One of the distinctive features of Goods and Services Tax is that it is levied on the value addition on each stage of supply chain. This is achieved by allowing input tax credit (ITC) of tax incidence on the immediately preceding stage of supply chain. Illustratively, the tax paid by manufacturer supplier is available as ITC to whole seller. The tax paid by the whole seller is available as ITC to retailer. Thus it is essential to maintain integrity of ITC chain in GST regime.
In the case of interstate supplies, the supplier and recipient are located in different states. In the present scheme of taxation, Central Sales Tax (CST) is levied on inter-state sale of goods which is an origin-based tax accruing to the exporting State. GST will be a destination based tax levied on both intra-state and inter-state supply of goods or services. For inter-state supplies, although the tax would be paid in exporting State, the same has to reach the importing State. It may not be feasible to do so by levying SGST in the exporting state. The Integrated GST (IGST) model is essentially evolved to ensure availability of the input tax credit of tax paid by the taxpayer in exporting State, on interstate supply, to the taxpayer in the importing State.
The IGST Act envisages that Centre would levy IGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.
For the purposes of this levy, the interstate supply has been specified as the one in respect of which the location of supplier and the place of supply are located in two different states (Section 3 of the IGST Act). In the situation where the state of location of supplier is the same as the state where place of supply falls, such supplies are to be treated as inter-state supplies (Section 3A of the IGST Act).
|S. No.||Location of supplier||Place of supply||Nature of supply|
It may be seen that the location of service recipient is not the determining factor. Essentially the nature of supply is governed by the Place of Supply. Therefore, in the context of the IGST Act, the most significant factor is the place of supply, which is elaborated in section 5 and section 6 of the Act. Section 5 deals with the place of supply of goods, while section 6 deals with the place of supply of services.
The Place of supply of goods and services have been discussed in details in the next section, as it requires extensive deliberation for proper appreciation.
Once the supply is determined as Inter-state, the subsequent business process like payment, return etc are to be complied with by the taxpayer in the manner similar to compliance in CGST Act. For this purpose, the IGST Act, borrows a large number of provisions from the CGST Act. This is for the reason the nature of tax is same, i.e. it is levied on the supply of goods and service. The requirement of registration, payment, return, compliance verification, dispute settlement are akin to CGST, depending upon the business process. The only distinction being that tax even are distinct, i.e. inter-state supplies. The provisions from CGST that have application to IGST Act are as follows,-
- Time of supply of goods and services
- Change in rate of tax of services
- Input tax credit and utilisation thereof
- Payment of Tax
- Furnishing of return
- Recovery of tax
- Offence and penalties
- Search and seizure
- Prosecution and power of arrest
- Advance Ruling
- Recovery of tax
The charge of tax, manner of payment, settlement and apportionment
The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST, in that order, 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.
Further the IGST amount used for payment of CGST shall be transferred from IGST account to the CGST account.
The requirement of transfer of ITC under section 9 of the Act are illustrated below:
|Category||Transfer of credit|
M/s X uses Rs 100 ITC-IGST for payment of SGST in M. P.
Centre transfers Rs 100 to SGST account of M.P from the IGST collection
Mr X also uses Rs 100 ITC_IGST for payment of CGST
Centre transfers Rs 100 to CGST account from the IGST collection
Similar settlement/transfer has been envisaged in SGST and CGST Act when the ITC of SGST and ITC of CGST respectively is used for payment of IGST.
This settlement/transfer between the state and the Centre could be netted out for all interstate supplies during the period of settlement. In other words, for a particular state the settlement amount will be based on whether the state is net exporter or net importer during the period of settlement. The relevant information will also be 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. However, the detailed modalities in this regard are yet to be worked out,
Basic Features of IGST assessment, compliance and settlement
- The system of self-assessment of tax liability and availability of input tax credit (ITC), if the buyer has received goods and services and if he is in possession of valid invoice, would apply equally to IGST.
- The supplier will pay IGST on the interstate supplies. The IGST payment can be done utilising ITC. However, the use of ITC for payment of IGST will be done using the following hierarchy,-
o First available ITC of IGST shall be used for payment of IGST.
o Once ITC_IGST is exhausted, the ITC of CGST shall be used for payment of IGST.
o If both ITC_IGST and ITC_CGST are exhausted, then only the dealer would be permitted to use ITC_SGST for payment of IGST.
o Renaming IGST liability shall be discharged using payment in cash.
o GST System will ensure maintenance of this hierarchy for payment of IGST using the credit.
- Taxpayer will upload their specified supply invoice details by 10th of the following month.
- The purchase statements would get auto populated from such supply details.
- The purchaser would be allowed to add any purchase details corresponding
supply details of which have not been uploaded by the counterparty supplier.
- The supply and purchase details would be finalized by 17th of the following month.
- In case of mismatch of supply and purchase invoices, ITC would be required to be reversed after two tax periods.
