Now, until this update, we have discussed about destination and origin based taxation, differentiation between B2B Supply and B2C Supply, how Destination based taxation allows free flow of credit and how IGST Model in India allows Indian GST to be destination based taxation. It has also been discussed that how the revenue accrues to the importing state where the goods and/or services are consumed under destination based taxation. Thus, all the revenue goes to the place where goods and/or services are consumed.
Thus, identification of the Jurisdiction wherein revenue would accrue in case of B2B and B2C Transactions in case of destination based taxation is of primary importance under GST. This identification of Jurisdiction is done by the place of supply Rules by identifying the place where the supply has been provided and thereby revenue accrues to that Jurisdiction. As the name suggests, “Place of Supply” i.e. place to which the goods and/or services are provided or supplied or place where goods and/or services are consumed.
The GST model which would be applicable in India would be Dual GST Model. It would comprise of CGST and SGST. CGST would be the Centre share of Revenue and SGST would be State’s share of Revenue. However, in the course of Inter State Trade or Commerce, IGST would be leviable.
How place of Supply Rules Work
Place of supply rules in GST are used to determine that place where the goods and/or services are provided or are being consumed and that state would have the right to levy taxes and revenue directly would have accrued to such Jurisdiction. Just as we do in case of Imports wherein we levy taxes in the importing country and the revenue remains with the country wherein goods are imported and the exports in the exporting country are tax free. It’s not that the taxes are levied by the exporting country and then transferred to the importing state. In an Ideal destination based taxation, Importing state levy the taxes and retain the taxes.
How place of Supply rules would work in context of Indian GST
However, since in India, we are not strictly following the destination based taxation but have implemented a system whereby origin based taxation has been converted into destination based taxation i.e. taxes would be levied and collected in Origin State as IGST by Centre in case of Inter State Supply and then transferred to the destination State where goods and/or services are consumed.
Therefore, place of supply rules in context of Indian GST for Inter State Supply although would determine the place where the goods and/or services are provided and the place where revenue would accrue but the revenue to the consuming state would not accrue by having the right to levy taxes, but with the right to receive or recover tax from the Central Government.
Intra-State and Inter-State Supply
If the place from where the supply is made i.e. location of the supplier and the place of the consumer i.e. place of supply are in same state, then it would be an Intra State supply liable for CGST and SGST and as the place of supplier and place of consumer are same, therefore revenue to accrue to that state only.
If place from where supply is made i.e. location of supplier and the place of the consumer i.e. place of supply are located in different states, then it would be an Inter State Supply. Therefore, in such case IGST would levied and although IGST would be levied and collected in the origin state but then through the identification of place of supply, revenue would be transferred to the consuming state.
How Place of Supply Rules work in case of B2B Supplies and B2C Supplies
In case of B2B transactions, general thumb rule subject to exceptions provides that the place of supply is the jurisdiction wherein the goods and services acquired for being used in the course or furtherance of business and therefore revenue would also accrue to that Jurisdiction.
In case of B2C Transactions, general thumb rule subject to exceptions provides that place of supply is the jurisdiction wherein the final consumer is located and goods and/or services are procured for final consumption and not for onward supply and therefore revenue would accrue to that Jurisdiction.
The place of supply rules in B2B transaction facilitate linking of supply chain from one business to another for identification of jurisdiction wherein the goods and services acquired would be used in the course or furtherance of business. The place of supply rules in case of B2C transactions facilitate the ultimate aim of identification of Jurisdiction and imposition of tax burden on final consumer.
In addition to the general rule of B2B Supplies and B2C supplies as have been discussed above, there are certain exceptions which would be dealing in due course that why do such exceptions find themselves in place of supply rules.