Why IGST on Inter State Supply of goods and services:Part II
The most important issue surrounding implementation of IGST levied on Inter State Supply of Goods and Services or Import of Goods and Services in the country was allowability of Input Tax Credit to the dealer of Importing State of the Taxes paid.
The allowability of the Input Credit of taxes paid under Import or Inter-State Supply of Goods and Services was a mandatory condition for the full fledged Dual System of GST in India. Therefore, concept of collection and administration of IGST was proposed to be brought in place on following principles as follows:
Principle-I:- Under the destination based concept the imports are generally liable to tax in the consuming territory equivalent to the taxes being levied on the goods and services produced in that territory. Therefore under proposed model of GST in India, all goods and services which would be imported from outside India would be liable to tax equivalent to CGST and SGST.
Principle-II:-One of the salient features of destination based taxation is that the revenue of the goods or services consumed should accrue to the Importing State so that the importing state may allow the credit to the dealer of the taxes paid earlier. If the revenue of the taxes paid earlier is not transferred to the importing state, then in such case it would not be possible for the importing state to give credit of the taxes paid earlier.
The basic structure for implementation of IGST in India:
1. Therefore, under the proposed Indian Model of GST particularly with respect to the Inter State Trade of goods and services, power to levy and collect tax has been given to the Centre under the nomenclature of IGST. IGST would be collected in the exporting state.
2. The Government intends that GST should be destination based and the revenue collected and levied by Central Government under IGST should be transferred to the Importing State, to the extent importing state gives credit to its dealer of the tax paid in the exporting State as IGST.
3. Therefore, there were two options one either the exporting state to transfer the credit directly to the importing state to the extent credit allowed by the Importing State to the dealer of the importing state of the taxes paid in the exporting state as IGST or second was someone to act as an agency for transferring the amount to the importing state so that the credit may be allowed by the importing state to the dealer of the importing state of the taxes paid in the exporting state as IGST.
4. The government has preferred the second option and then came out with IGST which is nothing but the tax which would have been levied and collected by the Importing State in ideal destination based taxation equivalent to CGST and SGST but would now be levied and collected by the Central Government. The mechanism of sharing of revenue between the states and the centre would be laid down by Parliament in a manner so that no state suffers loss of revenue. Through this mechanism the government has tried to ensure that the revenue accrues to the importing state and destination based taxation can be implemented in a modified manner.
Thus, this is how CGST, SGST and IGST were proposed to be brought in the entire scheme of Taxation in GST in India.
Once we understand the basic principles of why and how CGST, SGST and IGST have been brought in the country, it would be fairly easy to understand the input credit mechanism amongst IGST, CGST and SGST.