The Central Government vide circular number 33/07/2018-GST dated 23 Feb 2018 has provided the following directions: –

(i) Non-utilisation of Disputed Credit carried forward: – The circular provides that amount of Cenvat Credit carried forward in GST regime, which is held to be disallowed vide order in original or order in appeal, as it existed on 1 July 2017, shall not be utilised by a registered taxable person to discharge his GST liability till the time such order is in existence.

(ii) Non-transition of blocked credit: – The circular provides that a registered taxable person, who has carried forward the Cenvat credit which is not allowed under section 17(5) of GST Act 2017, shall not utilise such credit to discharge his GST liability.

The circular further provides that if the above credit (disputable or blocked credit) has been utilised by the registered taxable person for discharging his GST liability then such credit shall be recovered from the taxpayer with interest and penalty as per the provisions of the GST Act.

However, it is informed to the government that credit utilisation mechanism is not in registered person’s control. The same is now controlled by the GST Portal in the manner which is beyond the provisions of law. The same is explained as follows: –

Section 49(5) of CGST Act 2017 provides statutory provisions of for utilisation of Input Tax Credit. The statutory text of same is reproduced as follows: –

The amount of input tax credit available in the electronic credit ledger of the registered person on account of––

a) 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 as the case may be, Union territory tax, in that order;

b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;

c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and

f) the State tax or Union territory tax shall not be utilised towards payment of central tax.

Let us understand the credit utilisation mechanism as per GST law and as allowed on GST portal with a live example:-

A registered taxable person who was a service tax assessee in pre-GST regime have a closing balance of Cenvat Credit of Rs.42 Lakhs as on 30 June 2017 which comprises the following:-

Type of Closing Balance Amount of Closing Balance of Cenvat Credit
Service Tax 40,00,000
Krishi Kalyan Cess (KKC) 2,00,000
Total 42,00,000

The registered taxable in the month of July 17 carried forward the closing balance of Cenvat Credit of Rs. 42,00,000 as CGST in GST regime after filing GST Trans-1 Form. It is also well known that department is disputing the carry forward of KKC credit. Now the registered taxable person, wants to keep closing balance of CGST equivalent to Rs.2,00,000 till the time clarity in respect of carry forward of KKC is obtained.

In the month of July 17, registered taxable person does not have any GST liability however in the month of Aug 17, the GST liability of registered taxable person is as follows: –

Description of Tax Amount
Output IGST 70,00,000
Input Tax IGST 5,00,000
Input Tax CGST 12,50,000
Input Tax SGST 12,50,000

From the above data and information, I calculated IGST Payable through challan in excel sheet in following manner:-

Description Tax Payable Paid through IGST ITC Paid through CGST ITC Paid through SGST ITC Payable through Challan (IGST) Closing Balance of ITC
Integrated Tax 70,00,000 5,00,000 52,50,000 12,50,000 Nil 2,00,000 (CGST)

According to me, the above calculation is in compliance to GST Act 2017 and rules made thereunder. However, the portal is not accepting the above calculation. The calculation accepted by the portal is explained in the following manner: –

Description Tax Payable Paid through IGST ITC Paid through CGST ITC Paid through SGST ITC Payable through Challan (IGST) Closing Balance of ITC
Integrated Tax 70,00,000 5,00,000 54,50,000 10,50,000 Nil 2,00,000 (SGST)

It is evident from the above GST Portal calculation that for utilising SGST ITC against IGST output liability, CGST ITC must be exhausted fully.

It is submitted that above restriction embodied in GST portal is arbitrary and against the substantive provisions as provided under section 49(5) of CGST Act. Section 49 (5) of CGST Act 2017 does not provide that for utilising SGST ITC against IGST output liability, the CGST ITC must be exhausted.

A writ petition before Hon’ble Delhi High Court has been filed in respect of above matter. The same was reported vide A & M DESIGN & PRINT PRODUCTION Vs UNION OF INDIA 2017 (4) G.S.T.L. 444 (Del.). The writ petition has not yet been disposed by Hon’ble Delhi High Court. The matter is posted for next hearing on 15 May 2018.

Thus, it is evident from the above that GST Portal has gone beyond the clear substantive provisions of utilisation of ITC as provided under section 49(5) of CGST Act 2017. 

Consequence of utilisation of doubtful Credit: – Once the taxpayer utilises the doubtful credit, there is a risk that department will issue Show Cause Notice proposing to demand doubtful credit along with interest and penalty. If the taxpayer would be able to keep minimum amount of closing balance equivalent to doubtful credit then at least interest and penalty consequences could be avoided. The same is due to reason that by keeping minimum amount of closing balance equivalent to doubtful ITC, the taxpayer can always argue that doubtful credit has only been availed not utilised.

The above is an illustration. There may be n number of examples where taxpayer does not want to use particular IGST ITC or CGST ITC but due to restriction provided at GST portal, he is compulsorily required to use doubtful IGST ITC or CGST ITC.

Conclusion

It appears that there is no proper coordination between GSTN (Company entrusted for developing and maintaining GST portal) and legislators. To give effect to the statutory provisions in correct manner, proper coordination between GSTN and legislators must be given utmost priority. It is expected that same will improve in future.

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