Integrated Goods and Service Tax (IGST) is not A Tax under GST: Goods and Service Tax (GST) has replaced almost 17 indirect taxes in India. Amongst all, Central Excise Duty, Service-tax and State Value Added Tax (VAT) were available as Input Tax Credit (ITC) which helped in reduction of cascading effect of goods / services in value chain.
Except these three, all other taxes of the previous Indirect Tax regime were creating cascading effect in the value chain as those taxes were not available as ITC to its purchaser. Notably, there was Central Sales Tax (CST) levied on inter-state movement of goods was also not available as ITC to the purchaser of the goods. Due to this businesses used to resort to purchase goods locally (i.e. within state) instead of inter-state purchase.
Role of Integrated Goods and Service Tax (IGST) under GST
After passing of the Constitution (One Hundred and First Amendment) Act, 2016, the Parliament of India passed following legislations for introduction of GST in India –
- a) Central Goods and Services Tax Act, 2017; [the CGST Act]
- b) Integrated Goods and Services Tax Act, 2017; [the ITGST Act]
- c) Union Territory Goods and Services Tax Act, 2017; [the UTGST Act]
- d) Goods and Services Tax (Compensation to States) Act, 2017
Similarly, all States with Legislative Council have passed their respective State Goods and Service Tax Act [the SGST Act].
India, being the Union of States, has adopted concurrent dual GST Model, under which, for Intra-State supply, CGST and SGST shall be levied and for Inter-state supply of goods or services or both, IGST shall be levied. Under GST import of goods would suffer IGST in addition to Customs Duty.
As per the scheme of GST legislations (i.e. the CGST Act, the SGST Act and the IGST Act), ITC shall be utilized against Output Tax Liability in the following manner –
Availability of ITC Utilisation against Output Tax Liability
- CGST ⇒ against CGST and balance if any, against IGST
- SGST ⇒ against SGST and balance if any, against IGST
- IGST ⇒ against IGST, then CGST and balance if any, against SGST.
The cross utilization of CGST with SGST and vice versa shall not be allowed under GST. Let us understand how ITC utilization shall work under GST with an example-
*Contributed by DS Mahajani, General Manager (Taxation) and Company Secretary, Transpek-Silox Industry Pvt. Ltd, and member ICSI-GST Core Advisory Group
ABC Ltd has following balance of ITC under CGST, SGST and IGST Account –
- CGST – Rs.800/-
- SGST – Rs.600/-
- IGST – Rs.2900/- (collected from incoming Inter-state supply)
Total – Rs.4300/-
As against this, ABC Ltd has Output Tax Liabilities is as under –
- CGST – Rs.1000/-
- SGST – Rs.800/-
- IGST – Rs.2200/-
Total – Rs.4000/-
Now as per the GST Legislations, ABC Ltd shall discharge its Output Tax Liabilities against ITC of CGST, SGST and IGST in the following manner –
Considering above, it can be said that IGST is not a tax but is a mechanism through which ITC can be set-off against Output Tax liabilities under CGST and SGST in a defined manner.
As against CST (which was cost in the previous tax regime), IGST is the real game changer in GST regime, as it will boost inter-state movement of goods. Further, IGST levied on imports would be available as ITC to the registered person so Import would be costlier to a person not registered under GST. This will be great relief to domestic Industry as well.
Hence, with effective IGST credit mechanism in place, GST would convert the country into unified market which will have direct impact on ‘Make in India’ initiative and overall increase in GDP growth of the Country