- There will be system based verification of returns on monthly basis wherein invoice details filed by the supplier and those of the purchaser will be matched for verifying ITC claimed by the purchaser.
- Once the sales and purchase invoice are matched, the recipient dealer would become entitled to the ITC (including ITC of IGST) of GST paid by the dealer.
- The recipient dealer shall be able to utilise IGST credit in the manner as mentioned above (point No. 2).
- There would be settlement of account between the centre and the states on two counts, which are as follows‑
o Centre and the exporting state: The exporting state shall pay the amount equal to the ITC_SGST used by the supplier in the exporting state to the Centre.
o Centre and the importing state: The centre shall pay the amount equal to the ITC_IGST used by a dealer for payment of SGST on intra state supplies.
- The settlement would be cumulative basis for a state taking into account the details furnished by all the dealer in the settlement period.
- Similar settlement of amount would also be undertaken between CGST and IGST account.
Supplier ‘X’ State ‘A’ makes supply to a dealer ‘Y’ in State ‘B’:
Value of supply= Rs 2000
IGST liability on such supply is Rs 400.
Let us assume that opening balance of credit available with seller in the books of account is as under:
ITC_ IGST = Rs. 100, ITC_ CGST = Rs. 50 and ITC_ SGST Rs. 100.
Accordingly, the IGST liability of the seller would be discharged in the following manner: Table-I
Utilisation of IT-SGST
Accordingly, the IGST liability of the seller would be discharged in the following manner:
|ii||Paid through ITC_ IGST||100|
|iii||Paid through ITC_CGST||50|
|iv||Paid through ITC_SGST||100||for payment of IGST is allowed as dealer has exhausted ITC of |
IGST and CGSTThe exporting State (A in the above case) will transfer to Centre the credit of SGST used (see entry at iv in the above Table) in payment of IGST.
|v||IGST payable in cash |
The receiver ‘Y’ in State ‘B” can claim the credit of IGST while discharging the output tax liability in his own State. In case the ‘Y’ sells the goods within State of ‘B’, such sale would be liable to CGST and SGST. However, he can utilise the credit of IGST for discharging his CGST and SGST liabilities subject to rules as stated above.
Let us assume that ‘Y’ uses inputs acquired from ‘X’ for manufacture of goods in State ‘B’ and sells the entire goods so manufactured in State ‘B’
Suppose tax liability of ‘Y’ is as follows: Output tax liability of SGST = Rs 1,000 Output tax liability of CGST=Rs 1000
Let us assume that the opening balance of credit available with ‘Y’ , before acquisition of supply from ‘X’ is as under:
IGST = Rs. 250; CGST = Rs. 500 and SGST = Rs. 300.
The credit of IGST availed on purchase of goods from ‘X’ is Rs. 400. Thus, total IGST credit available now will be Rs. 650.
Manner in which ‘Y’ would pay GST liability
[Payment of CGST liability by I-P]
|Paid through ITC_CGST credit||500|
|Paid through ITC_IGST credit||500|
|CGST payable in cash||0|
[Payment of SGST by 1-P]
|(i)||Paid through ITC_SGST credit||300|
|(ii)||Paid through ITC IGST credit||150|| |
Utilisation of IT-IGST for payment of SGST is allowed as dealer has exhausted ITC of SGST
|(iii)||SGST payable in cash||550|
In this case Centre will transfer to the State ‘B’ the credit of IGST used in payment of SGST, i.e. Rs 150 [S. No. (iii) in Table III refers].
This illustration shows calculations for one dealer each in State “A” and State “B”. However, in a state there would be a large number of dealers. Some of these may acquire interstate supplies, some may be supplier of interstate supplies, and some may be doing both. Thus adjustment between Centre and the concerned state has to be worked out on net basis for all dealers in a state.
Apportionment of tax to Centre and State in certain cases [ Sec 10 ]:
In case of B2B transaction where the recipient of supplies takes ITC of IGST paid on input supplies, the tax collected on such input supplies is revenue neutral and therefore there is no requirement of apportioning the tax. Only where there is a cross utilisation of such ITC of IGST there arises a need of transfer of amount to State or CGST account equal to the amount so cross utilised, as discussed in details above.
However, B2C transactions are distinct. These are not the revenue neutral transaction. The tax paid on B2C transaction is a real revenue at consumption point for the consuming state. Similarly, even in case of B2B supplies that are not eligible as inputs for availing ITC or where the recipient business is not able to avail ITC are akin to B2C transaction in so far as revenue accrual to a consuming state is concerned. Section 10 provides for apportionment of tax amount to respective government in such cases.
The manner of apportionment has been prescribed as follows,
- Apportion CGST equivalent involved in B2C domestic supply and imports to Central Government
- Apportion CGST equivalent involved in B2B supplies domestic supply and imports on which ITC not eligible or not taken to Central Government
- Balance amount shall be apportioned to the State in which place of supply is located in terms of section 5 and section 6 of the Act
- The above provision would mutatis mutandis apply to interest and penalty.
