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Bill To Ship To Transaction in GST!

With the advent of the Goods and Services Tax (GST) regime in India, the taxation system was streamlined to bring uniformity and clarity across states. Among the many transactional models recognized under GST, the “Bill To Ship To” model is particularly common in supply chains involving multiple parties. This blog aims to provide a comprehensive understanding of what a Bill To Ship To transaction is, how it operates under GST, and what businesses need to be aware of regarding compliance and taxation.

What is a Bill To Ship To Transaction?

A “Bill To Ship To” transaction involves three parties:

Buyer (Billed To): The person who places the order and to whom the invoice is issued.
Supplier: The person who supplies the goods.
Recipient (Shipped To): The actual receiver of the goods.

In this transaction, the supplier delivers goods directly to a third party (the "Ship To" party) on the instruction of the buyer (the "Bill To" party), but the invoice is raised in the name of the buyer.

Example:

Company A (based in Delhi) places an order with Supplier B (based in Maharashtra) and instructs B to deliver the goods directly to Company C (based in Gujarat). Here:

Bill To: Company A
Ship To: Company C
Supplier: Company B

Place of Supply in Bill To Ship To Transactions under GST

GST law specifies rules for determining the Place of Supply (POS), which in turn determines whether a supply is intra-state or inter-state, and what kind of tax (CGST+SGST or IGST) applies.

According to Section 10(1)(b) of the IGST Act, 2017, where goods are delivered by a supplier to a recipient on the direction of a third party (the buyer), it shall be deemed that the buyer has received the goods and:

The place of supply shall be the location of such third party (i.e., the buyer).

In the example above:

The place of supply is Delhi (location of Company A, the "Bill To" party).
Even though goods are shipped to Gujarat, the supply is considered to be from Maharashtra to Delhi, and IGST is charged.

GST Applicability on Bill To Ship To Transactions

The GST treatment depends on the nature of the transaction:

Single Supply with Direct Delivery:
- Only one supply is involved.
- Supplier raises an invoice to the buyer.
- Goods are shipped to the recipient (third party) as directed by the buyer.
- IGST or CGST+SGST is applied based on POS.
Two Supplies Scenario (Back-to-Back Supply):
Sometimes, there can be two separate supplies:
- First, from A to C, and
- Second, from B to A.

In such cases, each leg of the transaction is taxed separately with its own invoice and applicable GST.

Key Points

Proper documentation (e.g., e-way bill, invoice) must reflect the Bill To and Ship To details accurately.
E-invoicing (if applicable) must also reflect the structure correctly.
Consistency across GST returns, e-way bills, and accounting records is critical.

Other Notes and Compliance Tips

E-Way Bill Generation: The person responsible for the movement of goods (either the supplier or buyer) must generate the e-way bill showing correct “Bill To” and “Ship To” details.
Accounting Clarity: Businesses must maintain clarity in their books about who is the actual buyer and receiver to avoid mismatch during audits.
Avoid Misclassification: Any confusion in documentation can lead to errors in determining the place of supply and incorrect tax payment, potentially leading to penalties.
Input Tax Credit (ITC): The buyer (Bill To) can avail ITC even if goods are delivered to a different location (Ship To), as long as the transaction is genuine and documented properly.

Conclusion

The Bill To Ship To model is a practical and commonly used mechanism in trade and logistics, especially in drop-shipment or job work scenarios. While the concept seems straightforward, the GST implications—particularly around place of supply and documentation—require careful attention. By understanding the nuances and complying with the statutory requirements, businesses can ensure smooth operations while staying GST-compliant.

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