Introduction to GST

  • GST is an indirect tax or consumption tax that is levied on the supply of goods or services or both. 
  • To collect GST, supplies are categorized as Inter-State supplies, which mean goods coming from one State to another, and intra-State supplies which suggest products in the State.
  • The Central Government charges the consolidated tax by the GST Act of 2017 in the inter-state supplies, while the Central Government charges the fee following the GST Act 2017 in the case of intra-State supplies and the state tax under the SGST law of 2017.

Inter-State Supply

  • Under GST, inter-state supply will be named the procurement of goods or services from one state to another.
  • The GST Act specifies domestic supply as when the supplier ‘s position and the place of supply are:
  • Two distinctive states; 
  • Two regions under a single Union Territory; or
  • State and a Union territory.
  • Moreover, the supply of goods imported into India is often known as an inter-state supply before they reach the customs station.
  • Also, supplies of goods or services are known as interstate supplies from or to a particular development zone or an exclusive economic zone.
  • For example, if you have a company ABC in the State of Karnataka and you supply products to Company XYZ in Madhya Pradesh, then it comes under the category of inter-state supply. 
  • It ensures that the trade would become an inter-state supply if the supplier ‘s position and the delivery place are in separate countries.
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Intra State supply

  • Under GST, intra-state supply occurs when the distribution of goods and services takes place within the same state or territory of the Country.
  • The distribution of goods or services intra-State is when the provider ‘s position and place, i.e., the buyer’s location, are the same.
  • A seller must obtain both CGST and SGST from the buyer in the intra-State transactions.
  • The CGST is deposited with the Government of the Central, and SGST is filed with the State Government.
  • For example – when a company has supplied to Mysore (in the State of Karnataka) goods from the Bengaluru factory, both sides in Karnataka are considered an intrastate supply.
  • This means that, if the supplier ‘s position and the delivery place is within the same State, supply is an intra-State supply.

GST on Interstate vs. Intrastate Supply

  • Interstate supply under GST attracts an Integrated Goods and Services Tax i.e IGST. 
  • Both the CBT and the State Goods and Services Tax (SGST) apply on an intra-state supply.
  • For intrastate supply, the GST rate will remain the same for the goods or services.
  • The GST and tax rate shall, however, be split into two headings equally: SGST and CGST.
  • In compliance with existing GST law, taxes are imposed on different goods or services depending on the supply location.
  • If the transaction constitutes an intra-state supply of goods and services, the central GST (CGST) is collected by the Center of Commerce, and the State GST (SGST) is received by the State where the supply occurs.
  • In the case of the interstate supply of goods and services, the Centre collects integrated GST (IGST). CGST and SGST will not be charged in this case.
  • The IGST rate will be equal to the CGST plus SGST rate.
  • For instance; When charges on a particular commodity are 9%, the inter-state supply should be charged at @ 9% CGST and at 9% SGST. 
  • The Interstate supply known as IGST is charged 18% (i.e., 9% + 9%).

Why would supply be differentiated?

  • Four forms of taxes under the GST system, i.e., CGST, SGST, UTGST, and IGST.
  • When an intra-State distribution is decided, CGST and SGST / UTGST are charged and payable, while IGST is chargeable and payable in international supply.
  • It is therefore well established that different taxes are to be paid on the corresponding supplies. The determination of supply for intra-State and inter-State supplies is becoming more important.
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What is the consequence of illegally collected and paying taxes?

  • Where the registered taxable individual who has paid CGST & SGST / UTGST for an inter-State supply, then in such case, the IGST is payable (with no interest), and the mistakenly paid  CGST & SGST / UTGST  will be claimable under the GST refund provision;
  • Where the registered person has paid IGST for an intrastate supply, then in such case CGST & SGST/ UGST is payable (with no interest) and the mistakenly paid IGST shall be claimable under the refund provision.
  • The incorrectly paid tax shall be claimed as refund and the appropriate tax is expected to be paid;

It is, therefore, most important and essential to properly determine the supply category;

Conclusion

We spoke about the basic determinations of IGST and CGST / SGST / UTGST and the effects of incorrect tax payments. It should be noted that the reimbursement may be claimed within two years of the relevant date, but a departmental valuation may be concluded within 3 or 5 years of the date on which the annual return for the fiscal year is due.

A transaction needs to be described and recorded as an Inter-State and Intra-State transaction, per the above provisions.