceagreements(whichmaybeindicativebothofthesubstanceandactualnatureofworkperformedataparticular

establishment);Thus,normallyinthecaseofmultipleestablishmentsofaperson,itwillbetheestablishmentthatactuallyprovides,orreceives(i.e.usesorconsumes),aservicethatwouldbetreatedas'directlyconcerned'withtheprovisionofservice,notwithstandingthecontractualposition,orinvoicingorpayment.Unquote

b. Inthiscontext,itmayalsoberelevanttonotethatthesamephrasehasbeenemployedundertheEUVATregulationsaswell.The

clarification(VATNotice741A:placeofsupplyofservices)issuedintheEUforthisisasunder:

Quote



3.6Ihavemorethanoneestablishment.WheredoIbelong?If,aseitherthesupplierortherecipientofservices,youhaveestablishmentsinmorethanonecountry,thesuppliesyoumakefrom,orreceiveat,eachestablishmenthavetobelookedatseparately.Foreachsupplyofservices,youareregardedasbelonginginthecountrywheretheestablishmentmostdirectlyconnectedwiththatparticularsupplyislocated.Todecidewhichestablishmentismostdirectlyconnectedwiththesupply,youshouldconsiderallthefacts,including:� forsuppliers,fromwhichestablishmenttheservicesareactuallyprovided� forrecipients,atwhichestablishmenttheservicesareactuallyconsumed,effectivelyusedorenjoyed� whichestablishmentappearsonthecontracts,correspondenceandinvoices� wherethedirectorsorotherswhoenteredintothecontractarepermanentlybased,and� atwhichestablishmentdecisionsaretakenandcontrolsareexercisedovertheperformanceofthecontractsNormallyitistheestablishmentactuallyprovidingorreceivingthesupplyofserviceswhichistheestablishmentmostdirectlyconnectedwiththesupply,evenifthecontractualpositionisdifferent.Unquote

c. Similarly,OrganisationofEconomicCo-operationandDevelopment(‘OECD’)guidelinesonthissubjectstatesasunder:

QuoteB.3.Applyingthegeneralrule-Supplyofaserviceorintangibletoalegalentitywithmultiplelocations(“multiplelocationentity”–“MLE”)3.22Whenasupplyismadetoalegalentitythathasestablishmentsinmorethanonejurisdiction(a“multiplelocationentity”,“MLE”),ananalysisisrequiredtodeterminewhichofthejurisdictionswherethisMLEhasestablishmentshastaxingrightsovertheserviceorintangibleacquiredbytheMLE.ForthepurposeoftheseGuidelines,itisassumedthatanestablishmentcomprisesafixedplaceofbusinesswithasufficientlevelofinfrastructureintermsofpeople,systemsandassetstobeabletoreceiveand/ormakesupplies.RegistrationforVATpurposesbyitselfdoes



notconstituteanestablishmentforthepurposesoftheseGuidelines.Countriesareencouragedtopublicisewhatconstitutesan“establishment”undertheirdomesticVATlegislation.Unquote

► Basistheaboveclarifications,itcanbeseenthatthereareseveralparametersthatwillinfluencethisdetermination.AsperEICI’sinterpretationofthedefinitionandtheaforesaidreferences,EICIhasenlistedthebelowtheestablishmentswhichcanbeconsideredthe‘locationofthesupplier’andthereasonsthereof:

3.1 ALTERNATIVEA:TheHeadofficeofthecouriercompany

3.1.1 ThecorebusinessoftheEDSindustryistheprovisionofvalue-added,door-to-doortransportanddeliveriesofnext-dayortime-definiteshipments3,includingdocuments,parcelsandmerchandisegoods.Theactivitiesinvolvedinadoor-to-doordeliverymaybeexplaineddiagrammaticallybelow:

3Time-definiteshipmentsnormallyincuratransittimeofbetween2and3days



3.1.2 Whilevariousestablishmentsofacouriercompanymaybeinvolvedinthedoor-to-doorcourierservice,butitistheheadofficewhichisinvolved

inthemaindesigning,networkmappingandassignmentofroutesforaparticularcouriertransaction.

3.1.3 TheHeadofficeistheestablishmentwhichismostdirectlyconcernedandinvolvedinConsignmentHandling.Otherestablishments(servicestations/hubs)areonlyresponsibleforsupervisingthedeliveryandpickupactivities.Itistheheadofficethatmanagesandinstructsfordelivery/pick-up,prioritizesthedeliverybasedondeadlines,optimizestheroutetoenhanceoperationalefficiencyandleadstheservicestations/hubs.

3.1.4 Further,allcontractsareexecutedattheheadofficeinrespectofB2Bcustomers.Allcorrespondencesandinvoicesarealsoaddressedto/from

theheadoffice.Incaseofanyredressalorcomplaints,thecustomercontactstheheadofficeforitsresolution.Also,theentirenetworkfortrackingshipmentsisalsohousedintheheadoffice.

3.1.5 Giventheabove,EICIrecommendsthatthelocationofthesupplierietheestablishmentmostdirectlyconcernedwithsupplymustbethelocationoftheheadofficewhichhousestheprimarynetwork(anddesign)ofatypicaldoor-to-doorcouriertransaction.

3.2 ALTERNATIVEB–Theplaceofactualpick-up/deliveryofgoods

3.2.1 Itisimperativeforthegovernmenttoconsidertheheadofficeofthecouriercompanyasthelocationofthesupplierforthesmoothfunctioning

oftheoperationsofthecouriercompanies.However,ifthesameisnotacceptable,thenanalternativeestablishmentbasedontheactualperformanceoftheservicecanbeconsideredastheestablishmentmostlydirectlyconcernedwiththesupply.Incasethereisnoestablishmentofthecouriercompanyinthestateofpickup/delivery,thenthelocationoftheestablishmentmostdirectlyconnectedwiththepick-up/deliveryoftheproductshallbeconsideredasthelocationofthesupplierofservice.

3.2.2 Forinstance,let’sassumethatacouriercompanywhoseheadofficeisinMaharashtra,isrequiredtopickapackagefromBhadohiinUttarPradeshfordeliverytoDelhi.Uponpick-upfromtheconsignor,anairwaybillnumberisgeneratedandallottedtothepickedupparcel(whichisdonecentrallyattheheadofficebeingMumbai).ThepackageisthenlocallyconsolidatedatVaranasi.Uponconsolidation,thepackagesaresenttoDelhi,forthelastmiledelivery.



