“Integrated Goods and Services Tax” (IGST) means tax levied under the IGST Act on the supply of any goods and / or services in the course of inter-State trade or commerce.
A supply of goods and / or services in the course of inter-State trade or commerce means any supply where the location of he supplier and the place of supply are in different States under Section 3(1) and 3(2) of the IGST Act.
IGST shall be levied and collected by Centre on Inter-State supplies. IGST would be broadly CGST plus SGST and shall be levied on all inter-State taxable supplies off 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 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.
The draft IGST law contains 33 sections divided into 11 chapters. The draft, inter alia, sets out the rules for determination of the place of supply of goods. Where the supply involves movement of goods, the place of supply shall be the location of goods at the time at which the movement of goods terminates for delivery to the recipient. Where the supply does not involve movement of goods, the place of supply shall be the location of such goods at the time of delivery to the recipient. In the case of goods assembled or installed at site, the place of supply shall be the place of such installation or assembly. Finally, where the goods are supplied on board a conveyance, the place of supply shall be the location at which such goods are taken on board.
The major advantages of IGST model are:
1. Maintenance of uninterrupted ITC chain on inter-State transaction;
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. Ensures tax neutrality while keeping the tax regime simple;
6. Simple accounting with no additional compliance burden on the taxpayer;
7. Would facilitate in ensuring high level of compliance and thus higher collection efficiency. Model can handle “Business to Business” as well as ‘Business to Consumer’ transactions.
According to the Section 2(C) of IGST Act, all imports / exports will be deemed as inter-state supplies for the purposes of levy GST (IGST). The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available as ITC of the IGST paid or import on goods and services.
As per Section 27 of the IGST Act provides that various provision as mentioned therein shall apply under IGST Act as they apply in relation to levy under the CGST Act.
The IGST payment can be done utilizing ITC or by cash. However, the use of ITC for payment of IGST will be done using the following hierarchy:
1. First available ITC of IGST shall be used for payment of IGST;
2. Once ITC of IGST is exhausted, the ITC of CGST shall be used for payment of IGST;
3. If both ITC of IGST and ITC of CGST are exhausted, them only the dealer would be permitted to use ITC of SGST for payment of IGST.
Remaining IGST liability, if any, shall be discharged using payment in cash. GST system will ensure maintenance of this hierarchy for payment of IGST using the credit.
There should be settlement of account between the centre and the states on two counts, which are as follows:
1. Centre and the exporting State: The exporting state shall pay the amount equal to the ITC of SGST used by the supplier in the exporting state to the Centre.
2. Centre and the importing state: the centre shall pay the amount equal to the ITC of IGST used by a dealer for payment of SGST on intra-state supplies.
The settlement would be on cumulative basis for a state taking into account the details furnished by all the dealers in the settlement period. Similar settlement of amount would also be undertaken between CGST and IGST account.