Clarification on Place of Supply for Online Services Supplied to Unregistered Recipients
On December 31, 2024, the CBIC issued detailed guidelines in Circular No. 242/36/2024-GST to address issues surrounding the determination of the place of supply for online services provided to unregistered recipients. This clarification ensures uniform compliance with the provisions of Section 12(2)(b) of the IGST Act, 2017, read with Rule 46 of the CGST Rules, 2017.
Key Issues and Clarifications
Non-Compliance Observed
- Suppliers of online services, including those operating through electronic commerce operators (ECOs), were incorrectly declaring the place of supply as their location instead of the recipient’s location.
- The failure to record the recipient’s State name on tax invoices led to misallocation of revenue among States.
Legislative Provisions
| Section/Rule | Description |
|---|---|
| Section 12(2)(b) of IGST Act | Specifies the place of supply for services provided to unregistered persons: |
- Location of recipient (if address is on record).
- Location of supplier (if address is not on record). | | Rule 46(f) of CGST Rules | Mandates the recording of recipient’s State name on tax invoices for online services, regardless of supply value. |
Clarifications Issued
1. Recording Recipient’s State on Invoices
- For online services supplied to unregistered recipients, the supplier must record the recipient’s State name on the tax invoice, irrespective of supply value.
- The recipient’s State name is deemed the address on record for determining the place of supply.
2. Applicability of Rule 46(f) Provisions
The rule applies to the following scenarios:
| Service Type | Examples |
| OIDAR Services | E-books, cloud storage, digital content, online gaming (excluding online money gaming). |
| Online Entertainment Services | OTT subscriptions, digital media services. |
| Online Telecom Services | Internet-based communication services. |
| Other Digital Services | Subscription to e-newspapers, e-magazines. |
3. Determining Place of Supply
- Based on the recipient’s State name recorded on the invoice, the place of supply shall be the recipient’s location as per Section 12(2)(b)(i) of the IGST Act.
- Failure to record this information correctly may result in penalties under Section 122(3)(e) of the CGST Act.
4. Mechanism for Compliance
Suppliers must:
- Develop systems to collect and verify recipient details, including the State name.
- Ensure invoices include all mandatory particulars as per Rule 46.
Examples for Better Understanding
Scenario 1: OTT Subscription Service
| Details | Explanation |
| Service Provided | Subscription to a streaming platform. |
| Recipient’s State Name on Invoice | Mandatory to record the recipient’s State name. |
| Place of Supply | Determined based on the recipient’s recorded State. |
Scenario 2: E-Learning Platform
| Details | Explanation |
| Service Provided | Online courses and tutorials. |
| Recipient Details Recorded | Recipient’s State name deemed as the address on record. |
| Compliance Requirement | Tax invoice must reflect the recipient’s State name. |
Penalties for Non-Compliance
Suppliers failing to issue invoices with correct recipient details, including the State name, may face penalties under Section 122(3)(e) of the CGST Act.
Conclusion
The circular reinforces the importance of correctly recording the recipient’s State name for determining the place of supply in online service transactions with unregistered recipients. Suppliers must update their systems and processes to ensure compliance, thereby avoiding penalties and ensuring accurate allocation of GST revenue to States. Taxpayers are advised to review their invoicing practices and implement necessary changes promptly.
Visit www.cagurujiclasses.com for practical courses
Disclaimer:-
The opinions presented are exclusively those of the author and CA Guruji Classes. The material in this piece is intended purely for informational purposes and for individual, non-commercial consumption. It does not constitute expert guidance or an endorsement by any organization. The author, the organization, and its associates are not liable for any form of loss or harm resulting from the information in this article, nor for any decisions made based on it. Furthermore, no segment of this article or newsletter should be employed for any intention unless granted in written form, and we maintain the legal right to address any unauthorized utilization of our article or newsletter.
