Bill explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A trader in Mumbai buys goods from a manufacturer in Pune and instructs that they be delivered directly to its customer in Nagpur. The Mumbai trader never sees the goods.
Section 16(2)(b) requires that the registered person "has received the goods or services or both". Read literally, the Mumbai trader has not received anything and cannot take credit.
The Explanation to that clause fixes it — and it does more than most people use.
The Explanation deems the registered person to have received the goods where they are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, by transfer of documents of title or otherwise. Since 01.02.2019 it also deems receipt of services where they are provided by the supplier to any person on the direction of and on account of such registered person.
The goods limb
The original Explanation, in force from 1 July 2017, covered goods only:
"...it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise."
Four elements:
- delivery to a recipient or any other person — the ultimate destination need not be a customer;
- on the direction of the registered person — the buyer must have given the instruction;
- before or during movement — the direction must precede or accompany the movement, not follow it;
- by transfer of documents of title or otherwise — the mechanism is open.
The services limb, added in 2019
The CGST (Amendment) Act, 2018, notified with effect from 01.02.2019, substituted the Explanation to add clause (ii):
"(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person."
This is the half that is routinely overlooked, and it covers a wide range of ordinary arrangements:
- a parent paying for a service delivered to its subsidiary, on the parent's direction and account;
- a contractor arranging a service delivered at the client's site, invoiced to the contractor;
- an employer procuring a service delivered to employees, on its direction and account;
- a head office procuring a service delivered at a branch — though the ISD and cross-charge questions then arise separately. Cross charge between distinct persons →
Note the two conditions: on the direction of and on account of the registered person. Both. A service delivered to a third party at the third party's own request, merely paid for by someone else, is not covered.
The place of supply consequence
Deemed receipt solves the ITC condition. It does not decide which tax the supplier charges — that is a place of supply question, and it has its own rule.
Section 10(1)(b) of the IGST Act: where goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, by transfer of documents of title or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such third person.
So in the Pune-Mumbai-Nagpur example:
- Manufacturer (Pune) to trader (Mumbai): place of supply is the trader's principal place of business — Mumbai. Inter-State. IGST.
- Trader (Mumbai) to customer (Nagpur): place of supply is where the movement terminates for delivery — Nagpur. Also inter-State from Mumbai. IGST.
Both legs are IGST even though the goods physically moved Pune to Nagpur within Maharashtra. This is the classic bill-to ship-to pattern and it is right, however counter-intuitive.
Where all three parties are in the same State, both legs are intra-State and CGST plus SGST applies.
Documentation
The e-way bill. The Part A entry accommodates separate "Bill To" and "Ship To" details. Two e-way bills may be generated where both legs need documenting, or a single one where only one movement occurs — CBIC's press release of 23 April 2018 set out both options.
The invoice. The supplier's invoice names the buyer as the recipient with the buyer's GSTIN, and shows the ship-to address separately. Rule 46 requires the name and address of the recipient and, where the recipient is unregistered and the value exceeds ₹50,000, the address of delivery with the State name and code.
The direction. A purchase order or written instruction evidencing that the delivery was on the buyer's direction, before or during movement. This is the element an officer will test.
Where it fails
- Direction given after delivery. The Explanation requires it before or during movement.
- No documentary trail of the instruction. The deeming depends on the direction existing.
- Services delivered to a third party at that party's own request. Both "on the direction of" and "on account of" must be satisfied.
- Goods diverted in transit without instruction. Not the same as a bill-to ship-to arrangement.
Key takeaways
- The Explanation to s.16(2)(b) deems receipt where goods go to another person on the buyer's direction.
- Since 01.02.2019 it also deems receipt of services provided to another person on the direction of and on account of the buyer.
- Direction must be before or during movement.
- s.10(1)(b) IGST puts the place of supply at the third person's principal place of business for the first leg.
- Bill-to ship-to within one State's geography can still produce two IGST legs.
- The written direction is the evidence that makes the deeming work.
Read next
- Four Conditions for Claiming ITC Under Section 16(2)
- Place of Supply of Goods Within India: Section 10 IGST
- E-Way Bill Rules: When Required, When Exempt
- Cross Charge Between Distinct Persons
Disclaimer: Positions stated as on 5 September 2026, based on the CGST and IGST Acts as amended to 31 March 2026 (ICAI Bare Law, 12th edition).