IGST Section 5 — Levy and collection

IGST Act · Levy and collection

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Quick Answer

Section 5 of the IGST Act, 2017 governs Levy and collection. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 5 IGST: Levy and collection — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Plain-English Explanation

Plain English Summary

Section 5 of the IGST Act, 2017, lays down the rules for levying and collecting Integrated Goods and Services Tax (IGST) on inter-state supplies of goods and services. It specifies who is responsible for paying the tax and the circumstances under which it is applicable.

This section applies to all businesses and individuals involved in inter-state supply of goods or services. 'Inter-state' means any supply where the location of the supplier and the place of supply are in different states. This includes imports into India. The provisions come into effect when an inter-state supply occurs, triggering the liability to pay IGST. Generally, the supplier of the goods or services is responsible for paying the IGST. However, there are exceptions where the recipient is liable under the reverse charge mechanism, or the electronic commerce operator is liable.

Here's a breakdown of the key conditions and exceptions:

General Rule: IGST is levied on all inter-state supplies of goods or services, with the supplier being responsible for payment. The tax is calculated on the value determined under Section 15 of the CGST Act, meaning the transaction value. The rate of IGST cannot exceed 40% and is determined by the government on the recommendations of the GST Council.
Exemption for Alcoholic Liquor: IGST is not levied on the supply of alcoholic liquor for human consumption.
Imports: IGST on goods imported into India (other than goods that may be notified by the government on the recommendations of the Council) is levied and collected as per Section 3 of the Customs Tariff Act, 1975. This means IGST is collected alongside customs duties at the point of import. The value for IGST is determined under the Customs Tariff Act, and IGST is levied when customs duties are levied under the Customs Act, 1962.
Petroleum Products: IGST on petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel will be levied from a date to be notified by the government based on the GST Council's recommendations. Currently, these items are outside the GST ambit.
Reverse Charge Mechanism (RCM): The government can specify categories of goods or services where the recipient of the supply is liable to pay IGST under the reverse charge mechanism. In these cases, the recipient is treated as the person liable for paying the tax. This is usually implemented for administrative convenience, or to improve compliance.
Reverse Charge from Unregistered Suppliers: The government can specify classes of registered persons who must pay IGST on supplies of specified goods or services received from unregistered suppliers under RCM. This aims to encourage registered businesses to source from other registered businesses, broadening the tax base.
Electronic Commerce Operators (ECOs): For specified categories of services supplied through an electronic commerce operator (e.g., online travel agencies, ride-hailing apps), the ECO is liable to pay IGST on the inter-state supplies. The ECO is treated as the supplier for this purpose. If the ECO doesn't have a physical presence in India, their representative is liable. If they have neither a physical presence nor a representative, they must appoint a person in India to pay the tax.

Practical Examples:

Inter-state Sale: A textile manufacturer in Gujarat sells fabrics to a garment manufacturer in Tamil Nadu. This is an inter-state supply. The textile manufacturer in Gujarat is liable to collect and pay IGST on this sale.
Import: A company in Delhi imports machinery from Germany. IGST is levied on the machinery when it enters India, alongside customs duties. The importer pays both IGST and customs duty at the port.
RCM: A lawyer in Mumbai provides legal services to a company in Bangalore. If legal services are notified under RCM, the company in Bangalore, the service recipient, is liable to pay IGST.
ECO: A customer in Rajasthan books a hotel in Goa through an online travel agency based in Bangalore. If hotel accommodation is a specified service under Section 5(5), the online travel agency in Bangalore is liable to pay IGST on the inter-state supply of hotel accommodation.

Important Amendments:

The IGST Act has seen several amendments to refine its provisions. The Integrated Goods and Services Tax (Amendment) Act, 2018, and Integrated Goods and Services Tax (Amendment) Act, 2023, have brought changes, particularly in relation to the reverse charge mechanism and the treatment of imported goods respectively.

The Finance Act, 2024, added an exclusion for "un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption" from the general levy of IGST.

Understanding Section 5 is crucial for businesses engaged in inter-state transactions, as it clearly defines the tax liability and responsibilities under the IGST regime. Businesses should regularly consult with tax professionals to ensure compliance with the latest amendments and notifications related to this section.

