CHAPTER-8 APPORTIONMENT OF TAX AND SETTLEMENT FUNDS

SECTION-17 Apportionment of tax and settlement of funds

SECTION AND RELEVANT RULES

Section 17. Apportionment of tax and settlement of funds.-

(1) Out of the integrated tax paid to the Central Government,–

• • in respect of inter-State supply of goods or services or both to an unregistered person or to a registered person paying tax under section 10 of the Central Goods and Services Tax Act;
  • in respect of inter-State supply of goods or services or both where the registered person is not eligible for input tax credit;
  • in respect of inter-State supply of goods or services or both made in a financial year to a registered person, where he does not avail of the input tax credit within the specified period and thus remains in the integrated tax account after expiry of the due date for furnishing of annual return for such year in which the supply was made;
  • in respect of import of goods or services or both by an unregistered person or by a registered person paying tax under section 10 of the Central Goods and Services Tax Act;
  • in respect of import of goods or services or both where the registered person is not eligible for input tax credit;
  • in respect of import of goods or services or both made in a financial year by a registered person, where he does not avail of the said credit within the specified period and thus remains in the integrated tax account after expiry of the due date for furnishing of annual return for such year in which the supply was received,

the amount of tax calculated at the rate equivalent to the central tax on similar intra-State supply shall be apportioned to the Central Government.

(2) The balance amount of integrated tax remaining in the integrated tax account in respect of the supply for which an apportionment to the Central Government has been done under sub-section (1) shall be apportioned to the,–

• • State where such supply takes place; and
  • Central Government where such supply takes place in a Union territory:

Provided that where the place of such supply made by any taxable person cannot be determined separately, the said balance amount shall be apportioned to,–

1. 1. 1. each of the States; and
      2. Central Government in relation to Union territories,

in proportion to the total supplies made by such taxable person to each of such States or Union territories, as the case may be, in a financial year:

Provided further that where the taxable person making such supplies is not identifiable, the said balance amount shall be apportioned to all States and the Central Government in proportion to the amount collected as State tax or, as the case may be, Union territory tax, by the respective State or, as the case may be, by the Central Government during the immediately preceding financial year.

[(2A). The amount not apportioned under sub-section (1) and sub-section (2) may, for the time being, on the recommendations of the Council, be apportioned at the rate of fifty per cent. to the Central Government and fifty per cent. to the State Governments or the Union territories, as the case may be, on ad hoc basis and shall be adjusted against the amount apportioned under the said sub-sections.]^[1]

(3) The provisions of sub-sections (1) and (2) relating to apportionment of integrated tax shall, mutatis mutandis, apply to the apportionment of interest, penalty and compounding amount realised in connection with the tax so apportioned.

(4) Where an amount has been apportioned to the Central Government or a State Government under sub-section (1) or sub-section (2) or sub-section (3), the amount collected as integrated tax shall stand reduced by an amount equal to the amount so apportioned and the Central Government shall transfer to the central tax account or Union territory tax account, an amount equal to the respective amounts apportioned to the Central Government and shall transfer to the State tax account of the respective States an amount equal to the amount apportioned to that State, in such manner and within such time as may be prescribed.

(5) Any integrated tax apportioned to a State or, as the case may be, to the Central Government on account of a Union territory, if subsequently found to be refundable to any person and refunded to such person, shall be reduced from the amount to be apportioned under this section, to such State, or Central Government on account of such Union territory, in such manner and within such time as may be prescribed.

Reference for Amendments:-

[1] Inserted by The Integrated Goods and Services Tax (Amendment) Act, 2018 (No. 32 of 2018) – Brought into force w.e.f. 01.02.2019.

ANALYTICAL REVIEW

Apportionment of tax and settlement of funds

This section explains the Apportionment of tax and settlement of funds. It provides the manner in which integrated tax collected by the Union under the IGST Act can be apportioned in between the Union and the States.

In the said section, total amount collected as tax has been divided in two categories-

1. Tax collected on all inter-State supplies of goods or services or both

• • to unregistered persons
  • to person registered but opting for composition scheme
  • to registered person who is not eligible for ITC/ do not avail ITC

1. Tax collected on import of goods or services or both.

• • to unregistered persons
  • to person registered but opting for composition scheme
  • to registered person who is not eligible for ITC/ do not avail ITC

The apportionment of collected amount would be as follows-

1. The amount of tax calculated at the rate equivalent to the central tax on similar intra-State supply shall be apportioned to the Central Government.
2. The balance amount of integrated tax shall be apportioned to the-
3. State where such supply takes place; and
4. Central Government where such supply takes place in a Union territory.

Place of Supply Undeterminable

Where the place of such supply made by any taxable person cannot be determined separately, the said balance amount shall be apportioned to,-

1. each of the States; and
2. Central Government in relation to Union territories,

in proportion to the total supplies made by such taxable person to each of such States or Union territories, as the case may be, in a financial year.

Taxable person making such supplies is not identifiable

Where the taxable person making such supplies is not identifiable, the said balance amount shall be apportioned to all States and the Central Government in proportion to the amount collected as State tax or, as the case may be, Union territory tax, by the respective State or, as the case may be, by the Central Government during the immediately preceding financial year.

Settlement of balance in the integrated tax account equally

The amount not apportioned as per above manner may, for the time being, on the recommendations of the Council, be apportioned at the rate of 50% to the Central Government and 50% to the State Governments or the Union territories, as the case may be, on ad hoc basis and shall be adjusted against the amount apportioned under the said sub-sections. [Section 17(2A)]

Apportionment of interest, penalty etc.

