India GST – Impact of “Deeming” Provision

India Deeming Provisions

What is a "deeming provision"?

A “deeming provision” is enacted for the purpose of assuming the existence of a fact which does not really exist. Deeming provisions were widely used and discussed in the erstwhile Indian Indirect tax laws, a typical example being the applicability of VAT and CST on works contracts and leasing/ hire purchase (‘transfer of right to use goods’) transactions. In the ensuing paragraphs, we shall analyze the deeming provision which has been factored into the Place of Supply provisions under the India GST laws, and their basic objective.

3 Party Transactions

Section 10 (1) (b) of the IGST Act deals with supply transactions involving 3 parties, namely, a ‘Supplier’, a ‘Recipient’, and a ‘Third Party’. It further states that when goods are delivered by the Supplier to the Recipient at the behest of the Third Party, then it is deemed that the Third Party has taken delivery of the goods, and in turn, dispatched the same to the Recipient.

As such, there would be 2 transactions, the first leg being the supply of goods by the Supplier to the Third Party: and the second leg being the supply of goods by the Third Party to the Recipient, although, there only be a single dispatch of goods by the Supplier to the Recipient. In contrast to the erstwhile CST laws in which the second leg of such transactions was exempt as ‘Subsequent (E1) Sales’, the law creates a deeming provision to ensure that the GST chain is not broken. The GST which the Supplier charges to the Third Party is availed as credit by the Third Party; the GST charged by the Third Party on the Recipient is availed as credit by the Recipient.

However, there are three scenarios in which, the above deeming provision results in a departure from the fundamental GST Principles – charging IGST for inter-state supplies and charging CGST + SGST/ UTGST for intra-state supplies. These scenarios are discussed below:

While executing such transactions, much care has to be exercised from the perspectives of the taxes to be charged and E-Way Bills.

The information provided in this article does not, and is not intended to constitute tax advice, instead, all information, content, and materials in this article is for general informational purpose only. The content on this posting is provided “as is;” no representations are made that the content is error-free. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.



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