“Explore the relevance of one-to-one correlation for utilizing Input Tax Credit (ITC) towards specific outward taxable supplies under the Goods and Services Tax (GST) system. Learn how the seamless flow of ITC allows flexibility in utilization, avoiding complexities and ensuring smooth compliance. Gain insights from legal cases supporting this approach and understand the fundamental aspects of ITC in GST.”
Relevance of One-One Correlation for utilization of particular Input Tax Credit (ITC) towards particular Outward taxable supply
One of the fundamental aspects of the Goods and Services Tax (GST) system is the seamless flow of input tax credit, which helps avoid tax cascading. Input tax credit allows businesses to reduce the tax they have already paid on inputs when paying taxes on their outputs. In this article, we will examine the relevance of establishing a one-to-one correlation between the utilization of specific input tax credit and the discharge of particular outward taxable supplies.
Uninterrupted and seamless chain of input tax credit is one of the key features of Goods and Service Tax. Input Tax Credit mechanism avoid cascading of taxes. In nutshell Input tax credit means at the time of paying taxes on output, you can reduce the tax you have already paid on inputs.
In this article let us to try to analyse whether one-one correlation for utilization of particular Input Tax Credit is required for discharging particular outward taxable supply.
The Input tax credit legitimately earned by the GST dealer and lying as balance in electronic credit ledger can be utilized for payment of GST on an Outward supply, which has no nexus with the inputs on which the ITC has been taken.
It is pertinent to note here that as per Section 49 of the GST Act, the GST dealer is entitled to take Input tax Credit charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.
The rules in respect of payment of tax through electronic credit ledger are contained in Rule 86 of CGST Rules. There is no provision in such rules which restrict the utilization of electronic credit ledger towards output tax in respect of taxable supply. Thus, electronic credit ledger can be utilized for making payment of any output tax under the GST Acts, which would include taxable supply of another business or business verticals
Once the Input Tax is credited to the Electronic Credit ledger in terms of section 49(2) & (4) of CGST Act 2017, it does not contain any identification or restriction for utilizing of such Input Tax Credit. Therefore, there is no requirement under the GST Law to prove the nexus between input & output for the purpose of utilisation of Input Tax Credit towards payment of Output Tax Liability.
For the purpose of better understanding in the context of the present issue, attention can been drawn to business activity carried out by National renowned organizations i.e. “D mart”, “Big Bazaar”, “Central Mall”, “Croma”, “Star Bazaar”, etc. These organization provide various & diverse range of products such as Grocery & Staples, Daily Essentials, Dairy & Frozen, Home & Personal Care, Bed & Bath, Electronics, Home Appliances, Crockery, Footwear, Luggage, Toy & Games, Plastic Containers, Kid’s Apparel, Women’s Apparel, Men’s Apparel, etc.
Here the organization runs its business by offering multiple products and avails the Input Tax Credit at the stage of procurement in terms of section 16 (1) of CGST Act 2017. Once the entitlement of input tax credit on the purchased product is fulfilled according to section 16 and 17, it transpires to be deposited in a common pool of credits in the books of accounts or credited to Electronic Credit Ledger on the GST portal. Subsequently, when the organization sells its various products to the customer by raising tax invoice, the liability towards GST shall be discharged.
Therefore, these organisations as mentioned above may discharge its GST liability on account of outward supplies by utilizing the common pool of credits or credit lying in the Electronic Credit ledger in view of section 49(4) of CGST Act 2017. Hence, under the provision of law, it is very clear that there is no requirement to showcase or to demonstrate the nexus between input or output so as to utilize the Input Tax Credit lying in the pool of credit for the payment of output tax.
Conclusion:
In conclusion, the GST system enables businesses to utilize input tax credit earned on various inputs towards the payment of output tax liability. There is no requirement for a one-to-one correlation between specific input tax credit and particular outward taxable supplies. The law permits the utilization of the input tax credit available in the common pool or electronic credit ledger for any output tax liability. This flexibility ensures a seamless flow of credit and avoids unnecessary complexities in the utilization process.
Reliance can be placed on the following cases
♦ Aristo Bullion (P.) Ltd. [2022] 136 taxmann.com 46 (AAAR-GUJARAT)
♦ Nitin Spinners Ltd. v. CCE [Final Order No. 54612 of 2016, dated 24-10-2016]
♦ Entraco Power Systems (P.) Ltd. v. CCE [2017] 3 G.S.T.L. 129 (Tri. – Mumbai)
♦ CCE v. Graphite India Ltd. [2017] 3 G.S.T.L. 505 (Tri. – Mumbai)]
♦ Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130 (Bom.)
(the views expressed in this article are strictly personal)
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