CHANGE IN PAYMET/ SET OFF RULES UNDER GST FROM 1ST FEBRUARY 2019: DOES IT RESULT IN BLOCKAGE OF WORKING CAPITAL?

[AttnVivek Jalan]

On and from 1^st February 2019, The Order for availing the set off of ITC has been changed and new Sections 49A & 49B under The CGST Act 2017 have been made effective. Let us analyse the impact of the same on Trade & Industry -

The Amendment -

21. After section 49 of the principal Act, the following sections shall be inserted, namely:--

“Utilisation 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 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.

Order of utilisation 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 utilisation 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.".

Before analysing the Impact of Sec 49A, the following two important things should be noted regarding amendment of Sec 49B as follows -

1. The constraint u/s 49A is in addition to the following two constraints –
   1. Sec 49(5)(e & f) – CGST can’t be adjusted against SGST and vice-versa
   2. CGST of one state can’t be adjusted against CGST of another state.

It is pertinent to note here that the constraint in “1b” above, that CGST of one state can’t be adjusted against CGST of another state, is not mentioned anywhere in the CGST Act. However it is a GST Portal Constraint. Whether the same would be challenged in future is a matter to be seen.

2. Sec 49B has further given the opportunity to the Govt. To make any amendments in this order of Utilization also in time to come. Hence we may see further amendments vide Rules in this hierarchy of utilization of ITC also. Possibly the constraint in “1b” above that CGST of one state can’t be adjusted against CGST of another state may be done away with the help of the GST Portal.

Now, lets analyse the possible impact of the insertion of Section 49A of The CGST Act 2017 from 1^st February 2019 –

1. Rules of Set Off till The Month of January 2019 –

Payment for	First set off from	Then set off from
IGST	IGST	CGST and SGST
CGST	CGST	IGST
SGST	SGST	IGST

      Example 1 (When there is no liability of IGST but there is ITC of IGST) -

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to Pay in Cash	Balance ITC
IGST	100	-	-	-	-	-
CGST	100	150	₹ 150-100 (CGST )	₹ 100-50 (IGST )	-	-
SGST	100	150	₹ 150-100 (SGST )	₹ 100-50 (IGST )	-	-

Example 2 (When there is some liability of IGST as well as ITC of IGST) -

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to Pay in Cash	Balance ITC
IGST	100	50	₹ 50-50 (IGST)	-	-	-
CGST	100	150	₹ 150-100 (CGST )	₹ 100-50 (IGST )	-	-
SGST	100	150	₹ 150-100 (SGST )	-	-	50

2. Rules of Set Off from the Month of February 2019 –

Payment for	First set off from	Then set off from
IGST	IGST	CGST and SGST
CGST	IGST	CGST
SGST	IGST	SGST

Example 1 (When there is no liability of IGST but there is ITC of IGST) -

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to Pay in Cash	Balance ITC
IGST	100	-	-	-	-	-
CGST	100	150	₹ 150-100 (IGST )	₹ 100-50 (CGST )	-	50
SGST	100	150	₹ 150-100 (SGST)	-	50	-

Example 2 (When there is some liability of IGST as well as ITC of IGST) -

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to Pay in Cash	Balance ITC
IGST	100	50	₹ 50-50 (IGST)	-	-	-
CGST	100	150	₹ 150-100 (CGST )	₹ 50-50 (IGST)	-	-
SGST	100	150	₹ 150-100 (SGST )	-	-	50

Hence we can see from the above that the Cash Flows of some dealers might be stuck due to the above change.

[Mr. Vivek Jalan is a Fellow Member of the Institute Of Chartered Accountants of India (ICAI) & a qualified LL.B. He is the member of The CII- Economic Affairs & Taxation Committee. He is the Co Chairman of The Indirect Tax Committee of The Bengal Chamber of Commerce and Industry. He is also a visiting faculty for Indirect Taxes in The Bengal Chamber of Commerce and Industry, Institute Of Chartered Accountants of India and Institute of Cost Accountants of India. He has 8 books on Taxation and has written more than 100 articles on varied Topics. He is regularly representing critical cases before the Hon’ble Tribunal and also is advising in representations before The Hon’ble High Courts in matters related to Taxation]

Discussions to this article

[DURGADUTT DUBEY]

As per me in 2nd example instead of Balance ITC, ₹ 50 will appear in cash payment column

[Rajender Handa]

In example 2 first adjustment should be made from IGST balance of ₹ 50 from CGST, then intra head adjustment of CGST and SGST should be done. It will result in cash payment of ₹ 50 in SGST.