The advent of the 21st century has ushered in the era of globalization and has broken away all the trade barriers by transformation of all industries through the e-commerce platform. No wonder the techno savvies have been always ahead in this fray, the complex jargon has been a hindrance for many laymen. One such term that is being used very often these days in the realm of e-commerce trade is of High Sea Sales or Drop Shipments.
Dropshipping is a concept which has much relevance in the GST regime but has not been elaborately defined in the new indirect tax statute.
So, it is worth knowing about the much significant domain of Dropshipping that is all set to witness major changes since the beginning of GST registration procedure in India.
#1. What is all about the concept of Dropshipping?
Drop shipment is a complicated channel of supply chain management system wherein, the consignor, who had initiated and carried out the sale, never possesses the goods or the inventory and instead transfers his consumer's orders and details of consignment to either the manufacturer of goods or any other dealer of the ordered goods, who then transport the goods directly to the buyer.
#2. What are the implications with respect to GST if Drop shipment is done from India?
The whole scenario of Drop shipment and its impact with regard to GST tax can be well understood with the help of a case study:
Let us say the deal is between India (X), US(Y) and China (Z). The X received an order from US(Y) to send the finished goods/ raw inputs. For the said shipments, Company (X) order the said goods from China (Z) and direct them to ship the said goods directly to (Y) and issue invoice to them.
The aforementioned case study draws out a dilemma that whether GST is applicable with reference to the sale transaction i.e. between X (India) and Y (US) on the direct consignment of the goods from Z (China). Here, India (X) actually taking no physical possession of the ordered goods into its territory but is supplying Chinese goods to the US.
#3. How will the applicability of GST be ascertained in this case?
It is imperative to grasp that for GST to be applicable on any transaction, the same has to be either Interstate or Intrastate Supplies.
#4. What are the criteria for GST applicability as per the provisions of GST law?
Depending upon the type of supplies, certain conditions have been mentioned u/s 7 of the IGST Act:
If the supplier is located in India and destination is outside India supply of goods shall be considered interstate supply. In such case levy of IGST is applicable.
In case of imports, the supply shall be treated as 'supply in the course of Interstate trade or commerce', until the goods have not entered the customs barrier of India, hence the levy of IGST won't be applicable in this case.
No doubt that, in both types of transactions, the dealer requires the uniqu Import Export Code.
Based on the above 2 postulates, we can now determine the GST applicability in the present case.
#5. How will the transaction between India and US be treated as per IGST Act?
In the first part, we observe that the supply of goods is from China to the US. here, the supplier was located in India and destination of supply is outside India, i.e. US. thus, IGST would be applicable.
#6. How will the transaction between India and China be treated as per IGST Act?
With respect to the transaction between India and China, we see that goods have been directly shipped from to China to the US on the behalf of India. The goods have not entered the entered the customs barrier of India, which was the condition for GST to be applicable. Hence, IGST wouldn't apply here.
Note: Additionally, it is to be noted that presently the exemption has been extended for the levy of the GST under reverse charge in respect of the purchases by a registered vendor from an unregistered vendor. Hence, there shall be no GST which shall be applicable till 30 June 2018 in respect of the purchase from an unregistered person.