Inter-state delivery problem

Delivery on a commodity exchange is anonymous. You do not choose your counterparty. The clearing corporation assigns you one.

That is fine for money. It is awkward for tax.

GST works one way inside a state and another way across states. Inside a state the Centre takes CGST and the state takes SGST. Across states the Centre levies and administers IGST instead.

The exchange only handles the first case. It collects CGST and SGST, and only at final settlement of the delivery. It does not deal with IGST at all.

So if the seller you are tagged to sits in another state, the tax on your delivery does not fit the exchange's plumbing.

There is a second half to the problem. GST credit is claimed against a registration in a state. A buyer with no GST registration number for the delivery state cannot take credit for the tax he has paid. The tax stops being a pass-through and becomes a cost.

The workbook states this as an issue buyers may face. It does not offer a fix.

The chain, in the workbook's order. GST is levied by the seller of goods on the buyer of goods at the time of billing for delivery. It is levied at the point of delivery, after assignment of delivery obligations. It is charged on the billed amount, which is the Final Settlement Price of the goods to be delivered.

Where it breaks. The exchange does not deal with IGST but ensures collection of only CGST and SGST, and that only at the time of final settlement of the delivery. So buyers may face issues if the sellers and buyers tagged for delivery are from different states and the buyers do not have GSTN for the delivery state.

Both conditions have to hold. A buyer registered in the delivery state is fine whichever state the seller sits in. A buyer and seller in the same state are fine whether or not the buyer is registered elsewhere. It is the combination that bites.

Why the buyer cannot simply pick a state. He cannot pick his counterparty at all, and the state is determined by the delivery centre in the contract specification. A contract may have more than one delivery centre, each with its own premium or discount, and exchanges disclose the premium or discount of different locations and quality precisely so participants can see the difference. But which assigned seller delivers where is not the buyer's choice.

What does avoid it. There are only two clean routes, and both mean never reaching delivery: square off before the tender or delivery period, or trade a cash settled contract, where no goods are billed and no delivery GST arises. Delivery logic — compulsory delivery or cash settlement — is fixed per contract in the contract specification, so the choice is made when the contract is selected, not at expiry.

No rate to quote. The workbook gives no GST rate anywhere; it points to the rates notified by the Government, including amendments effective as of September 2025. So the size of the leakage cannot be stated from this paper — only its base, which is the FSP.

Kumaran Oils Pvt Ltd is registered for GST in Tamil Nadu only. It is long 4 lots of a 10 MT contract, so 40 MT, or 400 quintals. The Final Settlement Price is Rs 6,000 per quintal, so the billed amount is:

400 x 6,000 = Rs 24,00,000

In Case 1 the tax flows through. Kumaran pays GST on Rs 24,00,000, claims the same amount as credit against its Tamil Nadu registration, and the net cost of the tax is nil.

In Case 2 the whole of that tax sticks. At an illustrative rate of 5% the leakage is Rs 1,20,000 on goods worth Rs 24,00,000 — and the workbook states no rate, so the honest expression is rate x Rs 24,00,000. Either way, the loss has nothing to do with the price of the oilseed and everything to do with where an unknown counterparty happened to be registered.

Put it against the hedge it was meant to protect. If Kumaran took the position to lock a Rs 200 per quintal margin, that margin is Rs 80,000 across 400 quintals. A Rs 1,20,000 tax leakage does not dent the hedge — it swallows it whole and leaves Kumaran worse off than if it had never hedged.

So the practical answers are all upstream. Register for GST in every state where a delivery centre of the contracts you trade is located, or square off before the tender period, or trade the cash settled version of the contract.

Chapter 9 (Accounting and Taxation), section 9.4.4, in the closing paragraph on GST in commodity derivatives. It is short, and it is one of the few places in the paper where a tax mechanic is examined as a practical risk rather than as a rate.

Expect: which components of GST does the exchange collect — CGST and SGST only, not IGST; when — at the time of final settlement of the delivery; and who faces the problem — a buyer tagged to a seller in a different state who does not hold GSTN for the delivery state. A scenario question that gives you a buyer registered in one state and a delivery centre in another is the harder version.

• Both conditions are needed. Different states and no GSTN for the delivery state. A buyer registered in the delivery state has no problem, wherever the seller sits.
• The exchange does not deal with IGST at all. It is not that IGST is collected later or by someone else at the exchange — it is outside the exchange's collection entirely.
• CGST and SGST are collected only at final settlement of the delivery, not through the life of the position and not at trade time.
• The base is the FSP. GST is charged on the billed amount, which is the Final Settlement Price of the goods delivered — not the price at which the position was opened.
• Cash settlement side-steps the whole thing, because there is no delivery to bill. So does squaring off before the tender period.
• No rate can be quoted from this paper. The workbook fixes the base and refuses the rate, so any rupee figure for the leakage is illustrative.
• Counterparties are assigned, not chosen. That is what makes this structural rather than a bad commercial decision, and it is why the workbook files it as an issue rather than an error.