Manner of Utilization of ITC under GST

[viral shah]

New Provision relating to set off of input tax credit under GST (is it create blockage of FUND?)

Introduction:-

The GST Regimes has three tax mechanism.   CGST, SGST/UTGST, IGST. Igst is leviable on inter-state supplies. While CGST & SGST/UTGST leviable on intra state supplies. Section 49(5) of CGST Act, prescribes the manner of utilization of credit remains in Electronic credit ledger. However, Due to amendment in CGST Act, manner of utilization has changed. The new section 49A introduced by the CGST amendment Act, 2018 deals with this.

As per provision prior to amendment i.e. as per section 49(5), the manner of utilization of Balance in electronic credit ledger is as under.

Particulars	1st	2nd	3rd
IGST	IGST	CGST	SGST
CGST	CGST	IGST	-------
SGST	SGST	IGST	-------

For, Example. If I have my Input tax credit and Liability for the February 2019 as under.

Particulars	ITC	Liability
IGST	100000	90000
CGST	20000	25000
SGST	20000	25000

In this situation the manner of utilization is as under (we are discussing the situations prior to amendments)

Particulars	Liability	setoff			Balance in Electronic credit ledger after sett off			Additional cash payment
		IGST	CGST	Rs.	IGST	CGST	SGST	Rs.
IGST	90000	90000			0			0
CGST	25000	5000	20000			0		0
SGST	25000	5000		20000			0	0

Here after setting of liabilities as per section 49(5), there is no need for cash outflow for payment of tax.

Now let’s see the situation after insertion of Section 49A:-

Section 49A start with wording “Notwithstanding anything contained in section 49”. It means it had overriding effect over section 49. Further, Section 49A specifies that ITC of CGST, SGST/UTGST shall be utilized only after ITC of IGST is fully utilized first. It means we can utilize the ITC of CGST, SGST/UTGST only after balance of IGST in Electronic Credit ledger becomes NIL.

As per provision after amendment (effect of section 49A), the manner of utilization of Balance in electronic credit ledger is as under.

Particulars	1st	2nd	3rd
IGST	IGST	CGST	SGST
CGST	IGST	CGST	-------
SGST	IGST	SGST	-------

Now let’s solve out above example, after the considering the amendment.

In this situation the manner of utilization is as under (we are discussing the situations after amendment)

Particulars	Liability	Setoff (liability)			Balance in Electronic credit ledger after Set off			Additional cash payment
		IGST	CGST	SGST	IGST	CGST	SGST	Rs.
IGST	90000	90000	0	0	0			0
CGST	25000	10000	15000	--------		5000		0
SGST	25000	0	--------	20000				5000

Here after utilization of credit, there is balance in electronic credit ledger for CGST with ₹ 5000/- but, we cannot utilsed it against SGST. Further, liability towards SGST of 25000 is not fully set off here. Therefore, there is need for payment of SGST worth ₹ 5000 in the form of cash. There is need for additional working capital which is not needed prior to amendment. Therefore, this amendment may block the working capital of businesses.  The person who has significant purchases from outside the state, he may have working capital crunch due to this amendment.

 

Discussions to this article

[RAJAGOPAL OBBAI]

I think balance IGST ITC of 10K (100K-90K), must fully use towards CGST liability in full even in pre-amendment era thereby cash outflow in SGST of 5K earlier also.