How to Determine the Place of Supply in Case of Bill to-Ship to Transactions

Last updated on July 13th, 2017 at 02:33 pm

In the Bill to – Ship to model, the billing and shipping of goods are done to two states and entities. In order to avoid the cascading of multiple taxes through the course of the transaction, the first sale will be taxable, and any subsequent sale during the movement of goods is exempt from tax. Today, Bill to – Ship to transactions are a common occurrence.

Let us understand ‘Bill to – Ship to’ transactions with an example.

Ganesh Traders, a dealer in hardware goods, located in Maharashtra receives an order from Maruthi Traders, located in Karnataka. The order is for the supply of 100 aluminium ladders, with an instruction to ship the ladders to Prime Hardwares, located in Tamil Nadu. Prime Hardwares is a customer of Maruthi Traders.

There are two parts to this transaction:

  • First part of the transaction – between Ganesh Traders and Maruthi Traders: Ganesh Traders is the supplier of ladders and Maruthi Traders is the buyer. Accordingly, Ganesh Traders bills the transaction to Maruthi Traders, and as per the instruction, ships the goods to Prime Hardwares in Tamil Nadu.
  • Second part of the transaction – between Maruthi Traders and Prime Hardwares: Maruthi Traders is the supplier and Prime Hardwares is the buyer. Maruthi Traders bills the transaction to Prime Hardwares, and endorses the lorry receipt (goods shipped in a lorry by Ganesh Traders) in favour of Prime Hardwares. This lorry receipt (LR) will enable Prime Hardwares to take the delivery of the goods.

Before we proceed to understand Bill to-Ship to transaction in GST, we will understand how these transactions are taxed under the current regime.

Current regime: how Bill to – Ship to transactions are taxed

In Bill to -Ship to transactions, there is a first sale and a subsequent sale. In the current regime, tax should be levied on both parts of the transaction – on the first sale by Ganesh Traders to Maruthi Traders, and the subsequent sale by Maruthi Traders to Prime Hardwares.
However, in order to avoid tax being calculated multiple times through the course of the transaction, exemptions are provided on subsequent sales. These exemptions however, are subject to the furnishing of the prescribed forms. To get the exemption on the subsequent sale, a declaration Form E1 has to be issued by the first seller, and C-Form has to be issued by the buyer for levy of CST at a reduced rate of 2%.

Let us understand this with an illustration.

Bill to ship to transactions in GST

In the above illustration, Ganesh Traders bills to Maruthi Traders, and ships the goods to Prime Hardwares. Ganesh Traders issues Form E1 to Maruthi Traders, and the C form is produced by Maruthi Traders for availing CST @ 2%. Subsequently, Maruthi Traders bills to Prime Hardwares against C Form without charging tax, and endorses the Lorry Receipt in favour of Prime Hardwares.

Treatment of Bill to – Ship to transactions under GST

Under GST, the place of supply of goods is very critical to determine the transaction as interstate or intrastate. Accordingly, the applicable taxes can be levied. We have discussed about Place of Supply in detail in our blog what is place of Supply in GST.

Under GST, the place of supply of goods is very critical to determine the transaction as interstate or intrastate. Click To Tweet

In GST, if the goods are supplied by the supplier to the recipient on the direction of a third person, it will be deemed that the third person has received the goods, and the place of supply will be the principal place of business of such third person. Let us understand this with an example.

Ganesh Traders is a dealer in hardware goods, located in Maharashtra. They receive an order from Maruthi Traders, located in Karnataka, to supply 100 aluminium ladders, with an instruction to ship the ladders to Prime Hardwares, located in Tamil Nadu.

Managing bill to ship to transactions under GST

In the example, on the instruction from Maruthi Traders, Ganesh Traders ships the aluminium ladders to Prime Hardwares located in Tamil Nadu. Here, Maruthi Traders is deemed as the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Karnataka. Accordingly, Ganesh Traders charges IGST on billing to Maruthi Traders. The second part of transaction between Maruthi Traders and Prime Hardwares will also be interstate, and IGST will be charged.