3.2.3 Intheinstantcase,theestablishmentperformingthepick-upwouldbeinthestateofUttarPradeshandthereforeasperAlternativeB,thelocationofthesupplierwouldbelinkedtoUttarPradesh.Itistobenotedthat,theheadofficeieMumbaiwouldstillbeinvolvedinmanagingandinstructingforthedelivery/pick-up,prioritizingthedeliverybasedondeadlines,optimizingtheroutetoenhanceoperationalefficiency,etc.

3.2.4 Atthisjuncture,itisextremelyimportanttoalsonotetheplaceofsupplytobettercontextualizetherecommendations/clarificationssoughtbyEICI.

3.2.5 AsperSection12(8)oftheIGSTBill,thePlaceofsupplyofserviceswherethelocationofsupplierofserviceandthelocationoftherecipientofserviceisinIndiashallbeasfollows:

Quote(8)Theplaceofsupplyofservicesbywayoftransportationofgoods,includingbymailorcourierto,(a)aregisteredperson,shallbethelocationofsuchperson;(b)apersonotherthanaregisteredperson,shallbethelocationatwhichsuchgoodsarehandedoverfortheirtransportation.Unquote

3.2.6 Giventheabovelegislativebackground,wehavemappedthevarioustransactionsthatcanbeundertakenasapartofcourieractivityandtheGSTimpact/clarificationsrequiredinthisregard:

Door-to-doordomesticcourieractivity

ActivityandDescriptionfor

Domesticmovement

Statusofrecipient

LocationofSupplier(AsperAlternativeB)

PlaceofSupply(‘PoS’)

RecommendationsandChangesinLaw

CourierActivityieDoortoDoorcompletesupplyof

Registered(BillShipper)

Pick-uplocationIncasethereisnoestablishmentofthecouriercompanyinthestateofpickup,

Ifpick-uplocationisthelocationofthe

► Clarificationisrequiredtodefine/explaintheestablishmentwhichcouldbe




Domesticmovement

Statusofrecipient




service(origin,transportationanddestination)

thenthelocationoftheestablishmentmostdirectlyconnectedwiththepick-upoftheproduct

registeredperson,thePoSwillbethepick-uplocationbilledforservices

consideredastheestablishmentmostdirectlyconcernedwiththesupplyas:• Alternative1–Theheadofficeofthe

couriercompanywheredesigning,networkmapping,assignmentofroutes,etcisdone(Para3.1)

• Alternative2–Theplaceofactualpick-upofgoodsasdocumentedintheAWB/CN(Para3.2)

Registered(Bill

Consignee)

DestinationlocationIncasethereisnoestablishmentofthecouriercompanyinthestateofDelivery,thenthelocationoftheestablishmentmostdirectlyconnectedwiththeDeliveryoftheparcel

Ifdeliverylocationisthelocationoftheregisteredperson,thePoSwillbethedeliverylocationbilledforservices.

Registered(BillThirdParty)

(Wherethepayerlegalentityis

neithertheconsignornortheconsignee)

Pick-uplocationIncasethereisnoestablishmentofthecouriercompanyinthestateofpickup,thenthelocationoftheestablishmentmostdirectlyconnectedwiththepick-upoftheproduct

Thelocationofthecontractualaddressbilledforservicesortheaddressoftheestablishmentfromwheretheorderisreceived




Domesticmovement

Statusofrecipient




Unregistered


Locationofpick-up

ImportCash-collectandExportpre-paidcouriertransaction(door-to-doorserviceandnotinthecapacityofaco-loader)


DomesticmovementStatusofrecipient


PlaceofSupply RecommendationsandChangesinLaw

ImportCashcollect(TheconsigneeinIndiapaysforthecourierservice)

RegisteredPerson(Billconsignee)

DestinationlocationIncasethereisnoestablishmentofthecouriercompanyinthestateofdelivery,thenthelocationoftheestablishmentmostdirectlyconnectedwiththedeliveryoftheproduct

Ifdeliverylocationisthelocationoftheregisteredperson,thePoSwillbethedeliverylocationbilledforservices

► ClarificationisrequiredtospecificallystatethatincaseofanImportCashcollecttransaction,therecipientforthepurposeofPlaceofsupplywillbetheIndianconsigneeinIndiawhopaysforthecourierservice.

► Clarificationisrequiredtodefine/explaintheestablishmentwhichcouldbeconsideredastheestablishmentmostdirectlyconcernedwiththesupplyas:• Alternative1–Theheadofficeofthe


RegisteredPerson(BillThirdParty)Wherethepayer

legalentityisneither

DestinationlocationIncasethereisnoestablishmentofthecouriercompanyinthestateofdelivery,thenthelocationoftheestablishment

Thelocationofthecontractualaddressbilledforservicesortheaddressof







theconsignornorconsignee)

mostdirectlyconnectedwiththedeliveryoftheproduct

theestablishmentfromwheretheorderisreceived

• Alternative2–TheplaceofactualdeliveryofgoodsasdocumentedintheAWB/CN(Para3.2)

UnregisteredPerson


Locationofpick-up

► Here,asthepick-uplocationisoutsideIndia,theplaceofsupplyisoutsideIndiaandthistransactionwillqualifyasanexemptservice.Therefore,clarityisrequiredonthetreatmentofsuchtransactions

► ClarificationisrequiredtospecificallystatethatincaseofanImportCashcollecttransaction,therecipientforthepurposeofPlaceofsupplywillbetheIndianconsigneeinIndiawhopaysforthecourierservice.

► Clarificationisrequiredtodeterminethelocationofsupplierietheestablishmentwhichcouldbeconsideredasbeingmostdirectlyconcernedwiththesupply.Werecommendthefollowingas:• Alternative1–Theheadofficeofthe








• Alternative2–TheplaceofactualdeliveryofgoodsasdocumentedintheAWB/CN(Para3.2)

Exportprepaid(TheconsignorinIndiapaysforthecourierservice)

RegisteredPerson(BillShipper)


Ifpick-uplocationisthelocationoftheregisteredperson,thePoSwillbethepick-uplocationbilledforservices.

