GST Update on Clarification in respect of utilization of input tax credit under GST

Today we are sharing an update on the clarification issued by the department on order of utilization of input tax credit. As the provisions contained in section 49A and 49B of the CGST Act, 2017 and Rule 88A have been introduced, the provisions cannot be implemented due to absence of appropriate facility at the common portal. We had prepared an update on the same in which we have tried to explain in the simple manner the concerns addressed by the discussed communication.

The Central Board of Indirect Taxes and Customs vide its Circular No. 98/17/2019-GST dated 23^rd April 2019, addressed the confusions created due to change in the order of utilisation of input tax credit. Although, the provisions contained in section 49A and 49B of the CGST Act, 2017 along with Rule 88A have been introduced but the provisions cannot be implemented due to absence of appropriate facility at the common portal. This has also led to confusion as regards the validity of the returns filed by assessees as the manner of utilisation of input tax credit is not in conformity with Rule 88A of the CGST Rules, 2017. Furthermore, important point to note is that whether the provisions contained in Rule can override the provisions contained in section 49A of the CGST Act, 2017 recently amended by the government. Well, as stated in our earlier update also, in GST era, the GSTN has precedence over the provisions contained in the Act or the Rules as even if the Rule 88A prescribes new mechanism for utilisation of input tax credit, the said mechanism cannot be adhered to unless and until the common portal is compatible with the amended provisions. Till date, the functionality to utilise credit as per the provision contained in Rule 88A is not operational on the common portal and so this circular clarifies that the assessee may continue the old method of utilisation of input tax credit which at least relieves the assessee from the fear of dispute with revenue authorities as regards mechanism of utilisation in future.

The order of utilisation of input tax credit is explained as follows:-

Input tax Credit on account of	Output liability on account of Integrated tax	Output liability of Central tax	Output liability of State tax / Union Territory tax
Integrated tax	1^st	2^nd and 3^rd – In any order among C & S and in any proportion between them.
Central tax (only after completely using IGST)	5^th	4^th	Not permitted
State tax / Union Territory tax (only after completely using IGST)	7^th	Not permitted	6^th

It is to be noted here that the provision contained in Rule 88A is in line with the newly inserted section 49A of the CGST Act, 2017 which overrides the provisions of section 49 of the CGST Act, 2017. However, it is only section 49 that states that the central tax should not be utilised for payment of State Tax/UT tax or vice versa. It is also worth noting that the provisions of section 49A overrides section 49 without any exception whereas provision of section 49B are notwithstanding anything contained in the Chapter but subject to clause (e) and (f) of section 49(5) which state that the credit of Central Tax cannot be utilised for payment of State Tax/UT tax or vice versa. Furthermore, it has not been specified that Rule 88A is being issued under section 49B of the CGST Act, 2017. Not only this, section 49B clearly states that the government may on the recommendations of the Council prescribe the order and manner of utilisation of input tax credit. However, the 34^th GST Council Meeting exclusively discussed the changes to be made in the real estate sector. Consequently, it can be inferred that since there was no express recommendation of GST Council for change in utilisation of input tax credit, Rule 88A has been issued in line with section 49A of the CGST Act, 2017. However, the Rule 88A goes one step ahead and grants choice to the assessee that the remaining balance of input tax credit on account of IGST can be utilised in any order for discharging liability of CGST/SGST/UTGST. Now, the moot question that arises is that is it permissible to change the manner of utilisation of input tax credit by granting discretion to the assessee regarding order of utilisation even when there is no such provision in section 49A of CGST Act? Another question that arises is whether the present clarification issued in the context of Rule 88A is binding on assessee and department both? It is submitted that the circulars issued by the board are binding on departmental authorities but the Hon’ble Supreme Court has held in the case of RATAN MELTING & WIRE INDUSTRIES [2008 (231) E.L.T. 22 (S.C.)]that circulars are binding on revenue authorities but they can challenge the said circulars if they are contrary to the statutory provisions contained in law. Well, as the provisions contained in Rule 88A grant liberty as regards order of utilisation of IGST credit between CGST/SGST/UTGST as per choice of assessee which is not backed by any statutory provision, the validity of Rule 88A and the clarification is surely doubted. Well, as far as the method of utilisation of credit is favourable to the assessee, there is no harm in following the same. But, as stated by us in the beginning of this update, it is an irony to see that neither the Act, nor the Rules prevail but what prevails is the Software of GSTN. Hence, the benefit of this new method of utilisation can be availed only after the said facility is operational on the common portal.

This is solely for the educational purpose.
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GST Update on Clarification in respect of utilization of input tax credit under GST

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