Test the direction and each supply before choosing the tax head
For a domestic goods transaction within IGST Act section 10(1)(b), delivery by a supplier to another person on a third person’s direction before or during movement is treated as receipt by that third person. The place of supply for that supplier’s supply is the third person’s principal place of business. The truck’s destination can therefore differ from the place of supply on the first invoice.
This guide, checked on 23 October 2026, concerns ordinary domestic registered B2B goods supplies. It uses IGST sections 7, 8 and 10 and CGST section 16 in ICAI’s 2026 compilation of the GST Acts and Rules. Imports, exports, SEZ transactions, installation supplies and supplies to unregistered persons require their specific statutory tests. The compilation incorporates amendments through 31 March 2026; apply the provisions effective for the actual transaction.
Name the three commercial roles clearly
Call the original supplier A, the purchasing and directing business B, and the physical consignee C. On the A–B supply, B is the third person whose direction brings section 10(1)(b) into the analysis. C receives the goods physically. Do not infer the roles merely from the address printed in a transport document: read the purchase order, acceptance, invoice and delivery instruction together.
The direction must exist before or during movement. A later accounting entry does not itself prove an earlier direction. Retain a dated email, purchase-order instruction or equivalent commercial evidence linking A’s dispatch to B’s instruction. The section accommodates transfer of documents of title or another mode; the enquiry is not confined to one document format.
A single movement can support two supplies, but does not create a second sale
If B has genuinely resold the goods to C and directs A to deliver them there, analyse A–B and B–C as separate supplies with their own supplier, recipient, value and place of supply. The first leg can use section 10(1)(b); the onward leg needs its own correct place-of-supply test, commonly the movement-ending rule in section 10(1)(a) on ordinary stated facts. Avoid mechanically copying the first invoice’s tax head to the second.
Delivery to B’s warehouse, job worker, branch or other nominated location does not by itself prove an onward taxable sale by B. Establish the actual contract and whether any separate supply, including a distinct-person supply where relevant, exists. Conversely, a genuine resale should not disappear merely because B never physically stores the goods.
| Question | First supply A–B | Onward supply B–C, if established |
|---|---|---|
| Who supplies and purchases? | A supplies to B on the supported contract | B supplies to C on its own contract |
| Which location matters? | B’s principal place of business under section 10(1)(b) | The applicable rule for that separate supply |
| How is the tax head chosen? | Compare A’s location with that place of supply, subject to statutory exceptions | Compare B’s location with that separate place of supply |
| What proves receipt? | Physical delivery on B’s direction supports the statutory deemed-receipt enquiry | C’s receipt and the onward delivery evidence |
| What is the tax base? | The independently determined value of A–B | The independently determined value of B–C |
Separate place of supply from input-tax-credit eligibility
CGST section 16(2)(b) contains a corresponding deemed-receipt explanation for goods delivered on a registered person’s direction before or during movement to a recipient or another person. A qualifying B need not reject credit solely because the goods were delivered directly to C. This resolves the receipt condition on the established facts; it does not confer unconditional credit.
Check the actual tax invoice, supplier reporting and communication conditions, business use, restrictions, tax-payment and return requirements, and the relevant time limit. A spreadsheet showing purchase tax is not proof that every credit condition has been met. Reconcile the relevant invoice with the supplier and recipient records, and investigate differences rather than treating direct delivery as a blanket exemption from control.
Keep the invoice, inventory and transport trails consistent
The commercial file should explain who ordered the goods, who instructed delivery, who invoiced whom and who acknowledged the goods. Transport and e-way-bill evidence should agree with the actual parties and movement; this article does not prescribe portal fields or substitute one document for all legal conditions. A destination State visible in a movement record cannot alone settle both invoices’ tax heads.
For management reporting, distinguish units physically moved from invoices across separate entities. One batch passing directly from A to C is not two physical batches simply because A–B and B–C each issue an invoice. B’s margin should reconcile its own sale and purchase values, while its tax-credit position must be checked separately.
Common classification errors
Typical errors are using C’s address as the first leg’s place of supply despite a qualifying B direction; treating goods remaining in A’s State as automatically intra-State; assuming both legs have the same value; and treating equal total tax as proof that the CGST/SGST or IGST head is correct. Correct classification requires the legal locations and supply facts, not only an arithmetic tie.
The unregistered-person address rule in section 10(1)(ca) has its own scope and override. Do not transplant it into this registered B2B guide. Likewise, goods assembled or installed at site, no-movement supplies and cross-border transactions should not be forced into a routine three-party movement template.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: A different destination does not change the qualifying first leg
A is in Maharashtra, B’s principal place of business is Karnataka and C receives the goods in Tamil Nadu. Assume a qualifying pre-dispatch direction by B, first-leg taxable value ₹1,00,000 and a correctly applicable 18% rate. A–B has Karnataka place of supply and illustrative IGST ₹18,000, total ₹1,18,000. Tamil Nadu is the physical destination, not this first leg’s place of supply.
Illustrative example 2: The two invoices can carry different tax heads
A and B are in Maharashtra; C is in Karnataka. Assume a qualifying first leg and an ordinary onward movement supply by B to C. On A–B value ₹2,00,000, an assumed combined 18% rate gives CGST ₹18,000 plus SGST ₹18,000, total ₹2,36,000. On B–C value ₹2,50,000, assumed IGST at 18% is ₹45,000, total ₹2,95,000. One physical dispatch can support these separately justified outcomes.