► ClarificationisrequiredtospecificallystatethatincaseofanExportprepaidtransaction,therecipientforthepurposeofPlaceofsupplywillbetheIndianconsignorinIndiawhopaysforthecourierservice.




RegisteredPerson(BillThirdParty)Wherethepayer

legalentityisneithertheconsignornor

consignee)


Thelocationofthecontractualaddressbilledforservicesortheaddressoftheestablishmentfromwheretheorderisreceived

Unregisteredperson

Pick-uplocationIncasethereisnoestablishmentofthecouriercompanyinthestateofpickup,thenthelocationofthe

Locationofpick-up







establishmentmostdirectlyconnectedwiththepick-upoftheproduct

Co-loaderactivity(WherethecontractualarrangementiswithanothercouriercompanyinIndia)


Domesticmovement

Statusofrecipient



Co-loaderActivityieperforminganyonelegofdelivery(beingorigin,transportationanddestination)anywherewithinIndia.Here,themaincourieractivity(doortodoortransportation)isdonebyanotherEDSproviderandtheCo-loaderisinvolvedinonlyonelegofthecompletedelivery

Registered


Ifpick-uplocationisthelocationoftheregisteredperson,thenwhereGSTINisavailable,thePoSwillbethepick-uplocationbilledforservices.WheretheGSTINisnotavailableinthestateofpick-up,thenlocationofthe

► Itmustbeclarifiedthataco-loaderactivityisnotinthenatureofacourieractivityandshallbeclassifiedasatransportationactivity.







Domesticmovement

Statusofrecipient



contractualaddressbilledforservicesortheaddressoftheestablishmentfromwheretheorderisreceived

UnregisteredPerson

NotApplicable,onaccountofthefactthatsuchservicesareprovidedonlyto

registeredpersonsNotApplicable NotApplicable

3.2.7 ItistobenotedthattheaforesaidanalysishasbeenstrictlydoneonthebasisoftheIGST/CGSTBillandclarificationonwhatcanbeconsideredas

thelocationofthesupplierisstillexpectedunderthefinalGSTLaw.Summaryofrecommendations► Clarificationisrequiredtodefine/explaintheestablishmentwhichcouldbeconsideredastheestablishmentmostdirectlyconcernedwith

thesupply► Thepersonwhoisliabletopayforthecourierservicewillbeconsideredastherecipientofserviceirrespectiveofthecontractual

arrangement.► Aco-loaderactivityisnotacourierservice(asitdoesnotinvolvedoor-to-doorpick-upanddeliveryofgoods)andmustbeclassifiedasa

transportationactivity.ItistobenotedthatsuchaclarificationwillnotimpactthetaxabilityofthetransactionbuthoweverwillenablethecouriercompanytocomplywiththeGSTprovisions,whichinabsenceofsuchaclarification,isnotpossible.



► Wherethereisaconsigneecollecttransaction(thirdparty),itshallbeconsideredasasupplytoanunregisteredpersonastherewouldbenocontractforthesame.

4. AmendmentintheplaceofsupplyforcouriertransactionswheretheservicerecipientislocatedoutsideIndia

4.1.1 Inrelationtotheinternationalmovementofgoodsbywayofcourier,itisimportanttodefinetheplaceofsupplyprovisionsforcouriertransactionandfreighttransactionsasperSection13oftheIGSTBill.

Quote13.PlaceofsupplyofserviceswherethelocationofthesupplierorthelocationoftherecipientisoutsideIndia(3)Theplaceofsupplyofthefollowingservicesshallbethelocationwheretheservicesareactuallyperformed,namely:-(a)servicessuppliedinrespectofgoodsthatarerequiredtobemadephysicallyavailablebytherecipientofservicetothesupplierofservice,ortoapersonactingonbehalfofthesupplierofserviceinordertoprovidetheservice:PROVIDEDthatwhensuchservicesareprovidedfromaremotelocationbywayofelectronicmeans,theplaceofsupplyshallbethelocationwheregoodsaresituatedatthetimeofsupplyofservice:PROVIDEDFURTHERthatthisclauseshallnotapplyinthecaseofaservicesuppliedinrespectofgoodsthataretemporarilyimportedintoIndiaforrepairsandareexportedafterrepairswithoutbeingputtoanyuseinIndia,otherthanthatwhichisrequiredforsuchrepairs;(b)servicessuppliedtoanindividual,representedeitherastherecipientofserviceorapersonactingonbehalfoftherecipient,whichrequirethephysicalpresenceofthereceiverorthepersonactingonbehalfoftherecipient,withthesupplierforthesupplyoftheservice.…(9)Theplaceofsupplyofservicesoftransportationofgoods,otherthanbywayofmailorcourier,shallbetheplaceofdestinationofthegoods.Unquote

4.1.2 ThepresentIGSTBillmakesacleardemarcationforexpressdeliveryservicesfromfreighttransportationservicesinitsplaceofsupply.Theplace

ofsupplyforgoodstransportationservices(otherthancourier)isunderSection13(9)iedestinationoftheGoods,whileforcourierservicesitisSection13(3)oftheplaceofsupplyisbasedontheperformanceofthecourierservice.



4.1.3 Withregardtointernationaltransactions,theIGSTBillisnotalignedtotheprinciplesofnon-exportoftaxesfromthecountryasexplainedbelow:

► TheIGSTBill,distinguishesbetweenanexpressdeliveryserviceprovider(iecourier)andothertransporters.Forinstance,incaseofgoodstransportedfromIndiatooutsideofIndiabyafreightforwarder,theplaceofsupplyforthefreightforwardingserviceisdeemedtobeoutsideIndiaandpresentlyalsodeemedzeroratedHowever,thisprincipledoesnotapplytocourierservices,sincecourierhasbeencarvedoutasanexceptiontoservicesoftransportationofgoodscoveredundersection13(9)oftheplaceofsupplyprovisions.Theplaceofsupplyforcourierservicesisbasedonthephysicalperformanceundersection13(3)ieevenwhereonlyafractionofthecourierservicewereperformedinIndia,itissubjecttoservicetax.Whereasongroundnatureofservicesprovidedbyboththeserviceprovidersaresimilarinnature.Asaresult,evenwhereaparcelisbeingdeliveredoutsideIndiabyacouriercompany,thecourierservicesareliabletoaservicetax–thisisgiventhatinallinstances,thecourierservicewillalwaysbepartiallyperformedinIndiawhetherthegoodsarebeingexportedorimported.

