Order of Utilisation of Input tax credit

Manner of Utilisation of ITC
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Input Tax Credit (“ITC”) is a fundamental concept of Goods and Service Tax (“GST”). GST is levied in 3 forms viz. Integrated Goods and Service Tax (“IGST”), Central Goods and Service Tax (“CGST”) and State/Union Territories Goods and Service Tax (“SGST/UTGST”).

GST portal maintains separate ITC accounts for all such forms of GST, i.e., GST input on account of IGST gets credited into ITC ledger of IGST. Similar process is applicable for CGST & SGST/UTGST also. As separate accounts are maintained for all type of GST, it is pertinent to get clarity about order and manner of utilisation of ITC.

Section 49 of Central Goods and Service Tax Act, 2017 (“CGST Act”) deals with order of utilisation of ITC. However, Central Goods and Services Tax (Amendment) Act, 2018 [“CGST (Amendment) Act”] amended the provisions of Section 49 and also inserted Section 49A and 49B thereafter. Further, Rule 88A also got inserted in Central Goods and Service Tax Rules, 2017 (“CGST Rules”) vide power conferred u/s 49B of CGST Act.

Post such amendments various representations were received from industry regarding accumulation of ITC for one kind of tax (to say SGST) in ITC ledger and discharge of liability for other kind of tax (to say CGST) through cash. Accordingly to provide clarity on manner of utilisation of ITC, Central board of Indirect Taxes and Customs (“CBIC”) has issued circular 98/17/2019 dated 23rd April, 2019.

Gist of provisions given under Section 49, 49A and 49B of CGST Act read with Rule 88A of CGST Rules and above mentioned circular is as follows:

1. Order and Manner of Utilization of ITC lying under IGST

  • ITC lying in IGST shall be utilised toward payment of following taxes in this order only (Section 49B of CGST Act read with Rule 88A of CGST Rules):
    • IGST Output Liability
    • CGST/SGST/UTGST Output Liability, any order
  • Section 49(5)(a) provides that ITC on account of IGST should be first utilised toward IGST and amount remains, if any, should be utilised for CGST & SGST/UTGST respectively. However, Provisions of section 49B of CGST Act read with Rule 88A of CGST Rules overrides entire chapter V of ITC.
  • ITC on account of CGST & SGST/UTGST shall be utilised only after the ITC available on account of IGST has first been utilised fully towards such payment. (Section 49A read with Rule 88A)

2. Order and manner of utilization of ITC lying in CGST

  • ITC lying in CGST shall be utilised toward payment of output liability in following order (Section 49(5)(b) of CGST Act):
    • CGST output liability
    • IGST Output Liability
  • ITC lying in CGST account shall not be utilised towards payment of SGST/UTGST output liability (Section 49(5)(e) of CGST Act)
  • ITC on account of SGST/UTGST shall be utilised only after the ITC available on account of IGST has first been utilised fully towards such payment. (Section 49A read with Rule 88A)

3. Order and manner of utilization of ITC lying in SGST/UTGST

  • ITC lying in SGST/UTGST shall be utilised toward payment of output liability in following order (Section 49(5)(c)/(d) of CGST Act):
    • SGST/UTGST output liability
    • IGST Output Liability
  • ITC on account of SGST/UTGST shall be utilised towards payment of IGST only where the balance of the ITC on account of CGST is not available for payment of IGST. (Proviso to Section 49(5)(c)/(d))
  • SGST Shall not be utilised for payment of CGST (Section 49(5)(f))
  • ITC on account of SGST/UTGST shall be utilised only after the ITC available on account of IGST has first been utilised fully towards such payment. (Section 49A read with Rule 88A)

Order and manner of utilisation of ITC is presented below in tabular form for simplification purpose:

ITC on account of:Output liability on account of IGSTOutput liability on account of CGSTOutput liability on account of SGST
IGST(I)(II)-in any order (II)-in any order
(III-ITC on account of IGST to be completely exhausted mandatorly)
CGST(V)(IV)Not Permitted
SGST(VII)Not Permitted(VI)

4. Illustrations of order and manner of utilisation of ITC

Amount of ITC available and output liability under different heads:

HeadOutput LiabilityInput Liability
IGST10001300
CGST300200
SGST300200
Total16001700

Option:1

ITC on account of:Output Liability on account of IGSTOutput Liability on account of CGSTOutput Liability on account of SGST Balance of ITC
IGST1000200100
CGST100100
SGST200
Total1000300300100

Option:2

ITC on account of:Output liability on account of IGST
Output liability on account of CGST

Output liability on account of SGST
Closing ITC Balance
IGST1000100200
CGST200
SGST100100
Total1000300300100

Please note that GST portal has not been updated as per amendments made by CGST (Amendment) Act, i.e., Section 49, 49A and 49B of CGST Act read with Rule 88A of CGST Rule and therefore, it is working as per utilisation order given before amendment. Accordingly, taxpayer may continue to utilise their ITC as per mechanism available on GST portal till GST portal get updated as per amendment.

Missing information in Tax Invoice leads to Penalties u/s 125 and 122

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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Order of Utilisation of Input tax credit

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