Section 17 of IGST Act 2017: Apportionment of Tax and Settlement of Funds

Provisions under Section 17 of the Integrated Goods and Services Tax (IGST) Act, 2017 relating to “Apportionment of Tax and Settlement of Funds”, are as under:

Section 17 of IGST Act 2017: Apportionment of Tax and Settlement of Funds (CHAPTER VIII APPORTIONMENT OF TAX AND SETTLEMENT OF FUNDS)

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

(a) 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;

(b) in respect of inter-State supply of goods or services or both where the registered person is not eligible for input tax credit;

(c) 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;

(d) 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;

(e) in respect of import of goods or services or both where the registered person is not eligible for input tax credit;

(f) 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,–

(a) State where such supply takes place; and

(b) 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,–

(a) each of the States; and

(b) 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. [Refer Note 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.

Amendments History:

1. Sub-section (2A) inserted vide the IGST (Amendment) Act, 2018 (GOI Notification dated 30/08/2018), followed with CBIC Notification on commencement date of 01/02/2019 vide Integrated Tax Notification 1/2019 dated 29/01/2019.

Commentary on Section 17 of the IGST Act

Section 17 of the Integrated Goods and Services Tax (IGST) Act, 2017 outlines the apportionment of tax and settlement of funds. The section is divided into five subsections, which are explained below:

Section 17(1) of the IGST Act

Section 17(1) outlines six scenarios in which the integrated tax paid to the Central Government will be apportioned. The tax amount, calculated at a rate equivalent to the central tax on similar intra-State supply, will be given to the Central Government. These scenarios involve inter-State supply of goods or services or both and import of goods or services or both, where the recipient is either unregistered, registered and paying tax under section 10 or not eligible for input tax credit. The same applies to registered recipients who do not avail input tax credit within the specified period.

Section 17(2) of the IGST Act

Section 17(2) deals with the remaining balance of integrated tax after the apportionment made in subsection (1). The balance will be apportioned between the State and the Central Government, depending on where the supply takes place. If the place of supply cannot be determined separately or the taxable person is not identifiable, the balance will be apportioned to all States and the Central Government in proportion to the amount collected as State tax or Union territory tax during the preceding financial year.

Section 17(2A) of the IGST Act

Section 17(2A) allows the amount not apportioned under subsections (1) and (2) to be apportioned at a 50:50 rate between the Central Government and the State Governments or Union territories on an ad hoc basis. The amount will be adjusted against the amount apportioned under the mentioned subsections, based on the recommendations of the Council.

Section 17(3) of the IGST Act

Section 17(3) states that the provisions of subsections (1) and (2) regarding apportionment of integrated tax will also apply to the apportionment of interest, penalty and compounding amount related to the tax.

Section 17(4) of the IGST Act

Section 17(4) specifies that the amount collected as integrated tax will be reduced by the amount apportioned to the Central Government or a State Government under subsections (1), (2) or (3). The Central Government will transfer the respective amounts to the central tax account, Union territory tax account or State tax account of the respective States, as prescribed.

Section 17(5) of the IGST Act

Section 17(5) states that if any integrated tax apportioned to a State or the Central Government on account of a Union territory is later found to be refundable to any person and is refunded, the amount will be reduced from the apportioned amount to the State or Central Government in a prescribed manner and time.

In summary, Section 17 of the IGST Act, 2017 deals with the apportionment of tax and settlement of funds in various scenarios involving inter-State supply and import of goods or services, as well as the input tax credit eligibility of the recipients. The section also covers the apportionment of interest, penalty and compounding amounts related to the tax. Furthermore, it establishes guidelines for making adjustments in apportioned amounts when refunds are made, ensuring the proper distribution of funds between the Central Government, State Governments and Union territories.

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Note: The IGST Act 2017 has been notified vide GOI Notification dated 12/04/2017, which has subsequently been amended through IGST Extension to J&K Act 2017, IGST (Amendment) Act 2018. Finance Act 2019, Finance Act 2020, Finance Act 2021, Finance Act, 2022 and Finance Act, 2023, including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective IGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of the Amendments made by various Notifications issued by CBIC from time to time, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.