CA Keshav Garg, Chandigarh

The government is showing the political will in enforcing GST law from April 01, 2016. In this scenario it becomes important to discuss about the provisions which would be applicable in case of interstate transactions. The 122nd constitutional amendment bill proposes to introduce Integrated GST (IGST) (CGST + SGST) where one comprehensive rate of tax shall be charged on interstate supply of goods or provision of services.

The IGST regime would do away with the “C” Form and “F” Form provisions. GST being a destination based consumption tax, IGST even being charged by center, SGST component shall be allocated to the importing state. The dealer of exporting state shall be able to take the credit of CGST and SGST, which he has paid on his purchases. The exporting state shall allocate the SGST component to the Central Government which will further allocate the same to consuming state. Further for the benefit of manufacturing state or state of origin it has been proposed to introduce additional 1% Tax, which would be fully allocated to the manufacturer state. An illustrative example is as follows.

GST on Inter-State SupplyAssumptions:

1. GST rate for CGST and SGST is 11%. Therefore IGST (CGST + SGST) would be 22%.

2. Value addition made at each stage is 25%.

It has also been provided that NO additional tax would be levied in case of Service Tax because there is no concept of manufacturing under the Service Tax Laws. Further NO credit of additional tax paid to the output manufacturer shall be available. It has also been proposed that IGST credit shall be first allowed to be set off against IGST, followed by CGST and lastly by SGST. Whereas CGST credit has to be first utilized for CGST and then IGST. The same shall follow for SGST credit i.e. first SGST would be set off and then IGST.

Under GST regime the point of taxation would be the supply of goods. Since 122nd Constitutional Amendment does not define “supply”, we have to adopt the definition as laid down by the special committee. Committee defined supply as “All forms of supply made for consideration”. On analyzing such definition it becomes clear that the branch transfer/inter-unit transfer shall be kept out of the purview of GST.

It is rather necessary for the government to bring comprehensive rules in order to avoid ambiguity under interstate transactions.

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October 2020