Understanding CGST, SGST, and IGST: A Comprehensive Guide for Compliance

Understanding CGST, SGST, and IGST Charges

Determining whether to apply Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) or Integrated Goods and Services Tax (IGST) is crucial for compliance with the GST framework in India. This guideline explores the key legal provisions involved in making this decision.

Definition of Intermediary

According to the IGST Act, Section 2(13), an “intermediary” is defined as a broker, agent, or any person facilitating the supply of goods or services (or both) between two or more parties. However, it excludes those who supply goods or services on their own behalf. Any individual earning a commission falls under this definition.

Place of Supply for Certain Services

Per the IGST Act, Section 13(8), the place of supply for specific services is determined by the location of the service provider. These services include:

• Services provided by banking companies, financial institutions, or non-banking financial companies to account holders
• Intermediary services
• Transport services, including the hiring of means such as yachts (excluding aircraft and larger vessels) for a maximum duration of one month

This provision clarifies that the place of supply will be the location of the service provider.

Export of Services Criteria

As per the IGST Act, Section 2(6), “export of services” is defined as the supply of a service when all the following conditions are met:

1. The supplier of the service is located in India
2. The recipient of the service is located outside India
3. The place of supply is outside India
4. Payment for the service is received in convertible foreign exchange
5. The supplier and the recipient are not merely establishments of a distinct person as per Explanation 1 in Section 8

In this context, if sub-clause (iii) is not satisfied, the service does not qualify as an export.

Conditions for Inter-State Supply

According to the IGST Act, Section 7:

1. Subject to Section 10, the supply of goods is considered inter-state if:

   • The supplier's location and the place of supply are in different States
   • The supplier’s location and place of supply are in different Union territories
   • The supply occurs between a State and a Union territory

2. Imported goods are treated as inter-state supply until they cross India’s customs frontiers.

3. As for the supply of services, which is subjected to Section 12, the following are considered inter-state supplies:

   • Services supplied between different States
   • Services supplied between different Union territories
   • Services between a State and a Union territory

4. Supply of services imported into India is also treated as inter-state.

5. Additionally, supply of goods or services is treated as inter-state if:

   • The supplier is in India, but the place of supply is outside India
   • The supply involves a developer or unit in a Special Economic Zone
   • The supply is not classified as intra-state and does not fall under other sections

In this case, if none of these conditions are met, IGST does not apply.

Conclusion

Based on the above analysis, the individual should charge CGST and SGST on the invoice.