Circulars after circulars, amendments, insertion of new Rules and overriding of Rule over Act for the sequence of ITC Utilization created a lot of confusion in the mind of suppliers and professionals.

In this article, an attempt has been made to simplified the understanding of the Input Tax Credit ( ITC) utilization sequence.

The sequence of ITC Utilisation as per GST Act 2017: Section  49(5) and 49A of CGST Act 2017 has specified the sequence of ITC utilization.

 The Government is empowered to change the sequence: Section 49B of CGST Act, empowered  Government on the recommendation of Council to change the order of utilization.

As per section 49B of CGST Act, 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 utilization 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. ( Sec 49 B of CGST Act inserted vide CGST (Amendment) Act, 2018 inserted w.e.f. 1-2-2019)

Input tax credit

Provisions of section 49(5)(e) and 49(5)(f) which can not be altered:  As per Sec 49(5)(e) The central tax shall not be utilised towards payment of State tax or Union territory tax, and 49(5)(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.

The sequence of ITC Utilisation as per CGST Act: The amount of input tax credit on account of IGST available in the electronic credit ledger shall first be utilized towards payment of IGST and the amount remaining, if any, may be utilized towards the payment of CGST and SGST/UTGST, in that order.-  Section 49(5)(a) of CGST Act

The sequence of ITC Utilisation as per CGST Rule:    Rule 88A of CGST Rules has been inserted vide w.e.f. 1-4-2019 and order of utilization of input tax credit as per rule 88A .- Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order. 

Rule 88A overrides Sec 49 (5)(a) Provisions  Normally, section prevails over the rules but in view of section 49B of CGST Act, rule 88A of CGST Rules will override provisions of section 49(5)(a). Hence, the order of utilization of Input Tax Credit w.e.f. 1-4-2019 is as per rule 88A

Rule 88 A – Order of utilization of input tax credit.- Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order.- rule 88A of CGST Rules, inserted w.e.f. 1-4-2019.

The utilisation of excess ITC of IGST (if any)  – If after payment of entire IGST through electronic credit ledger, there is a balance of IGST in electronic credit ledger, if any may be used either for payment of CGST or SGST/UTGST in any order i.e. as per the choice of taxable person – rule 88A of CGST Rules [it overrides section 49(5)(a) of CGST Act].

The taxable person can partially utilise IGST credit for CGST and partially for SGST/UTGST as per his choice (after first utilising fully for payment of IGST) – CBI&C Circular No. 98/17/2019-GST dated 23-4-2019.

The credit of CGST, SGST, and UTGST can be used only for payment of CGST, SGST/UTGST or IGST, only after ITC of IGST is fully utilised – proviso to rule 88A of CGST Rules inserted w.e.f. 1-4-2019 and section 49A of CGST Act.

Thus, credit of IGST should be fully exhausted before utilising credit of CGST and SGST/UTGST.

Utilisation of ITC of CGST  Credit available in CGST will first be utilized for payment of CGST.

After full payment of CGST, if some ITC of CGST is available in electronic credit ledger, that can be utilised for payment of IGST (if payable) – section 49(5)(b) of CGST Act.

If no IGST is payable, that credit should be carried forward.

Utilisation of ITC of SGST  After full payment of SGST/UTGST, if some ITC of SGST/UTGST is available in electronic credit ledger, that can be utilised for payment of IGST (if payable) – section 49(5)(c) of CGST Act for SGST and section 49(5)(d) of CGST Act for UTGST.

The input tax credit on account of SGST/UTGST shall be utilised towards payment of IGST only where the balance of the input tax credit on account of CGST is not available for payment of IGST if ITC of CGST has been fully utilisedproviso to sections 49(5)(c) of CGST Act for SGST and 49(5)(d) of CGST Act for UTGST inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.

Thus, ITC of SGST/UTGST can be utilised for payment of IGST only when ITC of CGST is not available for utilization.

If no IGST is payable, that credit should be carried forward 

Payment of IGST  – The ITC of IGST should first be utilised fully for payment of IGST through electronic credit ledger.

If the credit is insufficient, balance IGST can be paid through ITC of CGST and SGST/UTGST as explained below.

If that credit is insufficient, balance IGST should be paid through electronic cash ledger.

Payment of CGST  – After full utilisation of ITC of IGST, if some CGST is still payable, it can be paid through CGST Electronic Credit Ledger. If the credit is not sufficient, balance CGST should be paid through electronic cash ledger

Payment of SGST/UTGST – After full utilisation of ITC of IGST, if some SGST/UTGST is still payable, it can be paid through SGST/UTGST Electronic Credit Ledger

Example: Utilisation of credit & payment of liability can be explained with the following example.

ITC available & payment liability of Mr A is as tabulated below:-

Type of Tax Available ITC (Rs.) Liability to Pay   (Rs.)
IGST        1000            500
CGST          300            500
SGST          300           500
TOTAL        1600         1500

The sequence of Utilisation of ITC & Payment of Liability

Tax Type Available ITC

(Rs.)

Liability to Pay

(Rs.)

Liability Set Off (Rs.) Balance to be paid in cash Balance Credit ( to be carried forward) Remarks
IGST 1000 500 500 0 0 Balance ITC of Rs 500/- IGST  should be fully exhausted before utilizing available ITC of CGST & SGST /UTGST (proviso to rule 88A of CGST Rules inserted w.e.f. 1-4-2019 and section 49A of CGST Act.)

 

CGST 300 500 250       (from IGST ) 250

(From CGST)

 

 

0 50 As per Sec 49(5)(a), Mr A was to utilized ITC in the order of – IGST-CGST – SGST.

If he does so, the liability of 300 could have been set off out of IGST balance of 500 and the remaining 200 liability from CGST credit available. Available CGST to be carried forward would have ( 300-200) = Rs 100

Whilst Setting of SGST liability, Rs 200 would have required to be paid in cash as available Credit of CGST cannot be used for SGST

Rule 88A allows utilizing the remaining amount ( after utilizing IGST ) in any Order. Thus the best utilization could have made by Mr A in the given example.

SGST 300 500 250       (from IGST )

250  (From SGST)

 

 

0 50
TOTAL 1600 1500 1500 100  

Note:- Rule 88A of CGST Rules, will override provisions of section 49(5)(a) in view of section 49B of CGST Act. Hence, the order of utilization of Input Tax Credit w.e.f. 1-4-2019 will be as above

The author can be accessed at caanitabhadra@gmail.com

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