► Anexpressdeliveryserviceproviderprovidesintegrateddoortodoordeliveryservices(ieorigin,freightanddestination)andhencean

expressdeliveryprovideralwaysendsuppayingtaxonthewholelegofthetransaction,irrespectiveofthefactthatactualperformanceoftheserviceismajorlyoutsidethecustomfrontiersofIndia.Suchadifferentialtreatmentascomparedtoothermodesoftransportationputscourieratasignificantdisadvantage.ThisimpactwillonlyfurtherwidenwiththeGSTbeingimplementedatapotentially20%higherratethantheexistingservicetax.Therefore,itisimperativethatcourierisputatparwithallothertransportationofgoodsservicesandallrelatedexportandimporttransactionsarezerorated(rationaleexplainedabove).

4.1.4 Further,therewouldbecertaintransactionsundertakenbythecouriercompanyinthecapacityofaco-loaderwhereitwouldbeimpossibleto

identifytheplaceofsupplybasedonSection13(3).Wehavetabulatedthecomplexitiesintheimport/exportscenariosandourrecommendationsandchangesproposedintheIGSTBill.

Door-to-doorcourieractivityincaseofanyinternationalmovementofgoods



ActivityandDescriptionforInternational

movement

Statusofrecipient


PlaceofSupplyaspersection

13(3)RecommendationsandChangesinLaw

CourierActivityforanImportPrepaidconsignment(Thecouriercompanyprovidesdoortodoortransportationservices)

UnregisteredPerson


Locationwheretheservicesareactuallyperformed.Here,thedestinationservicesareperformedinIndia

► Itisextremelyambiguousanddifficulttodefinethelocationwheretheservicesareactuallyperformedassometimestwoormorestatesmaybeinvolved.Further,complianceinsuchasituationbythecouriercompaniesisnotpossible

Recommendation► Courierservicesmustbetreatedatpar

withfreighttransportationservicesandaccordingly,section13(9)mustbeamendedasfollows:Theplaceofsupplyofservicesoftransportationofgoods,includingotherthanbywayofmailorcourier,shallbetheplaceofdestinationofthegoods

► ItistobenotedthattheaforesaidchangewillNOTchangethetaxabilityofthetransactionietheimporttransactionwouldstillbeliabletotax.

CourierActivityforanExportCashcollectconsignment

Unregisteredperson

Pick-uplocationIncasethereisnoestablishmentofthecouriercompanyinthestateofpickup,thenthelocationoftheestablishment

Locationwheretheservicesareactuallyperformed.

► InternationalfreightanddestinationservicesareperformedoutsideIndiaandthepaymentisalsoreceivedoutsideIndia,stillbecauseofsection13(3),thisservicewillbecometaxableinIndia.




movement

Statusofrecipient




(Thecouriercompanyprovidesdoortodoortransportationservices)

mostdirectlyconnectedwiththepick-upoftheproduct

Here,theoriginservicesareperformedinIndia

Recommendation► Courierservicesmustbetreatedatpar

withfreighttransportationservicesandaccordingly,section13(9)mustbeamendedasfollows:Theplaceofsupplyofservicesoftransportationofgoods,includingotherthanbywayofmailorcourier,shallbetheplaceofdestinationofthegoods.

► Here,thedestinationwillbeoutsideIndia

andthecourierserviceswillrightlygetclassifiedasexportandnotleadtoexportoftaxes.

Co-loaderactivity(Wherethecontractualarrangementiswithanunregisterednetworkentity)ActivityandDescription

forInternationalmovement

Statusofrecipient




Co-loaderActivityforanImportPrepaidconsignment

UnregisteredPerson(Networkentity)

DestinationlocationIncasethereisnoestablishmentofthecouriercompanyinthestateofdelivery,thenthelocationoftheestablishment

Locationwheretheservicesareactuallyperformed.

► Aco-loaderactivityisnotinthenatureofacourieractivityandaccordingly,mustbeclassifiedasatransportationactivity.

► IncaseRule13(3)pertainingtocourierservicesisappliedtoaco-loaderactivity




movement

Statusofrecipient




(ThecouriercompanyinIndiaprovidesonlythedestinationservices)

mostdirectlyconnectedwiththedeliveryoftheproduct

Here,thedestinationservicesareperformedinIndia

thanitwillbecomeimpossibleforthecouriercompanytocomplywiththeGSTprovisions.

► Therefore,theplaceofsupplyforaco-loaderactivitymustbealignedtotheplaceofsupplyfortransportationofgoodsiedestinationofgoodsasperSection13(9).

Co-loaderActivityforanExportCashcollectconsignment(ThecouriercompanyoutsideIndiaprovidesonlytheoriginservices)

UnregisteredPerson(Networkentity)


Locationwheretheservicesareactuallyperformed.Here,theoriginservicesareperformedinIndia

► Aco-loaderactivityisnotinthenatureofacourieractivityandaccordingly,mustbeclassifiedasatransportationactivity.

► IncaseRule13(3)pertainingtocourierservicesisappliedtoaco-loaderactivitythanitwillbecomeimpossibleforthecouriercompanytocomplywiththeGSTprovisions.Further,notransactionbyacouriercompanyinthecapacityofaco-loaderwillqualifyasanexporttransaction.

► Therefore,theplaceofsupplyforaco-loaderactivitymustbealignedtotheplaceofsupplyfortransportationofgoodsiedestinationofgoodsasperSection13(9).

► Additionally,thefollowingaspectsneedtobeclarifiedtodefinewhatcanbeconsideredasthedestinationofgoods:




movement

Statusofrecipient




a) TheIndiangatewaywherethecontractwiththenetworkentityterminates,or

b) ThedestinationwherethedeliveryterminatestothefinalrecipientasdocumentedinAWB/CN.

4.1.5 Itistobenotedthattheissuesidentifiedforthe‘locationofthesupplier’willalsocontinueintheaforesaidscenariosandhasnotbeenseparately

covered(referpara3fordetails).

