Fundamentals of Place of Supply for Exports of Goods and Services

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Published Date:  17-12-2023   Author:   amitha-shet
captainbiz fundamentals of place of supply for exports of goods and services

Before analyzing the need for a place of supply to export goods and services, we should be aware of the principles of GST. GST is the goods and services tax to be paid by all businesses within the country or outside, per a uniform taxation system.

The place of supply determines where the tax would be. It also defines whether the commodity transaction is within the state or outside. The three different categories of GST include CGST, SGST, and IGST. CGST is the central goods and services tax; SGST is the state goods and services tax; and IGST is the integrated goods and services tax.

Let us have a look at the details of the place of supply for exports of goods and services in a state and study the process in detail for the export of goods and services:

Place of supply rules for goods and services

Before you get started, it’s essential to know whether it’s the supply of goods or the services; hence, it decides the VAT, i.e., value-added tax.

Whatever goods or services are being supplied, the VAT will be charged accordingly. Later on, you have to identify if the supply of goods is for a private party that is B2C or for a business party that is B2B.

Further, this has to be checked to see if the goods or services being supplied are within or outside the state.

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Every VAT rate depends on the goods and services supplied, and every VAT differs for each country. For B2B, the taxation will be received where the business originates, i.e., where it’s establishing the business.

Similarly, for the B2C, the supply will take place where the supplier has its origin, i.e., its origin. Both the B2B and B2C services have their own set of rules, and the VAT is applied per the rules being followed among them.

Also Read: Understanding GST Invoicing for Goods: Place of Supply Rules

Importance of the Invoice

An invoice is essential at the start of any supply of goods and services, be it B2B or B2C, for a better understanding of transactions and for monitoring the data of goods and services.

Maintaining such data makes it easy to rectify any issue or hurdle via supply chain management. These rules are applicable both within and outside the state to monitor the supply of goods and services without obligation. In-state or out-of-state, these rules are valid for all kinds of transactions.

In most VAT services, the supply of services usually takes place rather than the supply of any goods. Therefore, it determines the VAT rates per the category of services consumed.

Taxable event for exports

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Taxable events show any taxes that the government owns. In terms of exports, there can be two possibilities: 

  • One where the goods are being cleared from the home.  
  • One is where the goods are received at the warehouse and later removed for consumption.

The taxable event claims that the entry bill and customs barrier will be filed for goods that are directly being cleared for consumption.

In the case of goods entering the warehouse and then going for home consumption, the taxation event claims that any import happens when goods get cleared from the warehouse.

It’s essential for the records of exports to be maintained for at least five years so that it’s easy to track records when needed. The exported goods are called supplies and are taxable at zero percent.

Many goods are not included in the taxable event, i.e., gifts, stock rights, splits, etc. In GST, the taxable event is the supply of goods and services.

There are three ways defined for the taxation of exports:

  1. Through explicit taxation
  2. Through the state marketing board
  3. Through the exchange rate

Explicit export taxation has been a helpful asset in achieving agricultural exports. As per the studies and research, export taxes have a massive economic impact.

The Con of Export Taxation: 

The disadvantage seen with the taxation of export goods and services includes a negative impact on the productivity and volume of exports. However, there have been different statistics with the time seen and recorded. 

Zero-rated supply and GST implications

To stabilize the economic stability of any country, they focus on the exports of goods and services, which can help them gain profits and strengthen their position in terms of the economy. 

When the export sector of any country is strong, the overall economy of that country sustains itself. For this reason, to increase the exports of any state or country, the government provides certain reliefs and benefits. 

Any relief provided to the business owner under the belt of GST is called Zero-Rated Supplies. The term zero is used here to declare that the rates on these exported goods are tax-free. All the suppliers who make zero-rated supplies tend to claim refunds. 

The refund policy for zero-rated supplies claims that providing a refund application is unnecessary. The shipping bill can be shown, which would be equivalent to the refund claim. 

In simpler words, the entire chain value is exempt from paying the tax on zero-rated supplies under GST. It claims a separate tax system. This not only gets the output exempt from paying the tax, but it also gets the input exempted. 

This, on the whole, makes all the goods and services zero-rated. Zero-rated policy has been defined as positive and impactful to gain profit.

The Refund Process

The refund process for export goods has a step-by-step process, including:

  • 1st Step: The exporter must claim a refund application within two years of receiving the exported goods. 
  • The second step includes documentation of the shipping bills and relevant invoices for reference. 
  • In the third step, it is asked to submit a photocopied version of the shipping bills with details of the IGST and export report, if any. 
  • The last step includes clarifying that no persecution is held against the record under GST. Within 60 days, the refund will be processed.

Documenting exports for tax compliance 

It is essential to show the document in any other state or country for approval once received. Be it any export, this document will be needed in almost all types of export business and documentation. 

There are other certificates for the shipment of goods for export. Some of the standard certificates include:

  • certificate of analysis
  • certificate of free sale
  • dangerous goods certificate
  • fisheries certificate
  • fumigation certificate
  • halal certificate
  • health certificate
  • ingredients certificate
  • inspection certificate
  • insurance certificate
  • phytosanitary certificate
  • radiation certificate
  • weight certificate

These certificates are essential when planning to export documents for tax compliance. 

