Utilisation Of ITC Sequence In GST Act- Circular No. 98/17/2019-GST Dt.23-04-2019

RECENT CHANGES & CLARIFICATIONS ON SEQUENCE OF ITC UTILIZATION

After introduction of section 49A in CGST Act, 2017 by amendment in CGST Act through CGST (Amendment) Act, 2018 a confusion arose due to new sequence of setting up ITC sequence which was earlier already set in the mind of suppliers & professionals.

Although, Govt. wanted to simplify the issue rather it became more difficult in following “retrospect” amendments then another circular came to clarify further No.98 dt.23rd April, 2019.

Let us analyze the whole issue since inception before jumping to any conclusion. The Act & Rule provisions are as under:

JOURNEY OF ITC UTILIZATION SEQUENCE:  

  1. Original Law i.e. “GST Act, 2017 applicable w.e.f. 1/07/2017 was containing section 49(5) which provided sequence of setting up variety of State, Central & Integrated ITC under the provisions of section 49(5)(a) to 45(5)(f).
  2. Original “CGST Rules, 2017” started from 1st July 2017 till so many amendments done up to 16th Notification, dt.29/03/2019 there was no sequence was given in Rules either in Chapter V Input Tax Credit or in Chapter IX of Payment of Tax up to Rule 88. So, the authorizing section was only 49 till the implementation of section 49A through amended Act, 2018.
  3. Section 49A was introduced in “CGST (Amendment) Act, 2018 dt.29-08-2018, which was effective from 1st February, 2019.
  4. Then Central Goods and Services Tax (Second Amendment) Rules, 2019 came in force w.e.f. 1st Feb, 2019 through Notification No.16/2019 dt.29-03-2019 and in Rule 5 a new Rule 88A is to be inserted after Rule 88 in CGST Rule, 2017. Here, it is pertinent to note that no date of implementation of this rule was which has been construed that it is applicable retrospectively. This rule proviso was a main reason for creating confusion. Which will be discussed later.
  5. To clarify this confusion Govt. came with another Circular No.98/17/2019-GST dt.23-04-2019 effect of this clarification will also be dealt at suitable place of analysis paper.

Provisions Till amendment came w.e.f. 1st Feb, 2019

Section 49(5) of CGST Act, 2017 – Original Act:

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 tabulate above original (old) provisions:

ITC AVAILABLE                OUTPUT LIABILITY
IGST CGST SGST UTGST
IGST U/s 49(5)(a) 1st 2nd 3rd 4th
CGST U/s 49(5)(b) & (e) 2nd 1st Not Allowed Not allowed
SGST U/s 49(5)(c) & (f) 2nd Not Allowed 1st Not Allowed
UTGST U/s 49(5)(d) & (f) 2nd Not Allowed 1st Not Allowed

** 1, 2, 3 & 4 is showing sequence of available ITC to be utilized against output liability.

Situation after amendment in CGST Act (Amendment) 2018 by introducing section 49A:

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.

Along with this amendment in Act a new Rule 88A was also introduced which was extended by proviso of Rule 88A (which is underlined above):

Rule 88A. 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:

Provided that 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.]

“Reason of confusion and problem faced by supplier is above Rule & Act underline provisions – i.e.

First you have to exhaust IGST full only then you can set off other ITC.” Let us tabulate with example:

ITC TYPE ITC AVAILABLE OUTPUT LIABILITY BALANCE
IGST CGST SGST UTGST
IGST 10000 2500 2000 1000 1000 3500
CGST 5000 Not Allowed Not allowed 5000
SGST 2500 Not Allowed Not Allowed 2500
UTGST 2500 Not Allowed Not Allowed 2500
TOTAL 20000 13500

New problem was arisen with the proviso of rule 88A, in above table of example IGST ITC after utilizing with IGST, CGST, SGST & UTGST still balance Rs.3500/- left in IGST ITC therefore unless full 10000/- exhausted till then remaining CGST,SGST and UTGST cannot be set off. Further there are restrictions that you cannot set off SGST with CGST or UTGST and vice versa.

To remove this problem a clarification related to use of ITC sequence is issued through Circular No. 98/17/2019-GST dt.23rd April, 2019 and main feature of Circular is “

As per Circular Option 1

ITC TYPE ITC AVAILABLE OUTPUT LIABILITY BALANCE /TOTAL
IGST CGST SGST UTGST
1000 300 300 0 1600
IGST 1300 -1000 -200 -100 0
CGST 200 -100 Not Allowed Not allowed 100
SGST 200 Not Allowed -200 Not Allowed 0
UTGST Not Allowed Not Allowed
TOTAL 1700 -1000 -300 -300 0 100

As per Circular Option 2

ITC TYPE ITC AVAILABLE OUTPUT LIABILITY BALANCE /TOTAL
IGST CGST SGST UTGST
1000 300 300 0 1600
IGST 1300 -1000 -100 -200 0
CGST 200 -200 Not Allowed Not allowed 0
SGST 200 Not Allowed -100 Not Allowed 100
UTGST Not Allowed Not Allowed
TOTAL 1700 -1000 -300 -300 0 100

CONCLUSION & FINAL UNDERSTANDING OF NEW FEATURE PROVIDED BY RULE 88A AND NEW CIRCULAR DT.23-04-19

** First thing note – that this new arbitrary sequence of ITC utilization is not available at portal right now, you have to wait for this further.

You see, first sequence of IGST ITC utilization is IGST, then CGST then SGST or UTGST could be utilized only.

Now, you have two available sequences –

1. first IGST ITC utilized in IGST, then CGST then SGST or UTGST

2. first IGST ITC utilized in IGST, then SGST then CGST or UTGST

I hope now you have recollected whole provisions of GST Law till 23rd April, 2019. For any clarifications you are most welcome.

Thanks & Regards

Rajiv Nigam, FCA

9811100737

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5 Comments

  1. GST POINT says:

    ARTICLE IS WELL AND BALANCED. BUT YOU DID NOT INCLUDE VICE VERSA CASES UNDER RULE 88A AND SECTION 49, 49A , 49B. MOSTLY UNITS HAVE SUPPLIES FROM ONE STATE TO ANOTHER AND ALL PURCHASES ARE WITHIN STATE. CAN THEY USE ITC OF CGST AND SGST FOR PAYMENT OF IGST IN ANY ORDER OR FIRST CGST AND ONCE IT GETS FULLY EXHAUSTED THEN SGST. REGARDS. GST POINT. MAHESH . 9815166800.

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