Summaryofrecommendations► Courierservicesmustbetreatedatparwithfreighttransportationservicesandaccordingly,section13(9)mustbeamendedtoinclude

courierservices► Clarificationisrequiredtodefine/explaintheestablishmentwhichcouldbeconsideredastheestablishmentmostdirectlyconcernedwith

thesupply.► Aco-loaderactivityisnotacourierservice(asitdoesnotinvolvedoor-to-doorpick-upanddeliveryofgoods)andtheplaceofsupplyfora

co-loadermustbealignedtotheplaceofsupplyfortransportationofgoodsieSection13(9)–DestinationofGoods.5. ClarificationonLocationoftherecipientofservice

5.1 Thelocationoftherecipientofserviceisanimportantaspectfordeterminingthetaxabilityofcouriertransactionsasthesamewouldimpactthe

applicabilityoftherelevantplaceofsupply.

5.2 TheplaceofsupplyofserviceswherethelocationofsupplierofservicesandthelocationoftherecipientofserviceisinIndiawouldbedeterminedaspersection12(8)ofthePlaceofSupplyinChapterVoftheIGSTBillwhereastheplaceofsupplyofserviceswherethelocationof



thesupplierorthelocationoftherecipientisoutsideIndiawouldbedeterminedasperSection13(3)(recommendedtobeSection13(9))ofthePlaceofSupply.

5.3 WhilethelocationofthesupplierofserviceofacouriercompanywouldbeinIndia,thedeterminationoftheactualrecipientofserviceis

extremelyimportantinordertoidentifywhichoftheaforementionedsectionsofplaceofsupplywouldapply.

5.4 ThelocationoftherecipientofserviceshasbeendefinedintheIGSTBilltomean:

Quote(14)“locationoftherecipientofservices”means:(a)whereasupplyisreceivedataplaceofbusinessforwhichtheregistrationhasbeenobtained,thelocationofsuchplaceofbusiness;(b)whereasupplyisreceivedataplaceotherthantheplaceofbusinessforwhichregistrationhasbeenobtained(afixedestablishmentelsewhere),thelocationofsuchfixedestablishment;(c)whereasupplyisreceivedatmorethanoneestablishment,whethertheplaceofbusinessorfixedestablishment,thelocationoftheestablishmentmostdirectlyconcernedwiththereceiptofthesupply;and(d)inabsenceofsuchplaces,thelocationoftheusualplaceofresidenceoftherecipient;Unquote

5.5 Inthisregard,thefollowingtransactionsneedtobeanalysed:


ExportPrepaid(ExportPP)


TheIndianCustomerinIndiawhoisliabletopayforthecourierservice

ThemaincourierserviceisperformedbytheEDSproviderinIndiaandapartoftheserviceissub-contractedtotheforeignnetworkentityasaco-loaderactivity.




ImportCashCollect(ImportCC)


TheIndianCustomerinIndiawhoisliabletopayforthecourierservice

ThemaincourierserviceisperformedbytheEDSproviderinIndiaandapartoftheserviceissub-contractedtotheforeignnetworkentityasaco-loaderactivity.

5.6 Intheaforesaidtransactions,thelocationoftherecipientofserviceshouldbeconsideredasthepersonwhopaysforthecourierservicesbeing

theIndianconsignee/IndianconsignorinIndiairrespectiveofthecontractualrecipient.

5.7 Therefore,theplaceofsupplyshouldbedeterminedasperRule12(8)ofthePlaceofSupplyprovisions.ItistobenotedthatthesaidarrangementwillnotimpactthetaxabilityofthetransactionandisrequiredtobedonetoenablethecouriercompaniestocomplywiththeGSTprovisions.

5.8 Further,inrelationtoB2Btransactions,itisimperativethatthelocationofservicerecipientisdefined/determinedinamannersuchthatthe

businessisabletotakefullcreditoftheGSTchargedandtherearenoleakages/blockagesofcreditsforbusinessandthelawisclearondeterminingthelocationofserviceprovider/servicereceivertoavoidanyuncertaintyandlitigation.

5.9 Withthissinglekeyobjectiveinmind,weproposethatthelocationoftheservicereceiverforcourierservicesshouldbethebillingaddressorcontractualaddressoftheservicereceiverasexistingintherecordsoftheserviceprovideronthedateofbilling.Recommendation

5.10 ThepersonwhopaysfortheconsiderationshallbeconsideredastherecipientofserviceirrespectiveofthecontractualarrangementtoenablethecouriercompaniestocomplywiththeGSTprovisions.

5.11 Further,thelocationoftheservicerecipientshallbethebillingorcontractualaddressasexistingintherecordsoftheserviceprovideronthedateofbillings.

6. ValueAddedServices



6.1 Apartfromthemaincourierservices,anEDSproviderisalsoinvolvedintheprovisionofValueAddedServices(‘VAS’)likeDutyhandling,

Packaging,CashonDelivery,Insurance,warehousing,etc

6.2 UndertheGSTregime,itisimportanttounderstandwhetherthesaidserviceshavetobetreatedindependentlyorasacompositepartofthemainservicesiethecourierserviceitself.Aspersection2(30)oftheCGSTBill,acompositesupplymaybedefinedasfollows:Quote(30)“compositesupply”meansasupplymadebyataxablepersontoarecipientcomprisingtwoormoresuppliesofgoodsorservices,oranycombinationthereof,whicharenaturallybundledandsuppliedinconjunctionwitheachotherintheordinarycourseofbusiness,oneofwhichisaprincipalsupply;Illustration:Wheregoodsarepackedandtransportedwithinsurance,thesupplyofgoods,packingmaterials,transportandinsuranceisacompositesupplyandsupplyofgoodsistheprincipalsupply.Unquote

6.3 Theexistingservicetaxlaw,doesnotgiveanyreferencetotheterm‘compositesupply’.However,referencecanbemadetoprinciplesofinterpretationforabundledsupply,asprovidedbelow:

