GST Network – Part II…

There is still some lack of clarity with regard to inter-state sale of goods which is covered by integrated GST (IGST). If a business is selling goods to another state, he would have to pay the applicable tax under the head IGST and not CGST and SGST. This is collected by the centre and subsequently shared with buyer state equally.

Once the buyer endorses the purchase details in his GSTR-2 (which is updated by the system from GSTR-1 of the seller), he becomes entitled to take the input tax credit (ITC) which he would have paid at the time of purchase. This would also make the buyers’ state eligible to receive the tax paid by the seller which would then be transferred by the centre. In case buyer does not claim ITC, IGST remains with the centre. An important aspect of IGST is that it plugs a loophole related to inter-state transfer of goods as such transaction were taxed at a lower rate of 2% CST only against VAT of 4-20%. This acted as an incentive for some buyers/sellers to show sale/purchase as having occurred through other state.

Exports is also covered through IGST where the exporter receives back the whole of IGST as an incentive. While the scheme of duty refund existed earlier too it did not cover all the taxes paid and was implemented through a cumbersome and time consuming procedure. The new system, expected to provide credit back within 7 days, is expected to bring down the cost and make the process much simple giving boost to exports.

An important element of GSTN is that entire system is paperless including transport of goods which is authorized by e-permits. The consignor/seller has to enter the destination and purchaser’s details for goods being transported based on which GSTN would generate a unique number. This number will have to be preserved by the transporter on mobile which can verified through a handheld device by government agencies anytime, anywhere during transportation.

Another beautiful innovation of GST is shift in approach to goods returned. As per the system, when a goods is returned, the original buyer becomes ‘seller’ and seller become ‘buyer’. So, the ‘seller’ now pays tax on sale which would be equal to the ITC he had received during purchase. (In case, the return price is different from the purchase price, the tax paid will change). Similarly, ‘buyer’ becomes entitled to claim ITC which would, again, be equal to the tax he would have paid originally at the time of sale. The system, thus, does away with the concept of goods returned which are now being treated as fresh sale (but to the original seller).

An aspect not looked at is if the GST data can help gauge industrial/services growth better. So far, the production/sales data was collected from select enterprises  only, leading to scope for error in estimation. The system would be far more robust as it would be based on inputs from all the factories and sellers across the country with total data points projected to be over 250 crore per month..!

Read the first part at

(Image courtesy of CBEC website)


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