INTEGRATED GOODS AND SERVICES TAX (IGST) AND THE GST COUNCIL

1. Introduction
The Goods and Services Tax (GST) in India operates under a dual model where
both the Centre and States simultaneously levy tax on a common base. To manage
the complexities of inter-state trade and ensure a unified tax structure, the
Integrated Goods and Services Tax (IGST) was introduced. Furthermore, to
maintain cooperative federalism and harmonize tax decisions between the Centre
and States, the GST Council was established as a constitutional body.

2. Integrated Goods and Services Tax (IGST)

A. Definition
IGST stands for Integrated Goods and Services Tax. It is a tax levied under the
Integrated Goods and Services Tax Act, 2017 on the supply of goods or services
or both in the course of inter-State trade or commerce.

● Levy: It is levied and collected by the Central Government.

● Apportionment: The revenue collected is apportioned (shared) between the

Central Government and the State Government based on the
recommendation of the GST Council.

● Destination Principle: It follows the destination-based consumption tax

principle, meaning the tax revenue accrues to the state where the goods or
services are finally consumed.
B. Objectives of IGST
The primary objectives of implementing IGST include:
1. Seamless Flow of Credit: To ensure a continuous chain of Input Tax Credit
(ITC) from one state to another. The IGST mechanism allows the importing
dealer to claim credit of IGST paid on inter-state purchases while discharging
their output tax liability in their own state.
2. Elimination of Cascading Effect: Unlike the earlier Central Sales Tax (CST),
which was not creditable and thus added to the cost, IGST is fully creditable,
thereby removing the cascading effect of taxes on inter-state transactions.
3. Simplified Compliance: It replaces the complex CST structure and ensures
that the interstate seller pays a single tax (IGST) to the Centre instead of
dealing with multiple state authorities.
C. Scope of IGST
The scope of IGST is extensive, covering various forms of supply where the supplier
and the place of supply are in different states.
 1. Inter-State Supply: IGST is levied on all inter-state supplies of goods or
services. A supply is treated as inter-state when the location of the supplier
and the place of supply are in:
o Two different States;
o Two different Union Territories; or
o A State and a Union Territory.
2. Imports:
o Goods: Import of goods into India is treated as an inter-state supply
and is subject to IGST in addition to Basic Customs Duty (BCD).
o Services: Import of services for a consideration, whether or not in the
course or furtherance of business, is also treated as inter-state supply
liable to IGST.
3. SEZ Supplies: Supplies to or by a Special Economic Zone (SEZ) developer
or an SEZ unit are classified as inter-state supplies and attract IGST.
4. Exclusions: IGST does not apply to the supply of alcoholic liquor for human
consumption.
D. Illustration of IGST Calculation
Scenario: Mr. Biswamohan, a registered dealer in Cuttack (Odisha), sells 10 TV
sets to Mr. Gyanaranjan in Telangana.

● Value of Goods: ₹ 5,00,000

● GST Rate: 18%

Analysis:

● Location of Supplier: Odisha

● Place of Supply: Telangana

● Since these are two different states, IGST is applicable.

Tax Calculation:

● IGST Payable = ₹ 5,00,000 × 18% = ₹ 90,000.

● Mr. Biswamohan collects ₹ 90,000 from the buyer and deposits it with the
Central Government. The Centre will later transfer the State's share to
Telangana (the consuming state).
 NATURE OF SUPPLY
The "Nature of Supply" determines the type of tax (IGST or CGST + SGST/UTGST)
to be levied. It is primarily categorized into two types based on the location of the
supplier and the place of supply:

● Intra-State Supply:

o Definition: When the location of the supplier and the place of supply of
goods or services are in the same State or Union Territory.
o Tax Liability: Intra-State supply attracts Central GST (CGST) and
State GST (SGST) or Union Territory GST (UTGST) simultaneously.
o Exceptions: Supplies to SEZ units/developers and imports are not
treated as intra-state supplies.
Illustrations
o Scenario: Mr. Subashis, a dealer in Bhadrak (Odisha), supplies goods
to Mr. Pintu in Bhubaneswar (Odisha) worth ₹ 50,000.
o Analysis: Since the location of the supplier and the place of supply are
in the same state (Odisha), it is an Intra-State supply.
o Tax: CGST (9%) + SGST (9%) will be charged.

