IGST is chargeable on ex-factory supplies ¹

Fact of the case

The applicant is a manufacturer of cement having two cement plants in Telangana. The applicant occasionally make inter-state sale of cement on ex-factory basis from their plants in Telangana.
In this regard, the applicant wants to understand whether IGST or CGST/SGST is required to be charged on ex-factory inter-state sales made by them.

Contention of the Applicant

The applicant is engaged in ex-factory sales from their plants.  It is highlighted that Sec 10(1)(a) of IGST Act, 2017, states that, place of supply is the destination where movement of goods terminates.  
Therefore in the case of ex-factory sales, delivery terminates at their factory gate itself. So, CGST and SGST should be charged on such type of supplies.

Observation of the Hon’ble Telangana AAR

The Hon'ble Apex Authority held that in case of ex-factory sales, since the delivery of goods to recipient takes place at factory gate so far as supplier is concerned, location of the supplier’s factory can be reckoned as place of supply. However,  it was held that the careful appraisal of the provisions of Sec. 10(1)(a) does not suppose such inference.

Therefore it was noted that the usage of the words ‘whether by the supplier or by recipient’ after the words ‘where the supply involves movement of goods’ under the said section perceptibly indicates that the movement can be effected by the supplier or by the recipient or by any other person authorized by the recipient.

This leads to the conclusion that, in terms of Sec. 10(1)(a), movement of goods in case of ex-factory inter-state sales does not conclude at factory gate but terminates at the place of destination where the goods finally are destined as per the billing address. 

Accordingly, it can be inferred that the place of supply in respect of goods where the supply involves movement of goods whether by the supplier or by the recipient or by any other person authorized by him has to be determined with reference to the location where the movement of goods ultimately terminated.

It was held that in case of ex-factory inter-State sales affected by the applicant, the goods are made available by the supplier to the recipient at the factory gate, but this is not the point where movement terminates since the recipient subsequently assumes the charge for transportation of the goods up to the destination in another state.

It means that, termination of the movement of goods evidently takes place at the location (in a different state) to which the goods are consigned/destined and such movement is affected by the recipient or by any other person such as transporter authorized by the recipient.

On the view of above discussion, it can be concluded that, where the “place of supply’ and the “location of the supplier” fall under different states in ex-factory sales, it will be liable to charge IGST on account of supplies made by them.

¹ M/s. Penna Cement Industries Limited (2020-TIOL-112-AAR-GST)