Quote66FPrinciplesofinterpretationofspecifieddescriptionsofservicesorbundledservices.(1)Unlessotherwisespecified,referencetoaservice(hereinreferredtoasmainservice)shallnotincludereferencetoaservicewhichisusedforprovidingmainservice.(2)Whereaserviceiscapableofdifferentialtreatmentforanypurposebasedonitsdescription,themostspecificdescriptionshallbepreferredoveramoregeneraldescription(3)Subjecttotheprovisionsofsub-section(2),thetaxabilityofabundledserviceshallbedeterminedinthefollowingmanner,namely:––



(a)ifvariouselementsofsuchservicearenaturallybundledintheordinarycourseofbusiness,itshallbetreatedasprovisionofthesingleservicewhichgivessuchbundleitsessentialcharacter;(b)ifvariouselementsofsuchservicearenotnaturallybundledintheordinarycourseofbusiness,itshallbetreatedasprovisionofthesingleservicewhichresultsinhighestliabilityofservicetax.Explanation:Forthepurposesofsub-section(3),theexpression"bundledservice"meansabundleofprovisionofvariousserviceswhereinanelementofprovisionofoneserviceiscombinedwithanelementorelementsofprovisionofanyotherserviceorservices.Unquote

6.4 Further,ithasbeenclarifiedintheeducationguidereleasedon20June2012thatancillaryfreightservicesarebundledwiththemainfreighttransportationservices

Quote5.9.6…Whenthefreightforwarderactsonhisownaccount(say,foranexportshipment)Afreightforwarderprovidesdomestictransportationwithintaxableterritory(say,fromtheexporter‘sfactorylocatedinPunetoMumbaiport)aswellasinternationalfreightservice(say,fromMumbaiporttotheinternationaldestination),underasinglecontract,onhisownaccount(i.e.hebuys-inandsellsfrighttransportasaprincipal),andchargesaconsolidatedamounttotheexporter.Thisisaserviceoftransportationofgoodsforwhichtheplaceofsupplyisthedestinationofgoods.Sincethedestinationofgoodsisoutsidetaxableterritory,thisservicewillnotattractservicetax.Here,itispresumedthatancillaryfreightservices(i.e.servicesancillarytotransportation-loading,unloading,handlingetc)are―bundledwiththeprincipalserviceowingtoasinglecontractorasingleprice(consideration).Unquote

6.5 Giventheaboveexplanation,wehavetabulatedtheapplicabilityoftheGSTprovisionsof‘compositesupply’thatwillbeapplicabletoVASandour

recommendationsinthisregard.

► Ancillaryservicesinthenaturehandling,packaging,cashondelivery,etc



ValueAddedServiceStatusofrecipient

LocationofSupplierPlaceofSupplyasper

section12(8)

ValueAddedservicesinthenatureofPackaging,CashonDeliveryandInsuranceprovidedasapartofthemaincourierservice

RegisteredPerson

Pick-uplocationincaseofExporttransactionsandDeliverylocationincaseofImportPrepaidtransactionsIncasethereisnoestablishmentofthecouriercompanyinthestateofdelivery/pickup,thenthelocationoftheestablishmentmostdirectlyconnectedwiththedelivery/pick-upoftheproduct

LocationoftheRegisteredPerson

UnregisteredPerson

Pick-uplocationincaseofExporttransactionsandDeliverylocationincaseofImportPrepaidtransactionsIncasethereisnoestablishmentofthecouriercompanyinthestateofdelivery/pickup,thenthelocationoftheestablishmentmostdirectlyconnectedwiththedelivery/pick-upoftheproduct

LocationofPick-up

Recommendation► Clarificationisrequiredtostatethatvaluedaddedservicesmustbetreatedasacompositesupplytothemaincourierserviceandtheplace

ofsupplyasapplicabletocourierservicesmustapplytoVASbecausetheVASisprovidedunderasinglecontract/price.► Warehousingservicesasaseparatedistinctservicenotintegrallyconnectedwiththecourierservice

ValueAddedServiceStatusofrecipient

LocationofSupplier PlaceofSupplyasperSection12(2)oftheplaceofsupply

Warehousing/storageservices(NotamountingtoRentingofWarehousingspace)

RegisteredPerson

ThewarehousinglocationoftheEDSproviderwillbeconsideredasthelocationofsupplier

LocationoftheRegisteredPerson

UnregisteredPerson


Wheretheaddressonrecordoftherecipientisavailable,thensuchaddressorthelocationofthesupplier

Warehousingservicesamountingtorentingofspace

Registered/unregisteredPerson


Thelocationoftheimmovableproperty



Recommendation► Clarificationisrequiredinrelationtothefollowing:

a. Whenwarehousingservicesareprovidedasastandaloneactivityindependentofthecourieractivity,thenitshallnotbeconsideredtobeacompositesupply.Therefore,whenthereisacontractforprovisionofcourieraswellaswarehousingservices,thenitshouldbeconsideredseparatelyandseparateplaceofsupplyforeachactivitymustbeapplied.However,whenwarehousingservicesisprovidedasapartofthemaindoor-to-doorcourierservice,thenitwillqualifyasacompositesupplyforwhichtheplaceofsupplywillbethesameascourierservice.

b. Whenwarehousingserviceisconsideredasaseparateservice,thentheplaceofsupplyofwarehousingservicewillbeasdefinedunderthegeneralruleiesection12(2)orsection13(2)oftheplaceofsupply.Ithastobeclarifiedthattheplaceofsupplyshallbethelocationoftheregisteredservicerecipientorthelocationofthesupplier(incaseofunregisteredperson),asthesupplyrelatestoprovidingwarehousingservicesandnotrentingofspace,thereforethelocationoftheimmovablepropertyaspersection12(3)isirrelevantforsuchservices.

c. Theplaceofsupplyforrentingofearmarkedspaceshallbethelocationoftheimmovablepropertyaspersection12(3)oftheIGSTBill,2017.

