cross utilisation of itc, Goods and Services Tax - GST

[VINAY AGRAWAL]

dear sir/ madam,

can we utilize ITC kept of hotel business with ITC payable on restaurant business, please share case laws in favour of your opinion.

Posts / Replies

[KASTURI SETHI]

In GST one-to-one correlation is not required for utilizing ITC.

The following decisions can be helpful to you ;-

1. Aristo Bullion P Ltd. - 2022 (1) TMI 1056 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT

2. Larson and Toubro Ltd. Vs. CCGST - 2022 (10) TMI 1077 - CESTAT KOLKATA

[YAGAY andSUN]

Yes, you can utilize the Input Tax Credit (ITC) accumulated from one vertical (like hotel/accommodation services) against the output tax liability of another vertical (like restaurant services) provided both are under the same GST registration (GSTIN).

Under GST law, one-to-one correlation between inputs and outputs is not mandatory, and the ITC pool is common for all taxable and zero-rated supplies made under a single registration, unless they are separately registered business verticals.

Below is a summary of legal backing and case laws in your favor:

Legal Basis:

Section 16 of CGST Act, 2017

Allows ITC on goods/services used or intended to be used in the course or furtherance of business.

It does not require matching each input to a specific output supply.

Rule 42 & 43 of CGST Rules

Talks about proportionate reversal only in case of exempt + taxable supplies — not a mandatory input-to-output mapping.

Relevant Case Laws Supporting Common Pool of ITC

1. Aristo Bullion Pvt. Ltd. – 2022 (1) TMI 1056

(Appellate Authority for Advance Ruling, Gujarat)

Key Takeaway:

Held that one-to-one correlation of inward supply with outward supply is not required. ITC can be utilized across supplies under the same registration unless expressly restricted.

“...the law does not require that the goods or services should be used directly in the outward supply. Even indirect use suffices so long as it is in the course or furtherance of business.”

2. Larsen & Toubro Ltd. vs. CCGST – 2022 (10) TMI 1077

(CESTAT Kolkata)

Key Takeaway:

CESTAT allowed ITC utilization despite the Department arguing a lack of correlation between input and output services.

“No provision in the GST Act mandates one-to-one correlation. Credit is allowed as long as inputs are used for business purposes.”

Clarification by CBIC / Circulars:

CBIC FAQ on Banking Sector (Point No. 11 – Use of Common Inputs):

"A banking company is not required to maintain one-to-one correlation between inputs and outputs; common ITC can be used for taxable supplies."

This principle is applicable to other sectors as well, unless specific restriction exists (like for blocked credits under Section 17(5)).

Exceptions / When You Cannot Use ITC Across Services:

1. Separate GST registrations for each business vertical (then ITC pool is separate).
2. Blocked credits under Section 17(5) – e.g., for food, construction, etc.
3. Non-taxable or exempt output supplies – proportionate ITC reversal may apply.

Conclusion / Summary: You can use ITC from hotel (accommodation) services to offset tax payable on restaurant services, as long as:

• Both activities are under the same GSTIN.
• Inputs are used in the course or furtherance of business.
• ITC is not blocked under Section 17(5).

Case laws (Aristo Bullion, L&T) and the statutory framework clearly support cross-utilization without one-to-one mapping.

*** 

[Shilpi Jain]

Once ITC availed, its a common pool. No need of one to one correlation for ITC with output tax liability.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shilphi Jain.

[Sadanand Bulbule]

The explanation offered by the experts goes well to avail the benefit of ITC.

[Sadanand Bulbule]

Following judgement is worth as far as wrong use of ITC and possible relief is concerned:

2025 (1) TMI 1302 - KERALA HIGH COURT - STAR ROOFS AND METALS VERSUS THE ASSISTANT COMMISSIONER TAX PAYER ERNAKULAM, THE STATE TAX OFFICER ERNAKULAM, THE JOINT COMMISSIONER OF STATE TAX APPEALS COCHIN.

Liability for utilisation of Input Tax Credit in excess - HELD THAT:- This Court has, in the decision Rejimon Padickapparambil Alex v. Union of India and Others [2024 (12) TMI 399 - KERALA HIGH COURT] observed that the electronic credit ledger is in the nature of a wallet with different compartments of Integrated Goods and Services Tax, Central Goods and Services Tax and State Goods and Services Tax and there cannot be any wrong availment of input tax credit merely because a taxpayer had availed the benefit of credit of input tax available in IGST under the heads CGST and SGST.

In the instant case, a perusal of the order of assessment produced as Exhibit-P2 reveals that the alleged mistake committed by the petitioner is by availing the benefit of Input Tax Credit available in IGST, under the heads CGST and SGST. The said method of availing ITC cannot be said to be a wrong availment of Input Tax Credit warranting the imposition of any penalty as observed in the above referred judgment. Therefore, it is only appropriate that the order of assessment itself is set aside and a reconsideration be directed by the proper officer. Though petitioner had preferred an appeal, in order to avoid continuance of an unnecessary procedure, it is deemed appropriate to exercise the jurisdiction under Article 226 of the Constitution of India to set aside Exhibit-P2 itself and direct a reconsideration.

Conclusion - i) The said method of availing ITC cannot be said to be a wrong availment of Input Tax Credit warranting the imposition of any penalty. ii) It is only appropriate that the order of assessment itself is set aside and a reconsideration be directed by the proper officer.

Petition allowed.