Under GST, the place of supply determines the tax to be charged on a supply. Based on whether the supply is of goods or services, specific rules have been laid down to determine the place of supply. With GST being implemented on 1st July, 2017, it is expected that there will be situations where the wrong tax has been charged on a supply and the same has been paid to the Government. This can happen in 2 scenarios:
- CGST + SGST/UTGST has been collected and paid instead of IGST
- IGST has been collected and paid instead of CGST + SGST/UTGST
Scenario 1: CGST + SGST/UTGST has been paid instead of IGST
In this case, a supplier considers a supply to be intrastate and hence, collects CGST + SGST/UTGST. However, the right tax to be charged is IGST.
Example: Aravind Apparels, a registered dealer in Madhya Pradesh, supplies apparel to a dealer, Rohan Clothing, in Maharashtra. The apparel are to be directly delivered by Aravind Apparels to a customer in Madhya Pradesh. Aravind Apparels charges CGST + SGST on the invoice, as the goods are delivered to a customer in Madhya Pradesh.
However, the correct tax to be charged on this supply is IGST since this is a bill-to ship-to supply, where the place of the supply will be the location of the person who directs the goods to be delivered to another person. In this case, the place of supply will be Maharashtra.
Scenario 2: IGST has been paid instead of CGST + SGST/UTGST
In this case, a supplier considers a supply to be interstate and hence, collects IGST. However, the right tax to be collected is CGST+SGST/UTGST
Example: Raj Hotels, registered in Himachal Pradesh, provides accommodation to employees of a corporate group, Ram Solutions, for a conference. Ram Solutions is registered in Delhi. Raj Hotels charges IGST in the invoice to Ram Solutions, as Ram Solutions is registered in Delhi.
However, the correct tax to be charged on this supply is CGST + SGST, since this is a service related to an immovable property, where the place of supply is the location of the immovable property. In this case, the place of supply will be Himachal Pradesh.
Steps to rectify the wrong tax collected on a supply
1. Deposit the correct tax. Interest will not be charged.
A supplier who has collected and paid the wrong GST on supply should first pay the correct tax to the Government. A major relaxation given is that no interest will be charged on the amount to be paid.
In the above examples, Aravind Apparels should pay IGST and Raj Hotels should pay CGST + SGST to the Government.
2. Apply for refund of the wrong tax deposited
Once the correct tax has been paid to the Government, the supplier should apply for refund of the wrong GST paid. The procedure for applying for refund is given in our blog here.
When you deposit wrong tax on supply, you have to first deposit the correct tax, and later apply for refund of the incorrect tax paid. Hence, it is ideal to ensure that the correct tax is paid on a supply to avoid unnecessary blockage of working capital.
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