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A Note on Order of utilization of Input Tax Credit

Order of Utilization as per Section 49(5) from 01.07.2017 to 31.01.2019: –

utilization of input tax credit in GST is discussed in this article.The amount of input tax credit available in the electronic credit ledger of the registered person on account of–– 

(a) the integrated tax shall first be utilized towards payment of integrated tax and the amount remaining, if any, may be utilized 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 utilized towards payment of central tax and the amount remaining, if any, may be utilized towards the payment of integrated tax; 

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

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

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

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

Payment for

First set off from

Then set off from

SGST

SGST

IGST

CGST

CGST

IGST

IGST

IGST

CGST & SGST

A new law on GST set-off w.e.f 01.02.19 to 31.03.2019: –  

 New sections inserted after section 49 of the CGST Act- 

 Utilization of input tax credit subject to certain conditions: –  

“49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized 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 utilized fully towards such payment.  

Order of utilization of input tax credit: –  

49B. 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.”.  

By combined reading of above, it can be said that the input of IGST will be first utilized for the payment of CGST and SGST exclusively respectively. 

As per the new set off the following rules apply –

Payment for

First set off from

Then set off from

IGST

IGST

CGST and SGST

CGST

Balance IGST Input 

after adjusting with IGST Liability

CGST

SGST

Balance IGST Input after adjusting with IGST and CGST Liability respectively

SGST

 

In the above case, Taxpayer needs to pay SGST even if whatever CGST credit is available in the electronic credit ledger as whole credit of IGST will have to utilize for CGST payable first. This provision was affecting the working capital of the industry.

Payment for

First set off from

Then set off from

IGST

IGST

CGST & SGST

CGST

IGST*

CGST

SGST

IGST*

SGST

The new order of utilization w.e.f 01.04.2019: –  

Rule 88A is introduced by way of notification no. 16/2019- Central Tax, dt 2903-2019 for Order of utilization of input tax credit to resolving the industry issue wrt working capital. • Input tax credit on account of integrated tax shall first be utilized towards payment of integrated tax, and the amount remaining, if any, may be utilized 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 utilized 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 utilized fully.

Clarification in respect of utilization of input tax credit under GST by Circular No. 98/17/2019-GST dt 23.04.2019: –

 Section 49 was amended and Section 49A and Section 49B were inserted vide Central Goods and Services Tax (Amendment) Act, 2018. The amended provisions came into effect from 1st February 2019.

Various representations have been received from the trade and industry regarding challenges being faced by taxpayers due to bringing into force of section 49A of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act).

The issue has arisen on account of order of utilization of input tax credit of integrated tax in a particular order, resulting in accumulation of input tax credit for one kind of tax (say State tax) in electronic credit ledger and discharge of liability for the other kind of tax (say Central tax) through electronic cash ledger in certain scenarios.

Presently, the common portal supports the order of utilization of input tax credit in accordance with the provisions before the implementation of the provisions of the CGST (Amendment) Act i.e. pre-insertion of Section 49A and Section 49B of the CGST Act. Therefore, till the new order of utilization as per newly inserted Rule 88A of the CGST Rules is implemented on the common portal, taxpayers may continue to utilize their input tax credit as per the functionality available on the common portal.  

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