Introduction 

There can be cases where the supplier of goods does not have the stock of the goods ordered or he does not deal with them. In such cases, the supplier will procure such goods from a third party and then deliver /supply to his customer or will asks the third party to ship the goods directly to the customer. However, where the supplier of goods opts for sending the goods directly from the third party to the customer's place, then such transactions are known as Bill-To /Ship-To transactions. 

In such cases, there are some areas like Place of Supply, Time of Supply, Issue of E-way Bill, Tax Invoice, Input tax Credit are impacted. Here, we discussing the Place of Supply of goods in case of Bill To/Ship To transactions. The provisions of Section 10(1)(b) of IGST Act, 2017 determines place of supply for Bill To/ Ship To transactions.

Section 10(1)(b) of the IGST Act, 2017

“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;”

Accordingly, where the goods being delivered to the recipient by the supplier on the direction of a third person, before or during movement of goods, then it shall be deemed that the third person has received the goods therefore the place of supply of such goods shall be the principal place of business of such person (third person). In other words, the place of supply will be the principal place of business of the principal supplier and not the recipient’s place. Thus, if supplier of goods and billing address (address of the third person on whose direction the goods are sent) are in different States, the supply will be inter-state even if goods are delivered in the same State on direction of the third party.

Lets understand this with an example. 

X Ltd. based in Mumbai places an order on A Ltd. in Delhi for the supply of goods. A Ltd. is not having the said goods in stock, A Ltd in turn places an order on P Ltd based in Delhi to supply the goods directly to X Ltd. X Ltd will receive the goods from P Ltd but the amount is to be paid to A Ltd.

In this case Bill to party will be A Ltd. and ship to party will be X Ltd. The place of supply shall be place of principal supplier i.e.  A Ltd of Delhi, so the place of supply will be Delhi for the tax invoice issued by P Ltd for delivery of goods to X Ltd even though X Ltd is located in Maharashtra.

Based on the above, a summarized table for further clarification is given below:

Supplier	Bill to (Third party)	Ship to (Recipient)	Place of Supply	GST
Maharashtra	Maharashtra	Maharashtra	Maharashtra	CGST+SGST
Maharashtra	Karnataka	Maharashtra	Karnataka	IGST
Maharashtra	Maharashtra	Karnataka	Maharashtra	CGST+SGST
Maharashtra	Karnataka	Karnataka	Karnataka	IGST

Related Judgment 

• Bill to Ship to Mode not limited to only three parties.

AAR Rajasthan in Re: Sanjog Steels Pvt. Ltd.

The applicant sells the manufactured goods under the brand name Rathi Powertech to M/s RSE. M/s RSE would then sell the said goods after adding its margin of about Rs. 50 per metric tonne to M/s Goyal. M/s Goyal would then sell the said products to various customers (hereinafter referred to as “M/s X”) as per the demand of market. The manufactured goods would be directly dispatched from the applicant to M/s X and the e-way bill would be prepared on a “Bill to Ship to” model as per the provisions of sec 10(1)(b) of the IGST Act. It is stated that the Applicant is an associate company of M/s Goyal. It is further submitted that the transactions are with value addition and the last transactions is with unrelated party and complying with the provisions of Section 15(1) of the CGST Act, 2017.

It is observed from the submissions made by the applicant, that the cycle of supply of goods from the applicant to the final customer, involves four persons, i.e. the applicant, M/s RSE/RPG, M/s Goyal and M/s X.

Sec 10(1)(b) of IGST Act does nowhere limit the transaction to only three parties/persons. It only contemplates about role of ‘third party’ and declaration of ‘principal place of businesses. Therefore, the supply from M/s SSPL to M/s X on a “Bill to Ship to” mode as per provisions of sec 10(1)(b) of IGST Act is permissible

• Input Tax Credit Of GST paid in Bill-to-ship-to model, available

AAR Rajasthan in Umax Packaging- Ruling no. RAJ/AAR/2018-19/23 dated 02-11-2018

The third person (under whose instructions goods are supplied to recipient) can take ITC of GST charged by supplier and in turn charge GST to final recipient in bill to ship to transaction under section 10(1)(b) of IGST Act.

To learn GST with more similar examples Subscribe TAXO today