Essential requirements for IGST Transfer and apportioning of residual IGST/IGST paid on B2C supplies :
Taxpayer is required to file a Valid return filed within prescribed date containing the following information:
> Final supply and purchase statements; and
> ITC utilised (which will be as per the hierarchy as mentioned above for utilising the ITC for payment of IGST and as the case may be for payment of SGST) and additional tax liability arising from the settlement of the returns of the previous tax period.
> Short filing of the return i.e. filing of return without payment or less payment of the tax liability accepted therein will be allowed but the same will considered as invalid return for the purpose of matching of ITC and IGST fund settlement.
> Return information validation such as ITC information, i.e., ITC taken, utilisation, rate of tax etc would be done by the system.
> Settlement amount between the centre (GOI) and states would be computed by the settlement agency using the above information in the manner as ma be prescribed.
Requirements with respect to Registration, Returns and Payments
- There will be Uniform e-Registration both for Centre and State Tax Authorities.
- Taxpayer would be required to file a Common e-Return for various taxes to be paid under the GTS regime i.e. CGST, SGST, IGST and Additional Tax.
- Regular dealers would be required to file monthly returns by the 20th of the succeeding month. The casual dealers would be required to file return for the period co-terminus with their validity period of registration. If the registration period exceeds one month then they would be required to file return for the month and another return for the remaining period of registration would have to be filed.
- Processes concerning requirements of filing Supply and Purchase statements (Invoice Level) in the Return; Mention of HSN Code at invoice level and its capture in the Return; revision of returns; matching of input tax credit and determination of tax liability to be same as described in the general Return Process.
Transfer Mechanism between GOI and States
- Settlement between GOI and State Government of the buying dealer would not be dependent on the settlement between State Government of selling dealer and GOI.
- State Government of the selling Dealer to transfer SGST credit used (for payment of IGST) to GOI. Filing of valid return with full supply and purchase statement by selling Dealer to trigger transfer of SGST credit (claimed and utilized by him for payment of IGST) to GOI.
- GOI to transfer IGST credit used by buying Dealer (for payment of SGST) to the concerned State. Filing of valid return with full supply and purchase statement by buying Dealer to trigger transfer of IGST credit (claimed and utilized by him for payment of SGST) to the concerned State.
- All Govt. Departments / persons dealing in non-GST goods / exempted goods or services making inter-State purchases, would be given Departmental Ids by the State governments, which would be quoted by suppliers in invoices for inter-State B2C supplies. SGST portion of IGST paid in respect of such supplies would be transferred by GOI to the concerned State.
- Inter-Government settlement should be completed within last day of the month subsequent to the tax period.
Other Provisions in the IGST Act
Section 7 of the IGST Act, deals with the following aspect of the levy,-
I. Self assessment of tax and other dues-discharge thereof
II. Payment of tax by net banking, Card, RTGS etc
III. Electronic cash ledger- Maintenance/usage/conditions
IV. Electronic credit ledger- Maintenance/usage/conditions
V. Hierarchy of utilisation of ITC of IGST, CGST and SGST
The hierarchy of utilisation of ITCs have been discussed in details in the above paragraphs. The other process enumerated above are akin to CGST Act and details thereof is available in the respective presentation and papers. Therefore, these are not being discussed further in this paper.
Section 8 of the IGST Act deals with the claim of input tax credit, provisional acceptance, matching, reversal and reclaim thereof. The business process is exactly same as that for CGST and provision of section 29 of the CGST Act apply mutatis mutandis
Section 28 of the IGST Act provides for power for making rules.
Section 30 prescribes that if a taxpayer wrongly pays IGST on a supply that is held as intra-state supplies, and accordingly is required to pay CGST and SGST, then in such case the refund of IGST that has wrongly been paid by the taxpayer shall be allowed only after he has paid CGST and SGST on such supplies.
Section 31 prescribes that IGST shall apply to all interstate and import of supplies after the date the IGST Act comes into effect. However, it may so happen that in the earlier regime, a tax may have been levied, particularly in respect of services, under the Finance Act, 1994, for the reason that invoice was issued in advance, or payment was made in
advance though actual supply made after GST coming into effect. In such case if IGST is levied again it would be double taxation. Therefore, to obviate such hardship to taxpayer, section 31 provides that only the balance amount of tax remaining unpaid. If entire liability under the previous regime had been discharged in the earlier regime no tax shall be payable in IGST regime.
Settlement of Cases
Chapter VII, section 11 to section 26 deals with the Settlement of cases. These provisions have been covered in in other paper and respective presentation. Therefore, not being discussed in detail here.
Education Series on Goods & Service Tax
|S. No.||Title of the Post|
|24.||All about Frontend Business Process on GST Portal|