Apportionment of tax collected under IGST Act and settlement of funds :
Given the above scheme of transfer of funds in the CGST/SGST and IGST accounts inter-se, there is a further need of apportionment of taxes from the IGST account to the central and the State government(s) as this is the only component which is having share of both governments. Section 10 of the IGST Act governs the principles for such apportionment. Broadly, the distribution of the IGST to the Centre and the States would take place with respect to the taxes collected on the supplies in which credit chain is stopped. Further, the manner prescribed by the provision indicates that – first the amount for distribution is computed for the central government taking the applicable CGST rate as the basis of apportionment of the amount to the CGST account of the central government, and the residual amount is distributed to the States in their respective SGST accounts.
The provision indicates following situations where credit chain could be stopped, and the respective amount payable as CGST is to be identified and apportioned to CGST account:
1. Where inter-state supplies are made within India or from outside India by way of imports, to an unregistered person;
2. Where the inter-state supplies are made within India or from outside by way of imports, to a taxable person paying taxes under composition scheme (under section 8 of the MGL);
3. Where the inter-state supplies are made within India or from outside India to India by way of imports, to a taxable person not eligible to claim the input tax credit;
4. Where inter-state supplies are made within India or from outside India by way of imports, to a taxable person who does not avail the said credit within the specified period and thus the credit remains in the IGST account after the expiry of due date for filing of annual return, i.e. 31st December of the next year from the year to which the credit pertains.
In all the above cases, the amount of tax calculated at the rate equivalent to the CGST on similar intra-state supply shall be apportioned to the Central Government and the amount so calculated would be transferred from IGST Account to the CGST Account.
Now, in respect of the supplies for which apportionment has been done for CGST as above, the rest of the amount of IGST shall be apportioned to the States in their respective SGST accounts where such supply has taken place. The amount so calculated would be transferred from IGST Account to the SGST Account. The place of such supply shall be determined according to the provisions contained in Section 5 and 6 of the IGST Act dealing with the Place of Supply of Goods and Place of Supply of Services respectively.
Section 10 of the IGST Act further provides that the amount of interest and penalty collected on any supplies for which IGST has been apportioned to CGST and SGST as above, shall also be apportioned in the same manner.