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CMA Intermediate · Direct and Indirect Taxation · Concept of Indirect Taxes

Under a pure destination-based consumption tax such as GST in India, to which authority does the tax on a supply of goods in an inter-State transaction ultimately accrue?

The tax accrues to the State or Union Territory where the goods are finally consumed, because GST is a destination-based consumption tax. IGST on inter-State supplies is apportioned to the consuming State. Origin-based taxation, as under the old Central Sales Tax, gave revenue to the supplying State.

  1. AThe State or Union Territory where the goods are finally consumedCorrect
  2. BThe State where the supplier is located
  3. CThe State where the goods were manufactured
  4. DThe Central Government alone, regardless of the place of consumption

Explanation

GST is destination-based: revenue goes to the State of consumption. In inter-State supplies IGST is levied and the share is passed to the destination State through settlement. Option B describes an origin-based principle, which was the weakness of the earlier CST regime.

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