The Consultant Who Paid IGST by Mistake — and the Section 77 Refund That Saved Her

Meena runs a small management consultancy in Pune. She has three staff, a steady set of clients, and a healthy turnover well above the registration threshold. She is careful with her books. So when a notice landed in her inbox questioning the tax she had charged on a Rs 8 lakh engagement, she was certain it was an error at the department's end.

It was not. The error was hers — and it is one of the most common GST mistakes Indian service providers make.

The Scenario: One Wrong Tax Head

Meena's client was a manufacturing company with its registered office in Mumbai but a factory and project site in Pune, where the actual consulting work happened. When she raised the invoice, she saw a Maharashtra GSTIN on one side and assumed the supply was inter-state because she dealt mostly with the Mumbai team. She charged IGST at 18% — Rs 1,44,000 — and deposited it dutifully.

The problem? Both she and her client were registered in Maharashtra. For most services, the place of supply is the location of the recipient. Here, the recipient was registered in Maharashtra, and so was she. This was an intra-state supply. She should have charged CGST and SGST, not IGST.

The GST Problem

Under GST, the tax head you charge is not a formality — it decides which government gets the money. IGST goes to the Centre for inter-state supplies; CGST and SGST split between the Centre and the state for intra-state supplies.

When Meena charged IGST on what was actually an intra-state transaction, the Maharashtra exchequer received nothing. The department's position was straightforward: she owed CGST and SGST on that supply. The IGST she had paid did not simply transfer over.

For a moment, it looked like she would have to pay Rs 1,44,000 a second time, plus worry about interest.

How She Solved It Correctly

Meena's CA pointed her to Section 77 of the CGST Act (read with the corresponding section of the IGST Act). The law anticipates exactly this situation. If a taxpayer pays IGST treating a supply as inter-state, and it later turns out to be intra-state (or vice versa), the wrongly paid tax can be refunded once the correct tax is paid.

Crucially, the law provides that no interest is charged on the correct tax in such a genuine classification swap, provided the right tax is now deposited. The refund of the wrongly paid IGST is claimed through Form RFD-01 on the portal.

So the steps were:

1. Pay the correct CGST and SGST on the Rs 8 lakh supply.
2. File Form RFD-01 to claim a refund of the IGST originally paid in error.
3. Issue corrected documentation and align the GSTR-1 reporting so the records matched the correct head.

The refund of the IGST was processed in due course. Meena was out of pocket only temporarily, not twice over.

The Key Lesson

Place of supply, not the address on the email signature, decides whether you charge IGST or CGST plus SGST. For services, the default rule is the location of the registered recipient. Always check the GSTIN on the invoice — its first two digits are the state code. If your state code and your client's state code match, it is almost always an intra-state supply.

Get this wrong and you do not just file a correction — you may have to pay the right tax first and then chase a refund of the wrong one. That is a cash-flow hit no small business wants.

How GSTClear Helps

GSTClear automatically reads the state code from both your GSTIN and your customer's GSTIN and flags when the tax head on an invoice does not match the place of supply. If you try to apply IGST to a same-state transaction, you get a warning before the invoice is finalised — not a notice months later. It also keeps your GSTR-1 and books aligned so a wrong head never slips through unnoticed.

Stop guessing between IGST and CGST plus SGST. Let GSTClear validate every invoice the moment you create it — and keep your refunds for when you actually want them. Start your free trial today.

FAQ

What decides whether I charge IGST or CGST and SGST?

The place of supply. For most services it is the recipient's registered location. If your state and the client's state are the same, charge CGST and SGST; if different, charge IGST.

If I paid the wrong tax head, do I lose that money?

No. Under Section 77, you pay the correct tax and then claim a refund of the wrongly paid tax using Form RFD-01. Genuine classification errors do not attract interest on the correct tax.

How can I quickly check the place of supply?

Look at the first two digits of the customer's GSTIN — that is the state code. Compare it with your own state code to determine if the supply is intra-state or inter-state.