UNDERSTANDING INTER-STATE GST (IGST)

[Dr. Sanjiv Agarwal]

According to Model IGST Law, IGST shall mean the tax levied under the IGST Act on the supply of any goods and / or services in the course of inter-state trade or commerce. IGST Act shall apply to whole of India.

According to the report of the Task Force on GST, 13^th Finance Commission (2009), it had recommended that adoption of the IGST Model for implementation with the caveat that a ‘strong IT infrastructure and complete information of the interstate transactions is a precondition and essential prerequisite for considering the IGST model. Without addressing these fundamental concerns of IT infrastructure and information support systems, the adoption of IGST model which is still at a conceptual stage is far from realistic at this stage in adoption of GST in the course of interstate transaction in goods and GST for the nation'.

Central Government would levy IGST (which would be CGST plus SGST) on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.

The Empowered Committee has accepted the recommendation for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information is also submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.

Revenue from IGST will be apportioned among Union and States by Parliament on basis of recommendation of Goods and Service Tax Council [Proposed Article 269A(2) and Article 270 (1A) of Constitution of India]. The apportionment will be required as input tax credit of IGST can be used for SGST and vice versa. Since IGST will be on 'supply of goods or services', IGST will be payable on stock transfers, branch transfers and even when goods are dispatched inter-state job work and return.

The inter-state adjustment will be made by Central Clearing Agency and the Assessee will not be concerned with such adjustment at all. Under IGST, a dealer can establish hub and spoke approach for distribution of his final products. He can maintain depots at few strategic locations in country and from those locations, he can distribute goods to nearby States. This will be very cost effective distribution network for assessee.

Advantages of IGST Model

The major advantages of IGST Model are:

1. Maintenance of uninterrupted ITC chain on inter-State transactions.
2. No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
3. No refund claim in exporting State, as ITC is used up while paying the tax.
4. Self monitoring model.
5. Level of computerization is limited to inter-State dealers and Central and State Governments should be able to computerize their processes expeditiously.
6. As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
7. Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.

Salient Features Integrated GST

• On inter-state and cross border transactions

• Centre would levy and collect IGST in lieu of CGST and SGST.
• To be shared between Centre / States
• Single IGST rate
• IGST would be levied on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.
• Inter-State dealer will pay IGST after adjusting available, input IGST, CGST and SGST on purchases.

IGST – Illustration

• Maharashtra seller selling to Karnataka buyer for ₹ 1,00,000/-.
• IGST payable assuming an 8% rate is ₹ 8,000/-.
• Rs.8,000/- can be paid by adjusting
  • Inter-State purchases (IGST) ₹ 3,000/-
  • Local purchases (CGST) ₹ 1,500/-
  • Local purchases (SGST) ₹ 1,500/-
• Since dealer has used SGST of Maharashtra to the extent of ₹ 1,500/-, Centre has to transfer ₹ 1,500/- to Maharashtra Government.
• IGST of ₹ 8,000/- is availed as credit by Karnataka buyer.
• Karnataka dealer sells the goods at ₹ 2,00,000/- attracting CGST of say ₹ 16,000/- and SGST of ₹ 16,000/-.
• If IGST of ₹ 8,000/- is used to pay the SGST then Karnataka Government has to transfer ₹ 8,000/- to the Centre.