After section 49A in the CGST Act, 2017 was introduced by amendment in the CGST Act through CGST (Amendment) Act, 2018, there was confusion due to a new sequence of setting up ITC sequence. It was earlier already set in the mind of suppliers & professionals.
Though the Government wanted to simplify the issue, it became more difficult in following after the amendments. Another circular came to clarify further on the issue on 23rd April 2019.
Below is the analysis of the whole issue from the starting since inception before jumping to any conclusion.
The journey of ITC Utilization Sequence:
- Original Law i.e. “GST Act, 2017 applicable w.e.f. 1/07/2017 was containing section 49(5) which provided a sequence of setting up a variety of State, Central & Integrated ITC under the provisions of section 49(5)(a) to 45(5)(f).
- Original “CGST Rules, 2017” started from 1st July 2017 until many amendments were done up to 16th Notification, dt.29/03/2019. No sequence was given in rules, neither in Chapter V Input Tax Credit or in Chapter IX of Payment of Tax up to Rule 88. The authorizing section was only 49 until the implementation of section 49A through amended Act, 2018.
- Section 49A was introduced in “CGST (Amendment) Act, 2018 dt.29-08-2018, which was effective from 1st February 2019.
- Then Central Goods and Services Tax (Second Amendment) Rules 2019 came in force w.e.f. 1st Feb 2019 through Notification No.16/2019 dt.29-03-2019. In Rule 5, a new Rule 88A is to be inserted after Rule 88 in CGST Rule, 2017. Here, it is important to note that no date of implementation of this rule has been decided. This rule proviso was the main reason for creating confusion. Which will be discussed later.
- To clarify this confusion Govt. came with another Circular No.98/17/2019-GST dt.23-04-2019 effect of this clarification will also be dealt with at a suitable place of analysis paper.
Provisions until amendment came w.e.f. 1st Feb 2019
Section 49 (5) of CGST Act, 2017 – Original Act:
The total amount of input tax credit in the electronic credit ledger of the registered person on account of –
- The integrated tax will be first utilized for payment of integrated tax and the remaining amount, if any, can be utilized for the payment of central tax and State tax or Union territory tax
- The central tax will first be utilized towards payment of central tax and the amount remaining may be utilized towards the payment of integrated tax
- The State tax shall first be utilized towards payment of State tax and the amount remaining, if any, may be utilized towards payment of integrated tax;
- the Union territory tax shall first be utilized for the payment of Union territory tax and the amount remaining, if any, may be utilized towards payment of integrated tax;
- the central tax will not be utilized for the payment of State tax or Union territory tax
- the State tax or Union territory tax will not be utilized for the payment of central tax
Let us tabulate above original (old) provisions:
| ITC AVAILABLE | OUTPUT LIABILITY | |||
| IGST | CGST | SGST | UTGST | |
| IGST U/s 49(5)(a) | 1st | 2nd | 3rd | 4th |
| CGST U/s 49(5)(b) & (e) | 2nd | 1st | Not Allowed | Not allowed |
| SGST U/s 49(5)(c) & (f) | 2nd | Not Allowed | 1st | Not Allowed |
| UTGST U/s 49(5)(d) & (f) | 2nd | Not Allowed | 1st | Not Allowed |
** 1, 2, 3 & 4 are showing the sequence of available ITC to be utilized against output liability.
After the amendment in the CGST Act (Amendment) 2018 by introducing section 49A:
The input tax credit on account of central tax, State tax or Union territory tax will be used for payment of integrated tax, central tax, State tax or Union territory tax only after the input tax credit available on account of integrated tax that has first been used fully for such payment.
Along with this amendment in the Act, a new – Rule 88A – was also introduced which was extended by the proviso of Rule 88A (which is underlined above):
Rule 88A – Order of utilization of input tax credit
Input tax credit on account of integrated tax will first be utilized towards payment of integrated tax. The remaining amount, if any, can be utilized towards the payment of Central/State tax or Union territory tax.
Provided that the input tax credit on account of Central/State tax or Union territory tax will be used towards the payment of integrated tax, central tax, State tax or Union territory tax only after the input tax credit available on account of integrated tax has first been utilized fully.
Reason of confusion and problem faced by the supplier is above Rule & Act underline provisions – i.e. First you have to exhaust IGST fully and only then you can set off other ITC.
| ITC TYPE | ITC AVAILABLE | OUTPUT LIABILITY | BALANCE | |||
| IGST | CGST | SGST | UTGST | |||
| IGST | 10000 | 2500 | 2000 | 1000 | 1000 | 3500 |
| CGST | 5000 | Not Allowed | Not allowed | 5000 | ||
| SGST | 2500 | Not Allowed | Not Allowed | 2500 | ||
| UTGST | 2500 | Not Allowed | Not Allowed | 2500 | ||
| TOTAL | 20000 | 13500 | ||||
The new problem has come up with the proviso of rule 88A, in the above table, IGST ITC after utilizing with IGST, CGST, SGST & UTGST still has the balance Rs.3500/- left in IGST ITC. Unless 10000/- is exhausted, the remaining CGST, SGST, and UTGST cannot be set off. Further, there are restrictions that you cannot set off SGST with CGST or UTGST and vice versa.
To remove this problem a clarification related to the use of ITC sequence is issued through Circular No. 98/17/2019-GST, dated 23ed April 2019. The main features of the Circular are:
As per Circular Option 1:
| ITC TYPE | ITC AVAILABLE | OUTPUT LIABILITY | BALANCE /TOTAL | |||
| IGST | CGST | SGST | UTGST | |||
| 1000 | 300 | 300 | 0 | 1600 | ||
| IGST | 1300 | -1000 | -200 | -100 | 0 | |
| CGST | 200 | -100 | Not Allowed | Not allowed | 100 | |
| SGST | 200 | Not Allowed | -200 | Not Allowed | 0 | |
| UTGST | Not Allowed | Not Allowed | ||||
| TOTAL | 1700 | -1000 | -300 | -300 | 0 | 100 |
As per Circular Option 2
| ITC TYPE | ITC AVAILABLE | OUTPUT LIABILITY | BALANCE /TOTAL | |||
| IGST | CGST | SGST | UTGST | |||
| 1000 | 300 | 300 | 0 | 1600 | ||
| IGST | 1300 | -1000 | -100 | -200 | 0 | |
| CGST | 200 | -200 | Not Allowed | Not allowed | 0 | |
| SGST | 200 | Not Allowed | -100 | Not Allowed | 100 | |
| UTGST | Not Allowed | Not Allowed | ||||
| TOTAL | 1700 | -1000 | -300 | -300 | 0 | 100 |
Conclusion & Final Understanding of New Feature Provided by Rule 88a and new Circular Dt. 23-04-19
**Note – This new arbitrary sequence of ITC utilization is not available in the portal right now.
Two sequences are available –
- First IGST ITC utilized in IGST, then CGST then SGST or UTGST
- First IGST ITC utilized in IGST, then SGST then CGST or UTGST