Inter-state transactions may come under tax ambit

With less than five months left for the proposed roll-out of the Goods and Services Tax (GST), the empowered group of state finance ministers today suggested a model of inter-state goods and services tax (IGST) for inter-state transactions. The Centre would levy GST which would comprise central and state GST, with appropriate provision for consignment or stock transfer of goods and services.

In its discussion paper released today, the group said cross-utilisation of input tax credit between the central GST and state GST would not be allowed, except in the case of inter-state supply of goods and services under the IGST model.

 

An inter-state seller will pay IGST on value addition after adjusting available credit of IGST, central GST and state GST on his purchases. The exporting state will transfer to the Centre the credit of state GST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability and the Centre will transfer to the importing state the credit of IGST used in payment of state GST.

The relevant information will also be sent to the central agency, which will act as a clearing house, verify the claims and inform the respective governments to transfer the funds.

The committee said in the IGST model there would be no upfront payment of tax or substantial blockage of funds for the inter-state seller or buyer.

“As all inter-state dealers will be e-registered and correspondence with them will be done by e-mail, the compliance level will improve substantially. Model can take ‘business to business’ as well as ‘business to consumer’ transactions into account,” it said.

A joint working group of the Centre and states has been entrusted with the task of preparing draft legislation for the central GST, a suitable model legislation for state GST, and rules and procedures for both. Simultaneous steps have also been initiated for IGST. The working group will also address to the issues of dispute resolution and advance ruling.