Sections 7 and 8: The Two-Step Inter-State Test

Sections 7 and 8 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Every place-of-supply determination exists to answer one question: IGST, or CGST and SGST? Sections 7 and 8 are where that question is actually decided.

Section 7 of the IGST Act: a supply of goods or services is an inter-State supply where the location of the supplier and the place of supply are in two different States, two different Union territories, or a State and a Union territory. Beyond that comparison, supplies are deemed inter-State: goods imported into India until they cross the customs frontier; services imported into India; supply to or by a Special Economic Zone developer or unit; supply in the taxable territory not being an intra-State supply and not covered elsewhere. Section 8: a supply is intra-State where the location of the supplier and the place of supply are in the same State or Union territory — excluding supply to or by an SEZ developer or unit, goods imported until they cross the customs frontier, and supplies to a tourist under s.15.

The two-step test

Step one: determine the location of the supplier — s.2(15) of the IGST Act.

Step two: determine the place of supply — s.10 or s.11 for goods, s.12 or s.13 for services.

Compare them. Different States or Union territories, or a State and a Union territory: inter-State, and IGST applies. Same State or Union territory: intra-State, and CGST and SGST apply.

That is the entire function of Chapter V. The elaborate rules in ss.10 to 13 exist only to produce the second input to this comparison.

The deemed inter-State supplies

Section 7 does not stop at the comparison. Four categories are inter-State regardless of it.

Goods imported into India, until they cross the customs frontiers of India — treated as a supply in the course of inter-State trade or commerce. Read with s.11(a), which puts the place of supply at the importer's location, this makes every import an inter-State supply with IGST collected at importation under s.3 of the Customs Tariff Act, 1975.

Services imported into India — likewise treated as inter-State, which is what makes an import of services taxable under reverse charge where the place of supply is in India. Section 13(2) →

Supply to or by a Special Economic Zone developer or unit — inter-State whatever the locations. So a supplier in Gujarat supplying an SEZ unit in Gujarat makes an inter-State supply and charges IGST, not CGST and SGST. This is the deeming most often got wrong in practice.

A supply in the taxable territory, not being an intra-State supply and not covered elsewhere — the residual category, which catches anything the specific provisions do not reach.

Section 8: the exclusions from intra-State

Section 8 defines the intra-State supply, and its exclusions mirror the s.7 deemings:

• supply of goods to or by an SEZ developer or unit — excluded, so it cannot be intra-State;
• goods imported into India until they cross the customs frontiers — excluded;
• supplies made to a tourist referred to in s.15 — excluded.

And the same for services in s.8(2), with the SEZ exclusion repeated.

So the SEZ rule works from both ends: s.7 deems it inter-State, and s.8 excludes it from intra-State. There is no room to treat it otherwise.

The SEZ deeming and why it matters

Every supply to an SEZ developer or unit is inter-State, whatever the geography — so IGST is charged.

And a supply to an SEZ developer or unit for authorised operations is zero-rated under s.16(1)(b) of the IGST Act, with the same two routes as an export: LUT without payment, or with payment of IGST and a refund.

The "authorised operations" qualifier is the operative one. Section 16(1)(b) covers supply "to a Special Economic Zone developer or a Special Economic Zone unit for authorised operations" — so a supply not for authorised operations is inter-State under s.7 but not zero-rated, and IGST is payable in the ordinary way with no refund.

Which makes the endorsement the critical document. The specified officer's endorsement that the goods or services were received for authorised operations is what supports the zero-rating and the refund. Refund on supplies to SEZ →

And supplies by an SEZ unit are also deemed inter-State under s.7 — so an SEZ unit supplying into the domestic tariff area makes an inter-State supply, though the DTA clearance carries its own customs consequences.

Section 9: territorial waters

Section 9 of the IGST Act deals with supplies in territorial waters: where the location of the supplier or the place of supply is in the territorial waters, the location or place of supply, as the case may be, shall be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

So offshore supplies are attributed to the nearest coastal State, which resolves what would otherwise be an unallocated location — relevant for offshore drilling, port services, dredging and marine construction.

What goes wrong, and what it costs

Charging CGST and SGST on an inter-State supply, or IGST on an intra-State one, is a wrong-head payment.

The remedy is s.77 of the CGST Act with s.19 of the IGST Act: where a supply is held to be inter-State and tax was paid as intra-State, or the reverse, the tax wrongly paid is refunded, and — importantly — no interest is payable on the tax subsequently paid under the correct head. Section 77 →

But the practical cost is real:

• the recipient's credit is in the wrong head, and must be reversed and re-taken;
• the refund requires an application within two years of the relevant date;
• the cash flow is affected while both sit outstanding;
• and where the recipient is in a different State, the CGST and SGST charged are not creditable to it at all.

The controls that prevent it:

1. Determine the place of supply at invoicing, from the ship-to or the recipient's registration, not from the billing address by default.
2. Flag every SEZ customer in the master, because the deeming overrides the geography.
3. Reconcile the e-way bill destination State to the place of supply on the invoice.
4. Review B2C State-wise reporting against the customer master, since a large default to the supplier's own State usually indicates missing address data. Section 10(1)(ca) →

Key takeaways

• Section 7 makes a supply inter-State where the supplier's location and the place of supply are in different States or Union territories.
• Imports of goods and services, and supplies to or by an SEZ developer or unit, are deemed inter-State regardless.
• Section 8 excludes those same categories from intra-State, so the SEZ rule operates from both ends.
• An SEZ supply is zero-rated only for authorised operations — the endorsement is the supporting document.
• Section 9 attributes supplies in territorial waters to the nearest coastal State.
• A wrong-head payment is corrected under s.77 / s.19 with no interest, but the credit and cash-flow cost is real.

Read next

• Section 10(1)(a): Where the Movement Terminates for Delivery
• Section 77: Refund of Tax Paid Under the Wrong Head
• Refund of Tax on Supplies to SEZ and the Endorsement
• Export of Services: The Five Conditions in Section 2(6)

Disclaimer: Positions stated as on 5 September 2026, based on the IGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition).