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The concept of Fixed Establishment under GST is vital to determine various requirements under the GST law, including the requirement of registration. The definition of fixed establishment provided under the GST law is not very conclusive, and it also has not been explored before the Courts in India. This article seeks to explain the concept of fixed establishment, but before that, we need to know the relevance of place of supply.
Place of supply is a fundamental proposition under the GST regime. Upon the determination of the place of supply, a supply can be categorised as Interstate supply or intra state supply. Moreover, the place of supply is essential in case of registration purpose also.
The determination of place of supply is crucial because the input tax credit received/earned owing to the payment of input tax charged by a state cannot be used to make the payment of output tax provided that the business is registered under the state from where it made taxable supply or where the place of supply is located.
To understand fixed establishment and its relation with the place of supply, we must know specific provisions.
According to section 7 of IGST Act, the supply of goods/services, where the location of supplier and place of supply are in:
Will be treated as supply of goods/services during inter-state trade or commerce.
Further, the supply of goods/services, where the location of the supplier and the place of supply are state or same UT, shall be treated as intra state supply.
If we closely examine sections 7, 8, 10, 11, 12 and 13 of the IGST Act, it would be clear that the operation of these provisions depends on the determination of the location of supplier and the location of recipient.
According to section 2(14) of the IGST Act location of the recipient of services refers to:
According to section 2(15) of the IGST Act, the definition of the location of supplier of services is defined as:
Jaimin Engineering Private Limited
As far as the facts of this case is concerned, Jaimin Engineering Pvt. Ltd was constructing cold storages in different parts of country. They were looking to carry out some construction activity in the Rajasthan state, but they were located in Gujarat and registered there in GST.
As per the laws of GST, every supplier must take registration in state where he has a place of business. In this case, Jaimin Engineering Pvt. Ltd had a place of business in Gujarat and duly registered there. They were planning to charge IGST on their activity in Rajasthan as they claimed that the place of supply was in the state of Rajasthan. Hence they thought it was not required to take registration in that state.
So the question here is whether they require taking registration in Rajasthan where the activity is to be done.
The Hon’ble Authority for Advance Rulings of Rajasthan held that under GST, a supplier of service is required to register at the location from where such person makes taxable supplies or supplies taxable services (if his aggregate turnover is more than 20 lakh rupees in a financial year, 10 lakh rupees in case of a special category states).
The AAR held that when reading section 2(15), 12(3) (a) of the IGST Act and section 22 of the CGST Act, it’s pretty evident that while supplying services, if the supplier had a place of business in the state of Rajasthan then such supplier must get himself registered in the state of Rajasthan.
From the above case law, it can be deduced that the place of supply and fixed establishment under GST is linked to each other. One needs to understand both proposition better in order to know the whole concept. In case of further query, you may seek the help of a professional.
Read our article:All about Intrastate and Interstate Supply under GST