On and from 1st February 2019, The Order for availing the set off of ITC has been changed and new Sections 49A & 49B under The CGST Act 2017 have been made effective. Let us analyse the impact of the same on Trade & Industry –

The Amendment –

21. After section 49 of the principal Act, the following sections shall be inserted, namely:–

Utilisation of input tax credit subject to certain conditions

“49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.”

Order of utilisation of input tax credit

49B. Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.”.

Before analysing the Impact of Sec 49A, the following two important things should be noted regarding amendment of Sec 49B as follows –

1. The constraint u/s 49A is in addition to the following two constraints–

a. Sec49(5)(e & f) – CGST can’t be adjusted against SGST and vice-versa

b. CGST of one state can’t be adjusted against CGST of another

It is pertinent to note here that the constraint in “1b” above, that CGST of one state can’t be adjusted against CGST of another state, is not mentioned anywhere in the CGST Act. However it is a GST Portal Constraint. Whether the same would be challenged in future is a matter to be seen.

2. Sec 49B has further given the opportunity to the Govt. To make any amendments in this order of Utilization also in time to come. Hence we may see further amendments vide Rules in this hierarchy of utilization of ITC also. Possibly the constraint in “1b” above that CGST of one state can’t be adjusted against CGST of another state may be done away with the help of the GST Portal.

Now, lets analyse the possible impact of the insertion of Section 49A of The CGST Act 2017 from 1st February 2019

I. Rules of Set Off till The Month of January 2019

Payment for First set off from Then set off from
IGST IGST CGST and SGST
CGST CGST IGST
SGST SGST IGST

Example 1 (When there is no liability of IGST but there is ITC of IGST) –

ITC ITC Amount Liability 1st Adjustment 2nd Adjustment Balance to Pay in Cash Balance ITC
IGST 100
CGST 100 150 Rs. 150-100 (CGST ) Rs 50-50 (IGST )
SGST 100 150 Rs. 150-100 (SGST ) Rs 50-50 (IGST )

Example 2 (When there is some liability of IGST as well as ITC of IGST) –

ITC ITC Amount Liability 1st Adjustment 2nd Adjustment Balance to Pay in Cash Balance ITC
IGST 100 50 Rs. 50-50 (IGST)
CGST 100 150 Rs. 150-100 (CGST ) Rs. 50-50 (IGST )
SGST 100 150 Rs. 150-100 (SGST ) 50

II. Rules of Set Off from the Month of February 2019

Payment for First set off from Then set off from
IGST IGST CGST and SGST
CGST IGST CGST
SGST IGST SGST

Example 1 (When there is no liability of IGST but there is ITC of IGST) –

ITC ITC Amount Liability 1st Adjustment 2nd Adjustment Balance to Pay in Cash Balance ITC
IGST 100
CGST 100 150 Rs. 150-100 (IGST ) Rs 50-50 (CGST ) 50
SGST 100 150 Rs. 150-100 (SGST) 50

Example 2 (When there is some liability of IGST as well as ITC of IGST) –

ITC ITC Amount Liability 1st Adjustment 2nd Adjustment Balance to Pay in Cash Balance ITC
IGST 100 50 Rs. 50-50 (IGST)
CGST 100 150 Rs. 150-50 (IGST ) Rs 100-100 (CGST)
SGST 100 150 Rs. 150-100 (SGST ) 50

Hence we can see from the above that the Cash Flows of some dealers might be stuck due to the above change.

Author Bio

Qualification: LL.B / Advocate
Company: Tax Connect Advisory Services LLP
Location: MUMBAI, Maharashtra, IN
Member Since: 10 Jan 2019 | Total Posts: 11
Mr. Vivek Jalan is a Fellow Member of the Institute Of Chartered Accountants of India (ICAI) & a qualified LL.B. He is the member of The CII- Economic Affairs & Taxation Committee. He is the Co Chairman of The Indirect Tax Committee of The Bengal Chamber of Commerce and Industry. He is also View Full Profile

My Published Posts

More Under Goods and Services Tax

10 Comments

  1. MAHESH GUPTA says:

    MY ITC BALANCE
    CGST 389554 AND SGST 632911
    THIS MONTH ITC
    CGST 105349 SGST 105349
    OUTPUT LAIBILITIES
    IGST 691356 CGST 1011673 SGST 1011673

  2. X M Pereira says:

    I have liability of IGST-0, CGST-4977,SGST-4977 and ITC of IGST-14400, CGST-34234, SGST-141979 when i am trying to offset my laibility as per new provision shows me this error message – offset the CGST credit against the CGST liability first before cross-utilization.If error persists quote error number LG9069 when you contact customer care for quick resolution.

  3. Anil Kumar Agarwala says:

    I donot agree to the Setoff of IGST credit entirely against CGST Liability (Post February 2019) as shown in Example 1. Section 49A says that IGST credit has to be fully setoff before utilising Other credits. So why not adjust IGST credit against CGST and SGST both (Rs. 50 against CGST and like amount against SGST). Thereafter, CGST credit may be adj against balance CGST payable (Rs. 50) and SGST credit against SGST Payable. This way there will be no blocking of funds.

  4. DIVYSH says:

    we have GSTR-3B filing for the month of Jan’19 but set of IGST, CSGT & SGST is old format. Kindly advice which month return filing effect this rules.

    1. mahesh patel says:

      yes it not working in fot the months of january ,sysytem auto calculated as per old methods of set off rule …this is an qustion whether is applicabke for the months of january return??

  5. VH TAX CONSULTING SERVICES says:

    again they have started to collapse the system. all those fund will be credited into the centralised fund pool, what is their problem to exchange from their, why they are harassing the assesses, i hope the the government will erode all those small traders in indian market.

  6. Rahul says:

    Example 2 post Feb 19 seems to be incorrect. Towards CGST liability : Set off 1 would be IGST then Set off 2 would be CGST irrespective of ones output liability having IGST or not?

    Am I correct in the above statement?

    1. dk says:

      Yes; as per provision of sec 49a you are correct. Above illustration is not correct i think. Please clarify who have posted this.
      Further, will it not be applicable for Jan’19 as well.

Leave a Comment

Your email address will not be published. Required fields are marked *