The provisions relating to apportionment of integrated tax shall, mutatis mutandis, apply to the apportionment of interest, penalty and compounding amount realized in connection with the tax so apportioned. [Section 17(3)]

Transfer of apportioned amount

Where an amount has been apportioned to the Central Government or a State Government under sub-section (1) or sub-section (2) or sub-section (3), the amount collected as integrated tax shall stand reduced by an amount equal to the amount so apportioned and the Central Government shall transfer to the central tax account or Union territory tax account, an amount equal to the respective amounts apportioned to the Central Government and shall transfer to the State tax account of the respective States an amount equal to the amount apportioned to that State, in such manner and within such time as may be prescribed. [Section 17(4)]

Refundable amount shall be reduced from apportioned amount

Any integrated tax apportioned to a State or, as the case may be, to the Central Government on account of a Union territory, if subsequently found to be refundable to any person and refunded to such person, shall be reduced from the amount to be apportioned under this section, to such State, or Central Government on account of such Union territory, in such manner and within such time as may be prescribed. [Section 17(5)]

RELEVANT NOTIFICATION

SECTION-17A Transfer of Certain Amounts

SECTION AND RELEVANT RULE

[Section 17A. Transfer of Certain Amounts.-

Where any amount has been transferred from the electronic cash ledger under this Act to the electronic cash ledger under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, the Government shall transfer to the State tax account or the Union territory tax account, an amount equal to the amount transferred from the electronic cash ledger, in such manner and within such time, as may be prescribed.]^[1]

Reference for Amendments:-

[1] Inserted by The Finance (No. 2) Act, 2019 (No. 23 of 2019) – Brought into force w.e.f. 01.01.2020.

ANALYTICAL REVIEW

Transfer of Certain Amounts

A new section 17A has been inserted to provide for transfer of amount in the electronic cash ledger between the Centre and the States as a consequence of new facility given to the tax payers under section 49 of the CGST Act, 2017. Now section 49 allows transfer of an amount from one head to another head in the electronic cash ledger of the registered person.

Hence, where any amount has been transferred from the electronic cash ledger under this Act to the electronic cash ledger under the SGST Act or the UTGST Act, the Government shall transfer to the State tax account or the Union territory tax account, an amount equal to the amount transferred from the electronic cash ledger.

RELEVANT NOTIFICATION

SECTION-18 Transfer of input tax credit

SECTION AND RELEVANT RULE

Section 18. Transfer of input tax credit.-

On utilisation of credit of integrated tax availed under this Act for payment of,–

(a) central tax in accordance with the provisions of sub-section (5) of section 49 of the Central Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the integrated tax account to the central tax account in such manner and within such timeas may be prescribed;

(b) Union territory tax in accordance with the provisions of section 9 of the Union Territory Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the integrated tax account to the Union territory tax account in such manner and within such time as may be prescribed;

(c) State tax in accordance with the provisions of the respective State Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and shall be apportioned to the appropriate State Government and the Central Government shall transfer the amount so apportioned to the account of the appropriate State Government in such manner and within such time as may be prescribed.

Explanation.–For the purposes of this Chapter, “appropriate State” in relation to a taxable person, means the State or Union territory where he is registered or is liable to be registered under the provisions of the Central Goods and Services Tax Act.

ANALYTICAL REVIEW

Transfer of input tax credit

Section 18 of the IGST Act, 2017 explains transfer of Input Tax Credit as below-

On utilisation of credit of integrated tax availed under this Act for payment of,-

1. CGST under section 49(5) of the CGST Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the integrated tax account to the central tax account in such manner and within such time as may be prescribed;
2. UTGST under section 9 of the UTGST Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and the Central Government shall transfer an amount equal to the amount so reduced from the integrated tax account to the Union territory tax account in such manner and within such time as may be prescribed;
3. SGST under the respective SGST Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and shall be apportioned to the appropriate State Government and the Central Government shall transfer the amount so apportioned to the account of the appropriate State Government in such manner and within such time as may be prescribed.

 “appropriate State” in relation to a taxable person, means the State or Union territory where he is registered or is liable to be registered under the provisions of the Central Goods and Services Tax Act

RELEVANT NOTIFICATION

SECTION-19 Tax wrongfully collected and paid to Central Government or State Government

SECTION AND RELEVANT RULE

Section 19. Tax wrongfully collected and paid to Central Government or State Government.-

(1) A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed .

(2) A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

ANALYTICAL REVIEW

Tax wrongfully collected and paid to Central Government or State Government

The said section provides that the amount paid as tax under wrong head has to be refunded. This provision deals with a situation when CGST/SGST or CGST/UTGST is paid on any inter-state supply. It also covers interest implication in a situation where IGST is paid on transaction of Intra- State supply.

• Sub section (1) of Section 19 deals with a situation where IGST has been paid considering the supply “inter-state” and subsequently the same is held to be intra-State and, therefore, it is stipulated that in such situation the IGST which was paid wrongly shall be refunded and the registered person has to pay CGST and SGST on such supply for which no interest shall be required to be paid.
• Sub section (2) of Section 19 deals with a situation where CGST and SGST/UTGST has been paid considering the supply “intra-state” and subsequently the same is held to be inter-State and, therefore, it is stipulated that in such situation the no interest shall be required to be paid on the amount of integrated tax payable.

RELEVANT NOTIFICATION

Relevant Circular