● Inter-State Supply:

o Definition: When the location of the supplier and the place of supply
are in two different States, two different Union Territories, or a
State and a Union Territory.
o Inclusions: It also includes the supply of goods imported into India
(until they cross customs frontiers), supplies to or by SEZ
units/developers, and supplies where the supplier is in India and the
place of supply is outside India.
o Tax Liability: Inter-State supply attracts Integrated GST (IGST),
which is levied by the Centre.
o ILLUSTRATION-

● Scenario: Mrs. Pranneta, a dealer in Cuttack (Odisha), supplies goods to

Mrs. Madhu in Telangana worth ₹ 50,000.
● Analysis: The location of the supplier (Odisha) and the place of supply
(Telangana) are in different states. This is an Inter-State supply.
 ● Tax: IGST (18%) will be charged.

PLACE OF SUPPLY
"Place of Supply" is a crucial concept under GST as it identifies the jurisdiction
where the goods or services are consumed. Since GST is a destination-based tax,
the tax revenue accrues to the state where the place of supply is located.

● Importance: It determines whether a transaction is Intra-State or Inter-State

and consequently, the type of tax to be levied.

● General Rules for Goods:

1. If the supply involves the movement of goods, the place of supply is the
location where the movement of goods terminates for delivery to the
recipient.
Illustration-  Scenario: Mrs. A of Bhadrak (Odisha) receives a
purchase order from Mr. B of Kolkata (West Bengal). She supplies the
goods, and the movement terminates in Kolkata.
 Place of Supply: Kolkata (West Bengal).
 Tax: Since the supplier is in Odisha and the Place of Supply is West
Bengal, IGST is levied.
2. If the supply does not involve movement, it is the location of the goods at the
time of delivery to the recipient.

3. For goods assembled or installed at a site, the place of supply is the place of
such installation.
Illustration-  Scenario: Strong Iron & Steel Ltd. (Jharkhand) asks M/s SAAS
Constructions (West Bengal) to build a blast furnace at their plant in
Jharkhand.
 Place of Supply: Jharkhand (where the installation occurs).
 Tax: As the supplier is in West Bengal and the Place of Supply is
Jharkhand, IGST applies.

● General Rules for Services:

o To a Registered Person: The location of the recipient of the service.

o To an Unregistered Person: The location of the recipient where the
address is on record; otherwise, the location of the supplier.
 o Specific rules exist for services related to immovable property,
performance-based services (e.g., restaurant, grooming), events, and
transportation.

ZERO RATED SUPPLY

"Zero Rated Supply" refers to specific categories of taxable supplies that are subject
to a tax rate of 0% but are still eligible for Input Tax Credit (ITC).

● Coverage: It includes:

o Export of goods or services.

o Supply of goods or services to a Special Economic Zone (SEZ)
developer or an SEZ unit.
llustrations

● Export of Goods:

o Scenario: Ms. Anita from Kolkata exports Indian perfumes to the UK.
o Place of Supply: Location outside India (UK).
o Tax: Exempted (Zero Rated). Ms. Anita can claim a refund of the input
tax credit used to manufacture the perfumes.

● Supply to SEZ:

o Scenario: Mr. Gopal Rao from Karnataka sells 25% of his finished
goods to a unit in the Special Economic Zone (SEZ) in Bangalore.
o Analysis: Supply to an SEZ is treated as an Inter-State supply and is
Zero Rated.
o Tax: No tax is payable on the outward supply to the SEZ, but the
supplier can claim Input Tax Credit (ITC).

● ITC Benefit: Unlike exempt supplies where ITC is not available, credit of input
tax can be availed for making zero-rated supplies.

● Options for Refund: A registered person making a zero-rated supply can

claim a refund under two options:
1. Supply without payment of IGST under a Bond or Letter of
Undertaking (LUT) and claim a refund of unutilized Input Tax Credit.
2. Supply on payment of IGST and claim a refund of the tax paid.