What will be the implications of GST over Inter-State Transactions?

Understanding GST’s role in Inter-State Trade

As per the Integrated Goods and Services Tax (IGST) law, IGST would mean that the tax which is levied under this act on the movement of goods and services during inter-state transactions. IGST will be applicable with the same effect throughout the country.

As per the Task Force on GST,13th Finance commission(2009) report, a recommendation was made that when implementing the IGST model there is a need for a robust IT infrastructure for enabling total information with respect to inter-state transactions. The Task Force as advised that if the IT infrastructure and the information support systems are not made available in due time, the implementation of IGST model will remain at a conceptual stage.

IGST shall be levied on each and every inter-state transaction with respect to goods and services which are taxable with proper provisions for stock transfer or consignment of goods and services. In the case of an inter-state sale, the seller has to pay IGST on value addition, while he will be allowed to adjust the credit of IGST, SGST and CGST available to him on his purchases. The exporting state has to transfer to the central government the credit of IGST when setting the output tax liability in his state. The center will then transfer the credit of IGST which is used in payment of SGST to the importing state.

The authorized committee has viewed and welcomed the recommendation for adopting IGST model for the purpose of taxation for interstate movements of taxable goods and services. All the related information has to be submitted to a central agency that would perform a clearing house function confirm the claims and notify the state government with regard to transfer the funds.

Under the IGST model, a dealer can have depots with goods at different locations in the country and he can dispense goods from those locations to nearby states. This model would provide a cost effective delivery mechanism for the assesses.

All the inter-state adjustment shall be done by this clearing agency and concern of assesses will not be entertained for any such adjustments.

The apportionment of revenue from IGST between states and the union shall be done by parliament as per the recommendation of goods and service tax council.

Benefits of IGST Model:

• It is a self-monitoring tax regime
• The seller does not have to pay any taxes upfront and hence there is no blockage of funds
• Reduced paperwork as most of the dealers will be online registered and all the correspondence with them will be via e-mail