Let us discuss further with various scenarios.

Scenario 1
Particulars Supplier Third Party Recipient Place of Supply Type of Transactions
State Maharashtra Maharashtra Karnataka Maharashtra Intra-state
Party Name Ganesh Traders Maruthi Traders Prime Hardwares

Calculation of GST on bill to ship to transactions

In the example, on the instruction from Maruthi Traders, Ganesh Traders ships the aluminium ladders to Prime Hardwares located in Karnataka. Here, Maruthi Traders is deemed as the third person. Therefore, the place of supply will be the principal place of business of the third person i.e., Maharashtra. Accordingly, Ganesh Traders charges CGST+ SGST on billing to Maruthi Traders. The second part of transaction between Maruthi Traders and Prime Hardwares will be interstate, and IGST will be charged.

Scenario 2
Particulars Supplier Third Party Recipient Place of Supply Type of Transaction
State Maharashtra Karnataka Karnataka Karnataka Interstate
Party Name Ganesh Traders Maruthi Traders Prime Hardwares

Bili to ship to examples

The principal place of business of the third party in the above scenario is Karnataka, and the place of supply will be Karnataka. This is an interstate transaction, and is liable for IGST. The second part of the transaction between Maruthi Traders and Prime Hardwares will be intrastate, and CGST+SGST will be charged.

Read this blog post to understand CGST, SGST and IGST in detail.

Coming soon

Blogs on Place of Supply of Services

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45 Comments

  • “A” manufacturer of goods place Gujarat recv order from “B” of Karnataka to order qty of goods directly send to Bangladesh out side India. How this transaction perform under bill to ship to method.

  • GST ON FREIGHT WE PAY @ 5% , AS TRADER BY BUYING THE GOODS UNDER GST AND PAY FREIGHT TO TRANSPORTER
    CAN WE AVAIL FREIGHT GST AS INPUT TAX CREDIT

  • BEING TRADER WE BUY GOODS FROM MANUFCATURER OR TRADER AND PAY THEM GST, WE PAY GST ALSO ON TRANSPORT @ 5%
    CAN WE AVAIL INPUT TAX CREDIT ON GST OF FREIGHT , THERE IS CONFUSION THAT GST ON FREIGHT CAN’T BE TAKEN AS INPUT TAX CREDIT, SO PLS CLARIFY

  • in Bill to Ship To concept suppose I am based at Uttarakhand and get instruction from XYZ Party from Maharashtra to send material to ABC Ltd. at Rajasthan. (ABC Ltd. is customer of XYZ Ltd.) so during raising Invoice detail of Buyer = ? and Detail of Consigned = ? will be different. Please clarify on this issue

  • Scenario C

    ABC company location Maharashtra. Placed order to supplier ( location West Bengal ) to supply goods to company C. ( location West Bengal only )

    What will be charged in this case. IGST or C +S GST. ??

  • sir,

    Thanks for your inputs.We have E1 transaction across three states.
    We the manufacturer is in Ktaka
    Buyer is in Maharashtra
    Delivery is in Orissa who is the buyers final customer.

    Cd u pls let us know the GST transaction in each case.
    What tax structure will be there in our invoice to buyer.Will be helpful for yr comments

    • When you raise invoice on B, IGST will be applicable. When the buyer raises invoice on final customer also, IGST will be applicable.

  • Dear sir,
    Plz let us know the INVOICE format for the Bill to – Ship to transactions under GST for Maruti trader (Karnataka). & Ganesh(Maharshtra)….

  • The above model is good in case of B2B shipments. But what will be scenario in case of B2C shipments (Person get instruction to deliver the goods to end consumer located in diff state)

  • If in case Material supplied by Ganesh Traders in Maharashtra is asked to supply to a warehouse of Maruti Traders in Maharashtra itself then is it SGST+CGST or IGST ?

