The Design Firm That Paid the Wrong GST Head: A Place of Supply Correction Under Section 77

When the Right Tax Amount Still Lands You in Trouble

Meet a small interior design firm based in Pune, Maharashtra. Run by two partners and a handful of designers, they had a steady flow of residential and office projects. In FY 2023-24 they bagged their biggest assignment yet: designing a boutique hotel property located in Bengaluru, Karnataka. The contract value was around Rs 42 lakh, spread across a year.

Everything went smoothly on site. The trouble started only when a chartered accountant reviewed their annual reconciliation.

The Invoice That Looked Correct But Wasn't

The firm had raised invoices charging CGST and SGST, treating it as a Maharashtra supply because their office and their billing team were in Pune. The total GST collected was correct in amount. But the type of tax was wrong.

Under Section 12(3) of the IGST Act, the place of supply for services directly related to immovable property is the location of that property. Since the hotel was in Karnataka, the place of supply was Karnataka, not Maharashtra. The supplier was in Maharashtra. That makes it an inter-State supply, which attracts IGST under Section 5 of the IGST Act, not CGST and SGST.

So the firm had deposited roughly Rs 3.78 lakh as CGST and SGST when it should have deposited the same amount as IGST.

The GST Problem They Faced

The consequences were real:

• The Karnataka client could not comfortably claim input tax credit, because the tax reflected under the wrong head and against the wrong State logic.
• The firm had paid tax into the wrong ledger. The department could raise a demand for the correct IGST while the amount already paid sat as a wrongly paid tax.
• On paper, it looked like short payment of IGST, which normally invites interest under Section 50 at 18 percent.

The partners panicked, imagining they would have to pay the tax twice with heavy interest. That fear was unfounded.

How They Solved It Correctly

The CA relied on a specific relief built into the law for exactly this situation.

Step 1: Understand Section 77 and Section 19

Section 77 of the CGST Act and Section 19 of the IGST Act say that where a taxpayer has paid CGST and SGST treating a supply as intra-State, but it is later held to be inter-State, the correct IGST must be paid, and the earlier wrongly paid CGST and SGST is refundable. Crucially, no interest is payable on the correct tax when it is deposited within a reasonable time in such a genuine head-mismatch situation.

Step 2: Correct the tax

The firm deposited the IGST correctly against the Karnataka place of supply. They then filed a refund application for the wrongly paid CGST and SGST under Rule 89 of the CGST Rules, selecting the ground of tax paid under the wrong head.

Step 3: Reissue and inform the client

They coordinated with the Bengaluru client so the corrected tax character was reflected, allowing the client to take clean ITC.

The Key Lesson for Readers

GST is not only about how much tax you charge. It is about charging it under the correct head, and that depends entirely on the place of supply.

• For services linked to immovable property, restaurants, events, and personal services, special place of supply rules apply. Do not default to your office location.
• The general rule for B2B services is the location of the recipient, but the exceptions matter.
• Getting the head wrong does not mean the money is lost, but it does mean paperwork, refund cycles, and unhappy clients if not handled early.

A quick way to self-check: if your supplier State and the place of supply State are different, it is IGST. If they are the same, it is CGST and SGST.

How GSTClear Helps

GSTClear flags place-of-supply mismatches before you file, comparing the supplier State against the place of supply on each invoice and alerting you when the tax head looks wrong. It maintains a clean invoice trail, helps reconcile CGST, SGST and IGST ledgers, and simplifies preparing refund claims under Rule 89 when a correction is needed. Instead of discovering errors during a year-end audit, you catch them invoice by invoice.

Don't let a wrong tax head turn a good project into a compliance headache. Start using GSTClear today to get your place of supply right the first time.

FAQ

Do I pay interest when I paid CGST-SGST instead of IGST?

In a genuine head-mismatch corrected under Section 77 of the CGST Act and Section 19 of the IGST Act, interest is generally not levied on the correctly paid IGST. You pay the correct tax and claim refund of the wrongly paid tax.

How is place of supply decided for services on a building?

Under Section 12(3) of the IGST Act, for services directly related to immovable property the place of supply is the location of that property, regardless of where your office is registered.

How do I claim back the wrongly paid tax?

File a refund application under Rule 89 of the CGST Rules, choosing the ground of tax paid under the wrong head, and keep supporting invoices and proof of the correct IGST payment ready.