Test: Integrated Goods and Services Tax (IGST) - CLAT PG MCQ

The primary purpose of the IGST is to ensure that the SGST (State Goods and Services Tax) component accrues to the consumer state, addressing the shortcomings of the previous CST system. This promotes fairness in the distribution of tax revenue collected from inter-state transactions, ensuring that the state where the consumer is located receives the appropriate tax revenue.

The IGST rate is typically calculated as the sum of the Central Goods and Services Tax (CGST) rate and the State Goods and Services Tax (SGST) rate. For example, if both rates are set at 9%, the IGST rate would be 18%. This calculation ensures that the tax burden is shared between the central and state governments for inter-state transactions.

The Compensation Cess was initially set for five years following the implementation of GST. However, it is subject to extension based on recommendations from the GST Council, thus providing flexibility to address ongoing revenue needs of the states.

An inter-state supply under the IGST framework includes supplies where the location of the supplier and the place of supply are in different states or union territories. This definition encompasses various scenarios, including the supply of services from one Union territory to another, ensuring proper tax application based on the supply's nature.

The Central Sales Tax Act, 1956, was based on the constitutional authority derived from Article 269 of the Constitution, which grants only the Parliament the power to levy tax on sales or purchases of goods that occur outside a state. This framework was essential for regulating inter-state trade and commerce.

The Compensation Cess was introduced to compensate states for any revenue losses resulting from the implementation of the Goods and Services Tax (GST). This cess aims to ensure that states maintain their revenue levels during the transition to the new tax system, promoting stability in state finances.

The Integrated Goods and Services Tax (IGST) primarily aims to monitor inter-state trade of goods and services and ensure that the State Goods and Services Tax (SGST) component accrues to the consumer state. This model resolves the issues of the previous Central Sales Tax system, which did not adequately address the complexities of inter-state transactions. Thus, IGST plays a crucial role in maintaining the integrity of the Input Tax Credit (ITC) chain in inter-state supplies, facilitating smoother trade across state lines.

The Central Sales Tax Act, 1956, is grounded in Article 269 of the Indian Constitution, which empowers Parliament to make laws regarding the levy of sales tax on goods sold in inter-state trade or commerce. This article delineates the central government's authority in regulating inter-state transactions, which was necessary for establishing a coherent framework for sales tax before the implementation of GST.

One major shortcoming of the Central Sales Tax (CST) system was that it required various accountal forms (such as C Form, E1, E2, etc.), which significantly increased compliance costs for businesses. This complexity hindered the free flow of trade, making it difficult for businesses to manage their tax liabilities efficiently. In contrast, the IGST model aims to simplify this process and reduce compliance burdens.

The Compensation Cess was initially set for five years after the implementation of the Goods and Services Tax (GST) on July 1, 2017. This cess is designed to compensate states for revenue losses incurred due to the transition to GST. The duration may be extended based on recommendations from the GST Council, reflecting the dynamic nature of fiscal policies in response to economic conditions.