In re Supreme Fireworks Factory (GST AAR Tamilnadu)
The present matter concerns an application for advance ruling filed by a fireworks manufacturing entity registered under the GST laws in Tamil Nadu. The applicant sought clarification regarding the utilization of input tax credit (ITC), particularly whether SGST ITC could be used to discharge IGST liability while SGST output liability remained unpaid and CGST credit was still available, especially when such adjustment was permitted by the GST portal.
The applicant explained its tax position with an illustration. It had IGST output liability of ₹1,00,000, CGST liability of ₹50,000, and SGST liability of ₹50,000. The available ITC included IGST ITC of ₹10,000, CGST ITC of ₹70,000, and SGST ITC of ₹70,000. The applicant proposed to first utilize IGST ITC towards IGST liability, and then use CGST and SGST credits equally to discharge the remaining IGST liability. Thereafter, it intended to discharge CGST and SGST liabilities through the cash ledger. This method was accepted by the GST portal during filing of GSTR-3B.
However, the applicant observed that under this approach, SGST output liability remained unpaid despite availability of SGST ITC, while SGST ITC was used to offset IGST liability. Based on its interpretation of Section 49(5), Section 49A, and Rule 88A of the CGST Rules, the applicant believed that such utilization was not permissible, as SGST credit should first be used against SGST liability and could be used for IGST only when CGST credit was unavailable. The applicant also stated that portal acceptance does not validate a practice if it is contrary to statutory provisions.