  • In case of Bill-to Ship-to scenario, please consider this:
    ABC Industries Ltd., Pune, Maharashtra places an order on Tech Systems Pvt. Ltd., Mumbai, Maharashtra for supplying 100 computers to their 2 locations at Nagpur, Maharashtra (50 Nos) & Coimbatore, Tamil Nadu (50 Nos). Billing to be done to ABC Industries Ltd., Pune. How would the invoicing be done in this case, and what taxes would be applicable in each case?

    • Billing would be done in both cases to ABC Industries, Pune and the tax applicable in both cases will be CGST + SGST.

  • in the case of bill to ship to case, we would like to understand the applicable GST on the transaction value.
    example
    party A based in Gujarat supplies good to party B based in jharkhand charging material cost 100 + IGST =18 ( 18%) + freight 5.00 + igst 5% on freight in their Invoice . Party B paid the amount to party A = 123.25 including freight and able to claim input credit of Material IGST 18.00 + freight IGST 0.5 .Now party B adivse party A to ship the consingment to party C under bill to ship to Invoice. Can the party B issue
    Invoice to party C as : 100 + 5.00 ( profit) = 105.00 + IGST 18% + freight 5.00 + IGST 5 % on freight , total : 129.15 or the party B has to issue Invoice based on total material cost including freight i.e. 123.25 per Kg + IGST @ 18% = 145.43 . In the case where the INPUT CREDIT is not available to PARTY C , the second option will have increased delivered cost than first option of charging material cost and freight separately. Please clarify

  • If all the three parties are located in the same state e.g. in Maharashtra,

    i think there will be sgst+cgst charged by Ganesh traders to Maruti traders and
    Maruti traders to Prime Hardwares.

  • I think, there will be invoice pattern as below:

    Buyer : Maruti Traders, Maharashtra (Place of Supply)
    Consignee : Prime Hardware, Karnatka (Goods Delivered)

    IGST will be charged, even if supplier is located in the state of Maharshatra and Goods are delivered in Karnatka.

  • Dear Team,
    Thanks a lot for the blogs on GST you have provided very good and knowledgeable information on GST with the examples. Its very easy to understand.
    We are waiting for your blog on Supply of Services. I’m Interested in understanding how the software sale will teared in GST.

    Thanks & Regards,
    Somnath Swami.

  • REGARDING THE EXAMPLE SHOWN IN THE BLOW FOR INVOIING FROM GANESH TRADER,YOU HAVE SHWON TWO SCENARIO , WHICH ONE IS CORRECT

  • How the transaction can be affected when, “A” is supplier at Gujarat, “B” is Dealer & Buyer at Mumbai and “C” is consignee final buyer at Gujarat. What will be the scenario in present conditions as well as effect after introduction of GST.

  • In older tax regime CST was exempt second time, but in gst there is no such provision
    then what is benefit it is as same as first purchase and then sell.
    kindly explain.

    • Difference is the availability of seamless credit. CST previously was a cost to the company as no credit was available. You can now use the credit availed under IGST to setoff against IGST, CGST, SGST in that order of priority.

  • Im registered in chattisgarh, purchase material from orissa and supply it to party in orissa, what will be the invoicing pattern and LR endordement.

    • It is not double tax. CGST and SGST are the types of GST tax. If the GST rate on a product is 18%, CGST rate will be 9% and SGST rate will be 9%. If the same product is supplied inter-state, IGST rate will be 18%.

  • Bill to Ship to scenarios are very common for Indian traders.. hope GST will bring in simplification which seems likely after going through this blog…

  • In Scenairo 2 pl. explain the input & output of tax amounts provided that basic value of goods purchased is Rs. 100/- & Resale price is Rs.200/- Also explain the above example comparing previous pattern of excise CENVAT available for credit in current changed status.

    • Due to credit matching the cost for the companies will come down as previously excise, CST, Entry taxes etc were all cost for the companies. So, it is expected that the benefit will be passed on to final consumer actually gaining with reduced Sales Price.

  • One clarity is require in the above scenarios, what document will flow from Ganesh Traders to Prime Hardwares at the time of delivery of the goods / along with the goods.
    Thanks

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