UTILISATION OF ITC AFTER INSERTION OF SECTION 49A AND 49B

[Nitika Aggarwal]

UTILISATION OF ITC AFTER INSERTION OF SEC 49A

In midst of changes vide CGST Amendment Act, 2018 there is an insertion of new sections i.e. 49A and 49B in CGST Act, 2017, which has paved its way in new direction. Let’s analyze the impact of the same on the industry:-

Section 49(5) of CGST Act, 2017 provides the set off policies against the liabilities of CGST, IGST, SGST and UTGST from Input tax credit available. Prior to amendment in CGST Act, 2017 via CGST Amendment Act, 2018, Section 49(5) of the act reads as under:- 

Section 49(5) of CGST Act, 2017:-

“(5) 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.”

For the sake of easy reference, tabular presentation of the afore-mentioned section has been produced as under:-

Payment for	First set off from	Then set off from	Not allowed to be set off for
IGST	IGST	CGST and SGST	-
CGST	CGST	IGST	SGST & UTGST
SGST	SGST	IGST	CGST
UTGST	UTGST	IGST	CGST

Following are the examples for better understanding the aforesaid provision of the act:-

Example 1:-       

When ITC of IGST is available and IGST liability is NIL

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to be Paid in Cash	Balance ITC
IGST	200	-	-	-	-
CGST	200	350	Rs.200-200 (CGST )	₹ 150-150 (IGST)	-	-
SGST	200	250	₹ 200-200 (SGST )	₹ 50-50 (IGST)	-	-

Example 2:-

When ITC of IGST is available along with the liability of IGST

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to be Paid in Cash	Balance ITC
IGST	200	50	Rs. (50-50)  (IGST)	-	-	150
CGST	200	350	₹ 200-200 (CGST )	₹ 150-150 (IGST)	-	-
SGST	200	250	₹ 200-200 (SGST )		50	-

However, the aforesaid position of set off against the ITC available after insertion of section 49A and 49B vide CGST Amendment Act, 2018 has been changed. Let’s analyze the same. The aforementioned sections have been reproduced as under for the sake of ready reference:-

"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.".

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

Example 1:-

When ITC of IGST is available and there is no liability of IGST

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to be Paid in Cash	Balance ITC
IGST	200	0	-	-	-	-
CGST	200	350	₹ 200-200 (IGST )	₹ 150-150 (IGST)	-	50
SGST	200	250	₹ 200-200 (SGST )		50	-

   Example 2:-

   When ITC of IGST is available along with the liability of IGST

ITC	ITC Amount	Liability	1st Adjustment	2nd Adjustment	Balance to be Paid in Cash	Balance ITC
IGST	200	50	(50-50) IGST	-	-	-
CGST	200	350	Rs (150-150)  (IGST )	₹ 200-200 (CGST )	-	-
SGST	200	250	₹ 100-100 (SGST)	-	50	-

Now, this shall lead to accumulation of input tax credit on account of CGST, SGST and UTGST, which was fully utilized prior to insertion of section 49A. Cash flows of trade dealers might wedged or jammed due to the aforementioned changes in the act.

In case of any query/information, feel free to write back to us.

(DISCLAIMER: The views expressed are strictly of the author and AJA. 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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