► Customclearingservices

ValueAddedService Statusofrecipient LocationofSupplier PlaceofSupply

Customsclearanceactivity

IndianRegisteredPerson

Theportofthecustomsclearance LocationoftheRegisteredPerson

IndianUnregisteredperson

TheportofthecustomsclearanceWheretheaddressonrecordoftherecipientisavailable,thensuchaddressorthelocationofthesupplier

Overseascustomer/NetworkEntity

Theportofthecustomsclearance PlaceoutsideIndia

Recommendation► Clarificationisrequiredinrelationtothefollowing:



a. WhetherCustomsclearanceservicesmaybetreatedasacompositesupplywiththemaincourieractivityandtherefore,theplaceofsupplyapplicabletocouriermustalsoapplytocustomsclearance

b. Wherecustomsclearanceisanindependentactivity,supplyofwhichisnotnecessarilydependentontheprovisionofthecourierservice,therelevantplaceofsupplythatwouldbeapplicable.EICIrecommendsthatwherethereareseparatecontractsforprovisionofcourieraswellascustomsclearance,thenitshouldbeconsideredseparatelyandSection12(2)orSection13(2)ofplaceofsupplyshouldbeapplicable.

c. Whencustomclearanceservicesareprovidedtothenetworkentity,theactivityshouldbeclassifiedasexport,astheservicesareprovidedtothenetworkentityoutsideIndia.

7. Non–taxabilityofself-supplies

7.1 Courierserviceisaseamlessactivitywhichisperformedacrossvariousstates.Further,inatypicaldoor-to-dooractivity,thegoodsmaybemoved

fromonewarehouseofthecompanytoanotherwarehouseforvariouspurposes.Ifeverysuchmovementisconsideredtobeaseparatesupplytoself,thenitispracticallyimpossibleforthecouriercompanytocomplyandrecordsuchmovements.

7.2 Further,itistobenotedthatasseparateInputserviceDistributorprovisionshavebeenincorporated,thereisabsolutelynorequirementfortaxingself-suppliesasitwouldamounttoawashtransaction.Unlikeincaseoftransferpricingandcustomswheretwodifferenttaxingjurisdictionsareinvolvedandtherecouldbeapossibilityoftaxshift,underGST,theshiftcouldbeonlybetweentheStateswithoutdeprivingtheGovernmentofitsrevenueonanoverallbasis.Imposingthisrigouroftaxingself-suppliestoGSTisunnecessarycomplicationasthetaxchargedislikelytobeawashtransaction.Inviewofthis,taxingofself-supplieshavenotbeenincorporatedtodayunderStateVATtransactionsasalsoInternationalVATjurisdictions.

7.3 Therefore,itisrecommendedthattheCGSTBillmustbesuitablyamendedtoclarifythatservicesprovidedbyoneunitofaserviceproviderto

anotherunit,withoutconsiderationshouldnotbecoveredinthedefinitionofsupply.► Insertclause(102A)inSection2ofmodelCGSTBill

“(102A)“self-supply”shallmeansupplyofservicesbetweentwotaxablepersonshavingthesamePANissuedundertheIncome-taxAct,1961”



► Insertsub-section(4)inSection7ofCGSTBill“(4)Notwithstandinganythingcontainedinthissection,supplydoesnotincludeself-supply.”

► Amendmentinsub-section(2)ofSection17oftheCGSTBillWherethegoodsand/orservicesareusedbytheregisteredtaxablepersonpartlyforeffectingtaxablesuppliesincludingzero-ratedsuppliesandself-suppliesunderthisActorundertheIGSTActandpartlyforeffectingexemptsuppliesunderthesaidActs,theamountofcreditshallberestrictedtosomuchoftheinputtaxasisattributabletothesaidtaxablesuppliesincludingzero-ratedsuppliesandself-supplies.[Amendmenthasbeenunderlinedandhighlightedinred.]

8. Otherkeyconsiderations

8.1 Reimbursementofdutiesleviedshouldnotbeincludedinthevalueofservice

8.1.1 Inatypicalcouriertransaction,theEDSproviderisinvolvedinalltheactivitiesfromthepick-upofgoodstothedeliveryofgoods.Insuch

transactions,thecouriercompanymaybeliabletopaystatutoryleviesformovementofsuchgoods.Suchleviesarereimbursedfromthecustomeronactualsandthereforeshouldnotformpartofvalueofsupply.

8.1.2 Aspersection15(2)oftheCGSTBill,thevalueofsupplyincludes:Quote(2)Thevalueofsupplyshallinclude:(a)anytaxes,duties,cesses,feesandchargesleviedunderanylaw,forthetimebeinginforceotherthanthisAct,theStateGoodsandServicesTaxAct,theUnionTerritoryGoodsandServicesTaxactandtheGoodsandServicesTax(CompensationtoStates)Act,ifchargedseparatelybythesuppliertotherecipient;



Unquote

8.1.3 Aspertheaforesaidprovisions,thevalueofsupplyshallincludeanytaxes,duties,cesses,feeorchargesleviedunderanyotherstatute,ifthesameischargedseparatelybythesuppliertotherecipient.

8.1.4 Itistobenotedthat,purereimbursementsoftaxespaidbythesupplierarerecoveredfromtherecipientwithoutanymark-upastheyarestatutoryinnature.Asthesereimbursementsaretotheextentoftheactualtaxespaid,theyshouldnotbeincludedinthevalueofsupplytoavoiddoubletaxationonthepurereimbursementofthetaxamountfromtherecipient.

8.2 Mechanismforimportdutiespaidataconsolidatedlevelforallcustomers

8.2.1 Incaseofinboundtransactions,importdutiesarepaidbythecouriercompanyatthecustomsclearancestationforalltheimporttransactionsataconsolidatedlevelieasingleBillofEntryisgeneratedforalltransactions.

8.2.2 Anissuecouldariseinthissituation,wheresuchimportdutiesarepaidonbehalfofaregisteredpersonwhoiseligibletotakeCredit.DuetoabsenceofanyvaliddocumentssuchregisteredpersonwouldnotbeabletotaketheGSTcredit(foranunregisteredpersonitwouldnotmakeanydifference).Therefore,thefollowingoptionsmaybeevaluated:Option1–TheBillofEntryformatmustbeamendedtoallowtheinclusionoftheGSTINnumberoftheregisteredpersonOption2–ThecouriercompaniesmustbeallowedtodistributethecreditonthebasisoftheBillofEntrytosuchregisteredperson,withoutanyadditionalcomplianceorcouriercompaniesshouldbeallowedtoissuedocumentsforacustomertobeeligibletoclaimcreditsonthebasisofsuchdocumentandBillofEntry

8.3 ClarificationrequiredforDebitNote/CreditNote/Cancellation/ReplacementofinvoiceissuedafterintroductionofGSTforservicesprovidedbeforeGST

8.3.1 TheCentralGovernmentandStateGovernmentsonrecommendationofGSTCouncilshallprescribethemannerinwhichtheDebitNote/CreditNote/Cancellation/Replacementofinvoicebyacentrallyregisteredserviceproviderprovidingservicesinmorethanonestateunderthepreviouslaw,beissuedaftertheintroductionofGSTtovariouscustomershavingcentralizedregistrationorstate-wiseregistrationinthepreviouslaw.”



