How an Apparent Relief Became a Burden for Government & Taxpayers?

Goods & Service Tax in India is a destination-based consumption tax, i.e., the tax collected on a supply (taxing event) becomes revenue of the State in which the supply is consumed. This is evident on a reading of Article 269A(1) of the Constitution, which, while giving exclusive powers to the Parliament to levy and collect tax on inter-state supplies, also requires the apportionment of the said tax between the Union and the States.

Accordingly, Sections 10-13 of the IGST Act, 2017 lay down the rules for determining the place of supply, which in effect will aid in determining the State where the supply is being consumed.

Further, Section 17 lays down the manner of apportionment of tax and settlement of funds, being an integrated tax collected by the Parliament. Since GST works on the principle of value addition and availability of input tax credit for businesses, section 17 recognizes that for a B2B transaction, the tax collected does not accrue to any Government and accordingly provides for settlement of taxes only in cases of B2C transactions and B2B transactions where the corresponding credit is not available.

Section 17 of the IGST Act, 2017 accordingly deals with the following scenarios for the settlement of taxes between the Governments:

a)    In respect of supplies made to an unregistered person (B2C)/ composition dealers pa