Structural Distortions in IGST Allocation under India's GST Regime: An Analysis of Centralized Tendering, Destination-Based Taxation, and Fiscal Federalism

The Integrated Goods and Services Tax (IGST) mechanism under India’s GST regime is intended to uphold destination-based taxation and ensure equitable revenue distribution between producing and consuming states. This paper examines a critical distortion in IGST allocation arising from centralized public procurement and tendering practices adopted by public sector undertakings, public limited companies, and government departments headquartered in major metropolitan and capital regions such as Delhi and Maharashtra. Despite goods being physically distributed and consumed across multiple states, the place of supply and supplier location often coincide with the head office or tender-issuing authority. This results in a disproportionate concentration of IGST revenues in head-office states, while consuming states experience systematic revenue loss. The imbalance is further intensified by the absence of mandatory state-wise invoicing requirements for inter-state supplies under centralized tenders, preventing accurate destination-based tax apportionment. Using doctrinal legal analysis and examination of public procurement structures, this study demonstrates how existing GST rules inadvertently weaken the principles of fiscal equity and cooperative federalism. The paper concludes by proposing policy reforms mandating state-wise invoicing linked to actual delivery destinations, thereby realigning IGST distribution with the constitutional objectives of India’s GST framework.