The registered taxpayer under GST is very much concerned about the ITC utilization rules since dealing with three types of ITC i.e. ITC of IGST, CGST and SGST. The taxpayer has already seen various amendments in the utilization rule which directly affects its finance. The amendment in ITC utilization rule, vide insertion of section 49A, has adversely resulted in blockage of ITC and payment of additional funds. The said situation has been resolved with the insertion of rule 88A.

The CBIC, vide circular no. 98/17/2019-GST dated 23rd April, 2019, clarified the effect of rule 88A and its availability on the common GST portal.

The recent flow of amendments and clarification affecting ITC utilization rules –

1. Insertion of section 49A and section 49B, vide the Central Goods and Service Tax (Amendment) Act, 2018, made effective from 1stFebruary, 2019.

2. Insertion of rule 88A vide the Central Goods and Service Tax (Second Amendment) Rules, 2019 notified vide notification no. 16/2019 – Central Tax dated 29thMarch, 2019.

3. Clarification vide circular no. 98/17/2019-GST dated 23rdApril, 2019.

Effect of insertion of Section 49A and Section 49B –

Provisions inserted vide section 49A states that input tax credit of CGST / SGST or UTGST can be utilized towards payment of IGST / CGST / SGST or UTGST only and only after fully utilizing the input tax credit of IGST. The effect of the said provisions is reflected in the below table –

TAX PAYMENT OF UTILISATION OF INPUT TAX CREDIT
FIRST SECOND THIRD
IGST IGST CGST SGST
CGST IGST CGST _
SGST IGST SGST _

Let us understand the effect of the above provisions through the below tabular example –

TAX LIABILITY INPUT TAX CREDIT PAYMENT OF TAX LIABILITY BALANCE REMAINING IN INPUT TAX CREDIT COMMENT
CASH INPUT TAX CREDIT
IGST –

INR 50,000

IGST –

INR 1,50,000

NIL 50,000

(ITC of IGST)

NIL

 

ITC of IGST is fully utilized towards payment of IGST and CGST.
CGST –

INR 1,00,000

CGST –

INR 25,000

NIL 1,00,000

(ITC of IGST)

25,000 Since the balance of ITC of IGST (INR 1,00,000) needs to be used for payment of CGST and hence the balance of ITC of CGST remained unutilized.
SGST –

INR 1,00,000

SGST –

INR 25,000

75,000 25,000

(ITC of SGST)

NIL Since the balance of ITC of CGST remained unutilized, SGST tax of 75,000 was required to be paid in cash. Due to this there was blockage of INR 25,000.

Section 49B empowers the Government to prescribe the order and the manner of utilization of ITC of IGST, CGST, SGST and UTGST towards payment of any such tax.

Effect of insertion of Rule 88A –

Provision of the newly inserted rule 88A clarified that input tax credit of IGST should be utilized first towards payment of IGST and balance input tax credit of IGST can be used towards the payment of CGST and SGST in any order.

The insertion of rule 88A has altered the input tax credit utilization rule to the extent that ITC of IGST can be used in any order towards payment of CGST and / or SGST. The new ITC utilization rule is being summarized in the below table –

TAX PAYMENT OF UTILISATION OF INPUT TAX CREDIT
FIRST SECOND
IGST IGST CGST / SGST

(credit can be utilized in any order)

CGST IGST CGST
SGST IGST SGST

Let us understand the effect of above provisions through the below tabular example –

TAX LIABILITY INPUT TAX CREDIT PAYMENT OF TAX LIABILITY BALANCE REMAINING IN INPUT TAX CREDIT
CASH INPUT TAX CREDIT
IGST –

INR 50,000

IGST –

INR 1,50,000

NIL 50,000

(ITC of IGST)

NIL

 

CGST –

INR 1,00,000

CGST –

INR 25,000

NIL 75,000

(ITC of IGST)

25,000

(ITC of CGST)

NIL
SGST –

INR 1,00,000

SGST –

INR 25,000

50,000 25,000

(ITC of IGST)

25,000

(ITC of SGST)

NIL

Vide circular no. 98/17/2019-GST dated 23rd April, 2019 only the clarifies that the ITC of IGST needs to be fully utilized, however, it has been clarified that ITC of IGST can be used towards the payment of CGST and SGST in any order. It has importantly clarified that the GST common portal still supports order of utilization of ITC as per provisions of section 49A and till the new order of utilization of ITC as per inserted rule 88A is not implemented on the GST portal, the taxpayer can continue to utilize the ITC as per the functionality available on the GST portal.

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2 Comments

  1. D Gowthami says:

    What if the CGST & SGST credit is more than IGST Credit? can the cross utilisation of CGST & SGST credit happen for Setting off IGST Liability?

  2. ROHINI PATIL says:

    Sir, Facts = 1) We have cab service @5% without ITC. So we have to pay in cash. 2) We have hotel rent service with ITC balance of Plant & Machinery. 3) We have fire prevention service 18% with ITC.
    Difficulty= We cannot utilise ITC for cab service. and portal will not allow us to pay cash since there is ITC related to other two services. What to do

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