Illustrative example 3: Goods staying in the supplier’s State
A is in Gujarat, B’s principal place of business is Maharashtra and C is in Gujarat. Assume a qualifying A–B direction and an ordinary onward B–C sale. A–B value ₹1,50,000 produces assumed 18% IGST ₹27,000; B–C value ₹1,80,000 produces assumed 18% IGST ₹32,400. The goods’ remaining in Gujarat does not alone make A–B intra-State.
Illustrative example 4: Margin and credit are different reconciliations
Assume B purchases for ₹1,00,000 plus eligible IGST ₹18,000 and sells for ₹1,20,000 plus IGST ₹21,600. Its pre-other-cost trading margin is ₹20,000. If all credit and utilisation conditions are met and there are no other items, output tax less usable input credit is ₹3,600. The margin is not ₹3,600, and that simplified difference is not a general entitlement to credit.
Illustrative example 5: Split direct deliveries on one directing buyer’s order
B orders 100 units at ₹1,000 each and instructs A before dispatch to deliver 60 to C and 40 to D. Assume both portions satisfy section 10(1)(b) for A’s supply to B and the proper rate is 18%. The values are ₹60,000 and ₹40,000, with tax ₹10,800 and ₹7,200: total value ₹1,00,000 and tax ₹18,000. Retain the allocation and each delivery acknowledgement.
Illustrative example 6: Do not double the physical quantity
A sells a batch of 100 units to B for ₹1,00,000 and B genuinely resells the same batch to C for ₹1,20,000, with direct delivery. The two invoice values total ₹2,20,000 across two entities, but physical quantity remains 100 units. It is not 200 units of movement or ₹2,20,000 turnover of either single entity from these stated supplies.
Illustrative example 7: The same total can conceal the wrong tax head
A is in Maharashtra and the qualifying directing B has its principal place of business in Karnataka, while goods are delivered within Maharashtra. On ₹1,00,000 at the assumed proper 18% rate, the first-leg amount is IGST ₹18,000. Charging CGST ₹9,000 and SGST ₹9,000 would total the same ₹18,000 but use the wrong head on these facts. Investigate the prescribed correction and relief process; equality of totals does not cure classification.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify the actual domestic supplies | Purchase and resale contracts; no assumed second sale |
| 2 | Confirm the registered parties and locations | GST registrations and principal-place evidence |
| 3 | Capture B’s timely direction | Dated instruction before or during movement |
| 4 | Apply section 10 to A–B | Written section 10(1)(b) conclusion |
| 5 | Determine B–C independently | Onward contract and applicable place-of-supply rule |
| 6 | Check exceptions before using the template | SEZ, cross-border, installation and unregistered-person screening |
| 7 | Verify values, rates and tax heads | Separate invoice computations and classification |
| 8 | Establish deemed receipt and other credit conditions | Invoice, reporting, delivery and eligibility records |
| 9 | Tie the movement to physical quantities | Consignee acknowledgements and transport records |
| 10 | Reconcile the books and resolve discrepancies | Sales/purchases, credit, margin and correction working |
Sixteen practitioner FAQs
1. Who is the third person in the typical first leg?
B, the purchaser directing A to deliver to C, is the relevant third person for A’s qualifying supply. Identify the actual roles from the contracts.
2. Does the truck’s destination control the first leg?
Not when section 10(1)(b) applies. The first-leg place of supply is B’s principal place of business.
3. Must the direction exist before dispatch?
The statute covers direction before or during movement. Retain evidence of its actual timing; do not assume a later document proves an earlier instruction.
4. Is transfer of documents of title the only permitted mechanism?
No. The provision also contemplates direction otherwise. The commercial evidence must still establish the statutory facts.
5. Does direct delivery always create two taxable supplies?
No. Establish an actual onward supply. A nominated delivery location alone does not prove a resale.
6. Can both invoice legs use different tax heads?
Yes. Determine supplier location and place of supply independently for each leg, subject to statutory exceptions.
7. Can goods remaining in one State generate first-leg IGST?
Yes on qualifying facts where that supplier’s location and B’s deemed place of supply are in different States.
8. Does B have to receive the goods into its own warehouse?
Section 16’s explanation can satisfy the receipt condition through qualifying directed delivery. Other credit conditions remain applicable.
9. Does deemed receipt guarantee all input credit?
No. Invoice, reporting, business-use, restrictions, tax and return conditions and applicable timing must also be checked.
10. Must the onward invoice copy A’s value?
No. Each supply has its own value under the applicable valuation framework and commercial facts.
11. What if the delivery is split among consignees?
Retain B’s instructions, quantity allocation and delivery proof for each portion; test the actual supplies and conditions.
12. Can transport documentation alone decide the tax treatment?
No. It corroborates movement but does not replace contracts, the statutory place-of-supply analysis or credit eligibility.
13. Does this guide cover unregistered buyers?
No. Section 10(1)(ca) contains a separate address-based rule within its scope. Analyse it independently.
14. What about site installation or SEZ supplies?
They require their specific place-of-supply or nature-of-supply provisions and should be screened out of a routine template.
15. Is the tax correct if IGST equals CGST plus SGST numerically?
Not necessarily. The correct tax head follows the legal nature of the supply. An equal total is only arithmetic.
16. How should MIS count one directly delivered batch?
Track the actual physical units once and reconcile each entity’s own invoices and margin. Do not aggregate invoice quantities as extra physical movement.
Conclusion
Document the directing buyer and timely instruction, determine each actual supply separately, and reconcile receipt and credit evidence with the single physical movement.