Integrated Goods and Services Tax

Integrated Goods and Services Tax (IGST) is imposed on inter-State supplies of goods or services, including imports. It is a destination-based clearing mechanism: the Union initially collects the tax, while revenue is ultimately assigned between the Union and the State where consumption occurs.

Constitutional basis

Under Article 269A, GST on inter-State supplies is levied and collected by the Union and apportioned between the Union and States in the manner prescribed by Parliament on the GST Council's recommendations. Article 246A(2) gives Parliament exclusive power to legislate on inter-State GST, while supplies made during imports are deemed inter-State supplies.

Collection and credit settlement

The Union acts as a clearing house, while place-of-supply rules identify the State in which consumption occurs.

• The inter-State supplier charges IGST and deposits it with the Union after using the permissible input tax credit.
• If the supplier uses State GST credit to pay IGST, the origin State transfers the corresponding amount to the Union.
• The recipient can use IGST credit against tax on subsequent supplies; when it is used against State GST, the Union transfers the corresponding amount to the destination State.
• This settlement preserves a continuous credit chain while preventing the origin State from retaining tax attributable to consumption elsewhere.

Final apportionment

Under Section 17 of the IGST Act, 2017, IGST is apportioned and settled between the Union and the concerned State or Union Territory. Where tax reaches final consumption without further credit, the Union receives the central component and the balance accrues to the destination jurisdiction according to the statutory rules.

• Thus, IGST does not constitute revenue belonging wholly to the Union merely because the Union collects it initially.
• For example, IGST on a supply from one State to a consumer in another is ultimately shared with the consumer's State, subject to credit adjustments.

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