Inter-State Supply (IGST Law)

The Goods and Services Tax Act (GST Act) which is currently in a (Revised) Draft Model GST Law form, will be a landmark legislation on Indirect Taxation in India, as it seeks to reform, annex and consolidate almost all of the various State and Central laws on Indirect Taxation and impose a single (GST) value-added tax on the ‘supply’ of goods and services on the end-user or consumer of such supply i.e. a destination based consumption tax.

> Read more on ‘Supply’

The Draft IGST Law defines ‘Integrated Goods and Services Tax’ (IGST) as the tax levied under the said Act on the supply of any goods and/or services in the course of inter-State trade or commerce, which in general terms means any supply where the ‘location of the supplier‘ and the ‘place of supply‘ are in different States. The principles and criteria for determining whether supplies of goods and/or services are in the course of inter-State trade or commerce have been provided by section 3 of the said IGST Law (see below).

The Draft IGST Law via section 2 therein defines various words and terms, some of which considered directly relevant to inter-State trade and commerce for the purpose of IGST levy have been listed below –

Export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.

Export of services” means the supply of any service when;
(a) The supplier of service is located in India,
(b) The recipient of service is located outside India,
(c) The place of supply of service is outside India,
(d) The payment for such service has been received by the supplier of service in convertible foreign exchange, and
(e) The supplier of service and recipient of service are not merely establishments of a distinct person in accordance with explanation 1 of
section 5.

Import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

Import of service” means the supply of any service, where
(a) The supplier of service is located outside India,
(b) The recipient of service is located in India, and
(c) The place of supply of service is in India.

Location of the recipient of services” means –

(a) where a supply is received at a place of business for which registration has been obtained, the location of such place of business;
(b) where a supply is received at a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and
(d) in absence of such places, the location of the usual place of residence of the recipient.

Location of the supplier of services” means –

(a) where a supply is made from a place of business for which registration has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier.

Place of business” includes –

(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services;
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called.

Fixed establishment” means a place other than the place of business which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs.

Input tax” in relation to a taxable person, means the Integrated Goods and Services Tax, including that on import of goods, Central Goods and Services Tax or State Goods and Services Tax, as the case may be, charged on any supply of goods and/or services to him and includes the tax payable under sub-section (2) of section 5, but does not include the tax paid under section 9 of the CGST/SGST Act.

Output tax” in relation to a taxable person, means the IGST chargeable under the Act on taxable supply of goods and/or services made by him or his agent and excludes tax payable by him on reverse charge basis.

> Read more on GST ‘Concepts, Terms and Definitions’


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Chapter II to the Draft IGST Law provides the principles for determining supply of goods and/or services in the course of inter-State trade or commerce via section 3, which reads as follows –

3. Supplies of goods and/or services in the course of inter-State trade or commerce

(1) Subject to the provisions of section 7 (Place of supply of goods other than supply of goods imported into, or exported from India), supply of goods in the course of inter-State trade or commerce means any supply where the location of the supplier and the place of supply are in different States.

(2) Subject to the provisions of section 9 (Place of supply of services where the location of supplier of service and the location of the recipient of service is in India), supply of services in the course of inter-State trade or commerce means any supply where the location of the supplier and the place of supply are in different States.

(3) Supply of goods in the course of import into the territory of India till they cross the customs frontiers of India shall be deemed to be a supply of goods in the course of inter-State trade or commerce.

(4) Supply of services in the course of import into the territory of India shall be deemed to be a supply of services in the course of inter-State trade or commerce.

(5) Supply of goods and/or services, when the supplier is located in India and the place of supply is outside India, shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.

(6) Supply of goods and/ or services to or by a SEZ developer or an SEZ unit, shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.

(7) Any supply of goods and/or services in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.


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The ‘Place of Supply‘ for the purposes of determining whether a ‘Supply‘ is in the ‘course of inter-State trade or commerce‘ and consequential levy/collection of IGST thereon, is expressed/ascertained through the detailed provisions of Chapter IV of the Draft IGST Law, which are classified thereunder in the following manner

  • Place of supply of goods other than supply of goods imported into, or exported from India (section 7)
  • Place of supply of goods imported into, or exported from India (section 8)
  • Place of supply of services where the location of supplier of service and the location of the recipient of service is in India (section 9)
  • Place of supply of services where the location of the supplier or the location of the recipient is outside India (section 10)


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Dual Levy and IGST

The GST levy for supply of goods and services within a State (‘intra-State supply) will be in the form of a dual GST levy structure, with ‘Central GST’ (CGST) to be levied by Central Government and ‘State GST’ (SGST) levied by the concerned State, concurrently on the same taxable supply.

For ‘inter-State’ supply and import of such goods and services, the Central Government would levy and collect ‘Integrated GST’ (IGST) with the following features and manner —

  • Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services
  • ‘Supplier/seller/dealer’ of the ‘selling/exporting’ State will collect IGST (levied at the combined/applicable rate of SGST and CGST) from the ‘purchaser/consumer/dealer’ on inter-State supply transaction
  • Inter-State supplier will pay such collected IGST on ‘value addition’ after adjusting the same against available credit (if any) of IGST, CGST, and SGST (in that order) on purchases/inputs in the exporting State
  • The said exporting State will transfer to the Centre the credit of SGST used (if any) in payment of IGST, which will be transferred to the relevant ‘importing’ State for the credit of IGST used in payment of SGST (in the ‘exporting’ State)
  • Importing supplier will claim credit of IGST so paid while discharging ‘output tax’ liability in the said importing/consuming State for any supply made therein (by adjusting the same against IGST, CGST, and SGST (in that order) so collected/payable on supplies made in the importing State)
  • IGST will apply to inter-State transactions, ‘import’ as well as ‘export’ transactions (‘Zero-rated Supplies‘) relating to supply of goods and/or services
  • Inter-State ‘Branch/Stock Transfers‘ have also been stated as being subject to IGST levy, though no specifics on the same are provided in the relevant draft GST laws

 

Ineligibility for ‘Composition Levy’ and Compulsory GST Registration

Furthermore, suppliers etc. undertaking inter-State outward supplies will be ineligible for ‘Composition Levy‘ scheme/option and will need to apply/acquire GST registration compulsorily.

> Read more on ‘Composition Levy‘ and ‘GST Registration

The incidence of IGST tax will therefore follow the ‘destination principle‘ and tax revenue in case of SGST will accrue to the State where the supplied/imported goods and services are (finally) consumed.

 

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Email: contact@minustax.com

Alternatively, please contact for an appointment and visit our representational office in DLF Phase IV, Gurgaon (click for Google Map directions).

 

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