As GST (Goods and Services Tax) is due to be launched soon, details of every single aspect of GST are being scrutinized for future consideration. The GST on Ex-Works Sales is one of the major aspects that go hand in hand with the Place of Supply (POS) of goods.
In depth details about GST on Ex-works Sales
The three main pillars of GST are the CGST (Central GST), SGST (State GST) and IGST (Integrated GST) that form the backbone of the Model GST Law. Any kind of transaction means that there will invariably be some movement of goods and hence, the context of the Place of Supply (POS) will obviously come into the picture. GST covers several domains and GST on Ex-Works Sales is one of the main domains that will determine the taxes to be levied based on the place of supply (POS) of goods. Section 7(2) of the IGST Law throws light upon the POS part of the GST Law that goes as under:
“(2) Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.”
Now, the above-mentioned section further takes into consideration some important cases such as Delivered Duty Paid or DDP sales and Ex-Works Sales. Here, the GST on Ex-Works Sales is the main matter of discussion.
In order to understand the details of the same, it is first essential to know what exactly is meant by Ex-works or EXW, in short. It is actually an International Commercial Term (INCOTERM) is basically “an agreement in which the seller is required to make goods ready for pickup at his or her own place of business. All other transportation costs and risks are assumed by the buyer.”Here comes a controversial proposition as to which should be the Place of Supply of goods in the case of Ex-works where the seller is supplying the goods at the factory gate from where it is the buyer’s responsibility to take care of the goods and use those subsequently. It can either be the factory gate where the of supplier where the transaction completes between the buyer and the seller or it can also be the premises of the buyer from where the goods are taken for further use by the buyer. Taking these into consideration, the following points can be taken into account while determining the GST on Ex-Works Sales.
- “Location of goods at the time at which the movement of goods terminates for delivery to the recipient” (‘limb 3’) – In this case, as per the statement goes, the factory gate where supplier delivers the goods to the buyers becomes the Place of Supply.
- “Location of goods at the time at which the movement of goods terminates for delivery to the recipient” (limb 3)to be read in conjunction with the words “movement of goods, whether by the supplier or the recipient or by any other person” (limb 2) – According to the statement here, the transaction goes on until the buyer finally reaches the premises for using the goods further and hence, the Place of Supply in case of Ex-Works Sales here will be the premises of the buyer. Quite evidently, the point of view is not remaining restricted only till the supplier but covering the buyer who is the recipient of goods here as well along with some other person in the course of transit.
- “Limb 2 & Limb 3to be read in conjunction with limb the supply involves (limb 1)” – In this case, the Place of Supply of goods will be determined only during the time the supply continues. In other words, wherever the supply of Ex-works sale get completed, this section will freeze and movement of goods beyond Ex-works sale will be of no import for determining POS of the Ex-works sale. After thorough consideration therefore, it can be concluded that the POS here is the factory gate of the supplier for Ex-Works sales.
As per the detailed discussion of each cases pertaining to the GST on Ex-Works Sales in the above-mentioned points, there is still a dilemma related to the word ‘involves’ and that is whether the same is being used as a verb or as a noun because in both the cases, the conclusion may again vary accordingly. Consequently, the following two scenarios arise here:
- Does it provides POS for “the supply” (‘verb’) of movement of goods part or
- Does it provides POS for “the transaction” (‘noun’) of movement of goods
If the same is being considered as noun, then the transaction revolves only around the movement of the goods although this is not advisable as the movement of goods not only means under the supply transaction but also after the supply transaction as well. Instead, it is always wise to consider the word ‘involves’ as verb because it deals with the movement of goods during the supply and this will define the POS for considering the GST on Ex-Works Sales and in that case, the scenario after the supply of goods will not come into the picture at all because the POS will be already decided and will hardly be affected later on.
While discussing the details of GST on Ex-Works Sales, a comparison will come with the CST Act or the Central Sales Act that also deals with the sale and purchase of goods and hence, the movement of goods and transaction of goods as a whole is common between the two. However, there is still a hairline difference wherein, the CST Act deals with the word ‘occasions’ whereas, the GST on the other hand deals with the word ‘involves’. In fact, the word ‘occasions’ covers lots of aspects and have stood strong and relevant through the past years in cases of inter-state sale of goods especially. In other words, as the official conclusion goes, When we see “sale occasions” it means movement prior to sale, during the sale or after the sale, but when we see “supply involves”, the movement in my mind should only be restricted only during the supply part.
There is another context of Auction Sales that also comes into the picture during the discussion of GST on Ex-Works Sales and after scrutiny of various cases and scenarios, it has been inferred that Auction sales fall in the intra-state category, because POS in this case, would always be the place at which the auction is happening.
As a final wrap-up, it can be said that since the sole concern of GST is with ‘seamless credit’, therefore, the legislative intent of the cases must mandatorily be taken into account. In this regard, it is very crucial to thoughtfully decide upon the termination point of supply of goods from the seller to the buyer because this will ultimately decide the Place of Supply of goods and in turn, will affect the GST on Ex-Works Sales.
Also read- Meaning and Scope of Supply under GST