Dr. Sanjiv Agarwal, FCA, FCS
According to First Discussion Paper on Goods and Services Tax in India of the Empowered Committee of State Finance Ministers (2009), IGST model has been recommended for taxation of inter-state transaction of goods and services.
Accordingly, the scope of IGST Model is that Centre would levy Integrated Goods and Services Tax (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 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.
The major advantages of IGST Model are:
a) Maintenance of uninterrupted ITC chain on inter-State transactions.
b) No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.
c) No refund claim in exporting State, as ITC is used up while paying the tax.
d) Self monitoring model.
e) Level of computerization is limited to inter-State dealers and Central and State Governments should be able to computerize their processes expeditiously.
f) As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.
g) Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.
Taxanomy of Model IGST Law
The Model IGST Act comprises of the following
• 11 Chapters
• 33 Sections
• 8 Definitions
This legislation will be called the integrated Goods and Services Tax Act, 2016 (in short IGST), an Act to levy, collect and administer IGST in India.
This Act shall be applicable to whole of India, i.e., including the State of Jammu & Kashmir. Presently, Service Tax does not apply to State of Jammu & Kashmir but Central Excise Act, 1944 applies to that state. What is meant by ‘India’ is defined in section 2(35) of Goods and Services Tax Act, 2016.
The Act after being legislated shall come into force from a date which will be notified by the Central Government by way of a notification. It may also appoint different dates for enforcement of different provisions of the Act.
What is Integrated GST
According to section 2(c), “Integrated Goods and Services Tax” (IGST) means tax levied under this Act on the supply of any goods and/or services in the course of inter-State trade or commerce.
Explanation 1.- A supply of goods and/or services in the course of import into the territory of India shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.
Explanation 2.- An export of goods and/or services shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.
IGST or integrated goods and services tax would mean the tax levied under IGST Act on the supply of any goods and / or services in the course of inter-state trade or commerce.
‘Goods’ and ‘services’ are defined in the Constitution of India itself vide 122nd Amendment. CGST Act in its section 2(50) also defines IGST as tax levied under the IGST Act.
IGST shall also apply to import of goods and services into India. The explanation stipulates that any supply of goods or services in the course of import of goods or services into Indian territory shall be deemed to be supply of goods / services in the course of inter-state trade or commerce and hence liable the IGST.
It has also been proposed that like import transactions, export of goods and services shall be deemed to be supply in course of inter-state trade or commence.
Inter-state trade or commerce will, therefore include supply of goods / services in the course of –
• Inter-state trade or commence
• Import into Indian territory (deemed to be inter-state)
• Export (deemed to be inter-state)
Thus, IGST shall apply to inter-state transactions and import as well as export transactions (deemed to be inter-state transactions) relating to supply of goods and / or services.
Section 19 of CGST Act provides for registration of persons whereby every person who is liable to be registered under Schedule III of this Act shall apply for registration in every such State in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed.
Thus, appropriate state shall be in relation to the taxable person and shall mean a state–
(i) where taxable person is registered, or
(ii) where taxable person is liable to be registered u/s 19 of CGST Act, and
(iii) includes a Union Territory with legislature