Certain certificates are essential, especially when it comes to exports. The halal, ingredients, inspection, and health certificate are necessary because they are not only certificates but are a kind of approval without which it cannot work efficiently.  

These documents are essential for cross-border, interstate, intrastate transactions or any other exchange of goods or exports.

Once the goods reach their destination, they are cross-checked with these documents and later verified with the information provided. The goods and services are ready to be dispatched when the documentation is completed.

Customs clearance procedures for exports 

It all starts with submitting the shipping bill file and all the related ensuring activities. Certain prerequisites are essential for you to satisfy before you proceed with the customs clearance procedure.

The foremost important aspect is the following: 

  • code of the import and export
  • the foreign exchange dealer code, 
  • the current account that is needed for the duty drawback,  
  • the license of export that lies under the export promotion scheme. 

It is suggested that things be ready before the freight forwarder arrives so the logistics can start. Certain issues sometimes occur in the export transaction; therefore, it’s okay for a freight forwarder and broker to contact and discuss any problem they think can happen. 

The initial steps of the customs clearance include:

  1. self-assessment
  2. shipping bills
  3. risk management
  4. post clearance audit

In the self-assessment, you have to analyze all the relevant goods and the details of the goods. Once it gets approved, you may step ahead. The shipping bills should be checked properly. 

They are further checked, and there is a whole process by which you can generate a shipping bill. Then come the self-assessment bills that are produced by the risk management system. 

With this, you can generate the shipping bills, which have to be documented for later. The customs clearance process is moved step by step ahead and has to be checked and analyzed simultaneously. 

Once the Risk management system creates the shipping bills, the post-audit comes. It is implemented once the RMS makes the shipping bill.

Also Read: Place Of Supply In GST For Goods Exports: Shipping Destination And Customs Clearance

What’s the primary motto of the post-audit?

The primary motto of this post-audit is that it helps reduce the dwell time of the cargo in exports. 

Then comes the final steps in customs clearance. It includes:

  • checklist
  • verification
  • examination
  • sampling
  • export order
  • loading
  • export general manifest.

Once the goods arrive at the dock, they are verified with the details mentioned in the checklist. The quantity of the goods and other relevant information are thoroughly checked. Further steps are followed, and the goods are ready to be handed to the receiver. 

Conclusion

The document shares a detailed overview of all things related to the export of goods and services concerning the place of supply. The export channel is a vast one, with diversified steps to strengthen the financial stability of a state/country. The goods and services have their own methods of approval. Place of supply is quite crucial because it tells if the transaction is interstate or intrastate or if it’s import or export, and then the process starts as per the information received. The document contains all the relevant information regarding the import and export of goods and services, the documentation process, and the rules.

Also Read: Export and Import details in GSTR1

FAQ’s:

Q1. What is the phenomenon of GST?

One of the phenomena of the GST is that it is to be paid where a particular good is consumed/used rather than at the place of its origin. For example, if a good is manufactured in India but consumed in Nepal, Nepal will collect its tax rather than India. 

Q2. How would you bring economic stability to the country?

To bring economic stability to the country, it is essential to welcome export trade, whether interstate or intrastate. It has been seen and studied that exports have brought about a good change in the perspective of increasing economic stability.

Q3. What is the place of supply under GST?

Under the GST, a place of supply is any place where: 

  • The goods or services are received. 
  • It’s not the origin but a place where the goods are received for further implementation. 
  • They have their own rules and documentation to record the process. 

Q4. What is a list of goods sent or services provided?

An invoice is a list of all the goods and services. Once the export or import is completed among the two parties, an invoice is maintained to keep and track records for the latter.

Q5. What are goods and services, and are they used by whom?

All tangible items such as books, pens, or mangoes are goods, and the services can be provided by different professions, such as teachers, doctors, architects, or singers. 

Q6. What is the import of goods and services? 

Anything you buy from outside the country is called an imported product. Any transactions made in the name of goods and services by residents or nonresidents are called imports. 

Q7. How is the GST calculated?

The basic formula to calculate GST is: 

Original Cost x GST Rate 

——————————— 

                100 

*Net Price: GST Amount + Original Cost*

Q8. What is a trade surplus?

When a country has more exports of goods and services than imports, that is called a trade surplus. 

Q9. Why are goods and services imported?

Any goods or services not being produced within the borders are imported for better production. If a country fails to create a product efficiently and at a lower price, it’s time to import it. 

Q10. Who makes the supply of goods?

For anybody who pays tax, supplies should be made by that person. If you have multiple businesses or supply goods, you will be required to register separately and would be eligible to make the supply of goods. 

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Amitha Shet

Amitha is a creative enthusiast, which gets her into educating the world about things she comprehends. Finance, business, and digital transformation are the topics that she is profoundly interested in so that she can make things simpler for the audience. She is currently a content strategist for a fintech company. She holds a Bachelor of Engineering in Civil Engineering, although finance is a niche that piques her interest to not just educate but to invest and gain experience.

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