(1)Subject to such conditions and limitations as the Board may impose, an officer of central tax may exercise the powers and discharge the duties conferred or imposed on him under this Act.

(2)An officer of central tax may exercise the powers and discharge the duties conferred or imposed under this Act on any other officer of central tax who is subordinate to him.

(3)The Commissioner may, subject to such conditions and limitations as may be specified in this behalf by him, delegate his powers to any other officer who is subordinate to him.

(4)Notwithstanding anything contained in this section, an Appellate Authority shall not exercise the powers and discharge the duties conferred or imposed on any other officer of central tax.

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Frequently Asked Questions

What is IGST and when is it levied under Section 5?

IGST (Integrated Goods and Services Tax) is levied on the supply of goods or services, or both, in inter-State trade or commerce. Section 5(1) specifies that IGST is levied on all inter-State supplies, meaning supplies where the location of the supplier and the place of supply are in different States, Union Territories, or one in a State and the other in a Union Territory.

Who is liable to pay IGST under Section 5?

Under Section 5(3), the supplier of goods or services is primarily liable to pay the IGST. However, Section 5(5) allows the government to specify categories of goods or services where the tax shall be paid on reverse charge basis by the recipient of such goods or services. Details of such supplies are notified by the government from time to time.

What is the IGST rate and how is it determined according to Section 5?

Section 5(1) states that IGST shall be levied at the rate notified by the government, but not exceeding 40% as recommended by the GST Council. The specific IGST rates for different goods and services are prescribed under various notifications issued by the government. The rates are the same as the combined CGST and SGST/UTGST rates applicable if the supply were intra-State.

How is IGST collected and administered?

IGST is collected by the Central Government. The administration of IGST is managed by the Central Board of Indirect Taxes and Customs (CBIC). The collected IGST is then apportioned between the Central Government and the State/Union Territory governments as per the recommendations of the GST Council.

What are the provisions related to zero-rated supplies under Section 5 of the IGST Act?

Section 16 of the IGST Act defines zero-rated supply to mean (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. Section 5 allows zero-rated supplies to be made without payment of IGST, subject to specific procedures and documentation as prescribed by the government. Alternatively, a supplier can pay IGST on such supplies and claim a refund.

What are the implications of Section 5(5) regarding Reverse Charge Mechanism (RCM) under IGST?

Section 5(5) empowers the government to notify specific categories of goods or services where the recipient, rather than the supplier, is liable to pay IGST under the Reverse Charge Mechanism (RCM). This shifts the tax liability to the receiver, who is then responsible for paying IGST directly to the government. This provision is designed to improve tax compliance in certain sectors, especially where suppliers might be small or unregistered.

Can the Central Government exempt certain supplies from IGST under Section 5?

While Section 5 outlines the levy and collection of IGST, the power to grant exemptions rests with the Central Government, generally under Section 6 of the CGST Act (made applicable to IGST via cross-references) or specific notifications. These exemptions can be granted based on various factors, such as public interest, promoting specific sectors, or for administrative reasons. The government issues notifications specifying the conditions and procedures for claiming such exemptions.

Key Conditions & Requirements

Condition	Details
Levy of IGST	IGST shall be levied on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption and un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption.
Value for Levy	IGST is levied on the value determined under section 15 of the Central Goods and Services Tax Act.
IGST Rate	The IGST rate shall not exceed forty per cent and is notified by the Government on the recommendations of the Council.
Payment of IGST	IGST shall be paid by the taxable person in such manner as may be prescribed.
IGST on Imports	Integrated tax on goods (other than goods as may be notified by the Government on the recommendations of the Council) imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.
Deferment on Specific Goods	The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.
Reverse Charge Mechanism	The Government may specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient.
Reverse Charge by Registered Persons	The Government may specify a class of registered persons who shall, in respect of supply of specified categories of goods or services, pay IGST under reverse charge.

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Amendment History

Enforced w.e.f. 22nd June 2017.

No numbered amendments recorded for this section.