Chapter 14: Inter-State and International Transactions

The Integrated Goods and Services Tax (IGST) is levied on inter-State supplies of goods and services, ensuring seamless credit flow across State boundaries.

Statutory Basis:

Section 5 of the IGST Act, 2017

Read with Articles 269A and 279A of the Constitution.

Key Features:

Levy and Collection: IGST is levied and collected by the Central Government on inter-State transactions.

Apportionment: The revenue is shared between the Centre and the destination State where the goods or services are consumed.

Input Tax Credit: ITC of IGST is available for offset against IGST, CGST, or SGST liabilities, ensuring credit continuity.

Mechanism: Supplier charges IGST on invoice → Pays to Centre → Recipient in another State avails ITC.

Illustration: A trader in Delhi sells goods worth ₹1,00,000 to a buyer in Maharashtra at 18% GST. → IGST = ₹18,000. → Collected by the Centre and apportioned between Centre & Maharashtra.

Nature of Supply Determination (Sec. 7 & 8, IGST Act):

(a) Import of Goods

Definition: Bringing goods into India from outside India.

Levy: IGST is levied under Section 3(7) of the Customs Tariff Act, 1975, collected along with Customs Duty.

Taxable Event: When goods cross the customs frontier of India.

Credit: Importer can claim ITC of IGST paid under Section 16 of the CGST Act (if used for business).

Example: A Delhi company imports machinery from Germany valued at ₹10 lakh. → IGST @18% = ₹1.8 lakh payable at Customs (eligible for ITC).

(b) Import of Services

Definition (Sec. 2(11), IGST Act): Import of services means supply where:

Supplier is located outside India;

Recipient is located in India;

Place of supply is in India.

Levy: IGST payable under Reverse Charge Mechanism (RCM) by the recipient.

(c) Export of Goods

Definition (Sec. 2(5), IGST Act): Taking goods out of India to a place outside India.

Nature: Zero-rated supply under Section 16 of the IGST Act.

Options Available:

Export under LUT/Bond – without payment of IGST, claim refund of unutilised ITC.

Export on payment of IGST – claim refund of IGST paid.

Example: An exporter in Chennai exports garments worth ₹10 lakh under LUT. → No IGST payable; refund claimable on ITC accumulation.

(d) Export of Services

Conditions (Sec. 2(6), IGST Act):

Supplier is located in India.

Recipient is located outside India.

Place of supply is outside India.

Payment received in convertible foreign exchange (or INR wherever permitted).

Supplier and recipient are not merely establishments of the same person.

Such exports are also treated as zero-rated supplies, eligible for ITC refund or IGST refund route.

SEZs are designated areas treated as foreign territories for trade and taxation purposes to promote exports and economic activity.

Statutory Basis: Section 16(1)(b) of the IGST Act and SEZ Act, 2005.

Tax Treatment:

Key Points:

SEZ units enjoy full exemption from GST on inward supplies (zero-rated).

ITC refund allowed even if goods/services not physically exported but supplied to SEZ.

SEZ suppliers must furnish endorsed invoices from the authorised SEZ officer.

Definition (Sec. 147, CGST Act): Certain supplies are treated as “deemed exports” though goods do not leave India. Tax is paid at the time of supply, but either the supplier or recipient can claim refund of tax paid.

Examples (Notification No. 48/2017-CT dated 18.10.2017):

Conditions:

Payment must be received in Indian rupees.

Goods must not leave India.

Refund claim filed within prescribed time either by supplier or recipient, but not both.

Illustration: A manufacturer supplies machinery worth ₹50 lakh to an EPCG licence holder. → Treated as deemed export; GST charged normally; recipient can claim refund of tax paid.