#GSTUpdates-76:-Who is Recipient of Service: Position under GST

This update deals with the provisions for determining who would be held as recipient of service i.e. person to whom services are rendered or person who makes payment for service. The determination of recipient of service is crucial from the aspect that first the recipient of service has to be determined and then only location of recipient could be determined.

1. Position under present service tax law:

If we observe present service tax law, it does not define who would be held as a service recipient i.e. the person who makes the payment or the person to whom services are rendered. However, there is a reference in para 5.3.3 of Education Guide issued by CBEC on June 20, 2012 about service receiver which is as follows:

5.3.3 Who is the service receiver?

 Normally, the person who is legally entitled to receive a service and, therefore, obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf.

The education guide starts with the words “normally the person who is legally entitled to receive a service” and further extends the scope by providing “therefore, obliged to make payment,”. Therefore, educational guide somewhere lays down twin conditions i.e. firstly person entitled to receive a service and secondly “therefore obliged to make the payment”.

However, there have been litigation in the past and situation is far from settled.

2. Position under Draft GST Law:

Section 2(80) of the Draft GST Law explains who is a recipient and tries to lay down who would be held as a recipient in case of services. The definition provided under the law is as follows:

(80) “recipient” of supply of goods and/or services means-

(a) where a consideration is payable for the supply of goods and/or services, the person who is liable to pay that consideration,

The first default rule for identifying the recipient would be the person who would be liable to pay consideration. It’s the test that who has the ultimate liability to pay the consideration and not the person who pays the consideration. Further, the fact that to whom services are rendered is also not relevant but what is relevant is the fact that who’s liable to make the payment of services.

The conclusion also gains strength from the fact that if we observe clause (c ) of Section 2(80) of the Draft GST Law; it creates a separate category of supplies wherein no consideration is payable. The clause provides that in case no consideration is payable then the person to whom services are rendered would be the recipient of service.

Thus we can see that law itself has created two different identities i.e. one is the person to whom services are rendered and second is the person who is liable to make the payment. Further, it is also not the case the person to whom services are rendered would always be the same person who is liable to make the payment. They can be two different persons as well but law has treated the person liable to make the payment as recipient in case where consideration is involved.

Therefore, where there is consideration involved then in such case, the person who is liable to make the payment would be the recipient as per Section 2(80)(a) and secondly in case no consideration is involved then the person to whom services are rendered would be the recipient as per Section 2(80)(c).

Condition (b) of Section 2(80) pertains to the situation wherein no consideration is payable in case of goods, hence the same has not been discussed here.

(c ) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

The provision contains that in case no consideration is payable for supply of service, then recipient of service would be the person to whom service is rendered.

(d) and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply;

The provision clearly lays down the fact that any reference in the law as a person to whom supply is made shall be construed as reference to the recipient of supply as provided under this section.

Explanation.- The expression “recipient” shall also include an agent acting as such on behalf of the recipient in relation to the goods and/or services supplied.  

The Explanation provides that the word recipient shall include an agent acting on behalf of the recipient in relation to the goods and/or services supplied.

Example-1: A in Rajasthan enters into a contract with B in Mumbai for services to be rendered at their unit C which is located in Indore. The contract provides that payment for entire services would be made by B. The fact that the services have actually been rendered at Indore but the liability of payment is on B, therefore recipient of service would be B.

Example 2: A enters into an agreement with B for the purpose of repairing of Car. B repairs the car and A sends C for the purpose of making the payment. Then in such case, the person who is making the payment is C but the responsibility of making the payment lies with A. Therefore, recipient of service is A and not C.

Example 3: A in Rajasthan enters into an agreement with B in Delhi for the purpose of consultancy services wherein A has to visit various units of B located at different places i.e. Indore, Kanpur, Hyderabad and has to suggest ERP measures to be implemented at various units. The payment would be made by B and not by Individual Units. Therefore, in such a case the recipient would be B and not various units.

3. Identification of Location of Recipient:

If we analyse conditions as provided in Section 2(80) for determining “recipient of supply of goods and/or services” alongwith Section 2(64) which contains provisions for determining “location of recipient of service”, then firstly we have to determine who is a recipient as per Section 2(80) of the Draft GST Law and once the recipient has been identified then further applying the provisions of Section 2(64), then we would have to determine location of recipient of service.

4. Definition of Supplier:

Section 2(91) defines supplier and for better understanding, definition can be further sub-divided as follows:

1. “supplier” in relation to any goods and/or services shall mean
2. the person supplying the said goods and/or services and
3. shall include an agent acting as such on behalf of such supplier in relation to the goods and/or services supplied;

Thus supplier means person who supplies goods and/or services and also includes an agent acting as such on behalf of such supplier in relation to goods and/or services supplied.