8.4 ClarificationthatshipmentoriginatinganddeliveredbothoutsideIndiashouldbeoutofIndianGST.

8.4.1 EICIrecommendsthataclarificationisprovidedtostatethatshipmentoriginatinganddeliveredoutsideIndiashallbekeptoutoftheambitofIndianGSTirrespectiveofpayerforsuchservicesbeinglocatedinIndia.

8.5 Removalofsub-clause(d)ofRule5oftheDraftInvoiceRuleswhichrequiresthename,address,GSTINofthesupplieretcincaseofInputServiceDistributor

8.5.1 Rule5oftheDraftGSTinvoiceRules,statesthatQuote5.TaxInvoiceinspecialcases(1)AtaxinvoiceissuedbyanInputServiceDistributorshallcontainthefollowingdetails:-(a)…name,addressandGSTINoftheInputServiceDistributor;(d)name,addressandGSTINofthesupplierofservices,thecreditinrespectofwhichisbeingdistributedandtheserialnumberanddateofinvoiceissuedbysuchsupplier;…Unquote

8.5.2 Theneedfordisclosingthename,addressandGSTINofthesupplierofservices,thecreditinrespectofwhichisbeingdistributedwouldleadtounnecessarycomplianceandbook-keeping.

8.5.3 ItistobenotedthatthecreditavailedbythecouriercompanywouldanywaybereflectedinGSTR–2Aandtheneedtoagainprovidethename,addressandGSTINofthesupplierwouldleadtoduplicationofwork,asthenameandGSTINwouldalreadybefedinthesystemwhenthecreditistakeninthefirstplace.Thereisnoneedtodisclosesuchdetailsondistributionofcreditbythecouriercompany.

8.5.4 Accordingly,itisrecommendedthatsub-clause5(1)(d)isdelatedfromtheDraftGSTinvoicerules.



8.6 Removaloftaxabilityonimportoffreeofcostservicessuppliedbyrelatedparties

8.6.1 IntermsofSchedule1totheCGSTBill,supplyofgoodsorservicesforcertainsuppliesevenmadewithoutconsiderationistobeconsideredasasupply.Entry2tothesaidSchedulestatesthatanysupplymadebetweenrelatedpersonsinthecourseoffurtheranceofbusinesswouldbeconsideredasasupply.Itshouldbenotedthatduetotransferpricingregulations(domesticaswellasinternational)majorityofservicessuppliedarealreadymarkedupatarm’slengthbasedontherelevantprovisions.Therefore,thereisnoneedforseparatevaluationrulesfortaxingsuchrelatedpartytransactions.Inanycase,inanyimport/exportscenario,thedischargeofGSTliabilitypertainingtotheexpressdeliveryservicesprovidedtotherelatedparty(andthenetworkfeeearnedonthesame)wouldbedischargedatthegatewaylocationofthegoodsinproportiontotheshipmentvalue.Therefore,theGSTliabilityandthetypeoftaxwouldbetriggeredatthegatewaylocationitself.

8.6.2 Further,incaseofNetwork(unbilled)shipments(iecouriertransactionwheretheserviceprovidersdonoreceiveanyamountfromtheretailclientsbutfromthenetworkentity),itisextremelyimportantthatclarityisprovidedonthevaluationRules.Further,oncethevaluationprinciplesareascertained,thenthelocationofthesupplierofserviceandtheplaceofsupplywillbedeterminedaspertheprinciplesexplainedinPara4.4above.

8.6.3 Additionally,itistobenotedthatcertainsuppliesaremadebyrelatedpartiesinthecourseofbusinessforwhichnovaluecanbeassigned.Eg

certaineventorganisedbythegroupcompanywouldinvolvemarketingfortheproductsaswell.Insuchcases,novaluecanbespecificallyassignedtosuchfreeservicesandvaluationforthesamewouldbeachallenge.

8.7 InputServicedistributor8.7.1 TheconceptofISDhasbeenintroducedforthepurposeofdistributionofcreditwheretherecipientofcreditislocatedindifferentstates.

8.7.2 Inthisregard,itispertinenttonotethatproposalfordistributionofcredithasbeenmadeonlyfor‘inputservices’,andnot‘inputs’and‘capital

goods’.ThismayleadtoasituationwhereincreditmayaccumulateatonelocationespeciallyincasewhereinlocationofpaymentofGSTisdistinctfromlocationwheregoodsarereceived.Ifsuchcreditrelatingtogoodsisnotallowedtobedistributedthenitmayleadtosubstantialcreditblockages.



8.7.3 Therefore,itisrecommendedthatthedefinitionofISDbemodifiedtosubstitutethewords“inputservices”with“InputTaxCredit”inordertoalsoprovidefordistributionofcreditofinputsandcapitalgoodsinsamemannerasdistributionofinputservices.

8.7.4 Further,incaseofacouriercompany,majorityoftheexpensesincurredareinthenatureofcommonexpensesandtherefore,areattributabletoallestablishmentsofthecouriercompanyandwouldrequireapportionmenttootherelevantestablishments.TheexistentprocedurefordistributionofcreditasperSection20oftheCGSTBillisfairlyrestrictiveinnatureandislikelytocreatesignificantamountofuncertaintyforcomputingthebasisofapportionmentofcommoncredits.

8.7.5 Itisthereforeimperativethatasimpleprocedure/rulemustbelaiddownforapportionmentofcreditstoeliminateanyambiguityandavoidlitigation.Further,suchprescribedmannerofdistributionofcreditshouldbeacceptedbythejurisdictionalauthoritiesanditshouldnotbeincumbentuponthecouriercompanytoprovethesame.

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