In recent years, drop shipping has emerged as a popular business model. It is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. The seller never sees or handles the product. There are two types of drop shipping: domestic and overseas. In the case of domestic drop shipping, the seller and the supplier are located in the same country. However, in the case of overseas drop shipping, the supplier is located in a foreign country. In this article, we will discuss the applicability of GST on overseas drop shipment transactions.
GST is a destination-based tax. It means that the tax is levied on the final consumption of goods or services. In the case of overseas drop shipment transactions, the goods are supplied from a foreign country to an Indian customer. Therefore, such transactions are considered as import of goods under GST.According to the GST Act, every person who imports goods into India is liable to pay GST. The GST is levied on the value of the imported goods. Therefore, in the case of overseas drop shipment transactions, the seller (who is the importer) is liable to pay GST.However, if the supplier (who is located outside India) is registered under GST, they can supply the goods to the Indian customer under a GST registration. In such a case, the supplier will be liable to pay GST on the value of the goods supplied to the Indian customer.
The legal provisions related to GST on overseas drop shipment transactions are mentioned in the GST Act, 2017. According to Section 7(2) of the Act, supply of goods or services or both, which takes place in the course of import into the territory of India, shall be treated as a supply of goods or services or both in the course of inter-State trade or commerce. Section 5(1) of the IGST Act, 2017, provides that IGST shall be levied on all inter-State supplies of goods or services or both. Therefore, in the case of overseas drop shipment transactions, the IGST is levied on the value of the imported goods.
The applicability of GST on overseas drop shipment transactions has several implications for businesses. Firstly, the importer (who is the seller) is liable to pay GST on the value of the imported goods. Therefore, the seller needs to be aware of the GST rates and comply with the GST laws.Secondly, if the supplier is registered under GST, they can supply the goods to the Indian customer under a GST registration. In such a case, the supplier will be liable to pay GST on the value of the goods supplied to the Indian customer. Therefore, it is important for the supplier to obtain a GST registration in India.Thirdly, businesses need to be aware of the legal provisions related to GST on overseas drop shipment transactions. They need to comply with the GST laws to avoid any legal consequences.
In conclusion, the applicability of GST on overseas drop shipment transactions is an important topic for businesses. GST is levied on the value of the imported goods, and the importer (who is the seller) is liable to pay GST. If the supplier is registered under GST, they can supply the goods to the Indian customer under a GST registration. Therefore, businesses need to be aware of the legal provisions related to GST on overseas drop shipment transactions and comply with the GST laws to avoid any legal consequences.
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