GST Update on manner of utilisation of credit

The manner of utilisation of credit is provided in section 49(5) of the CGST Act, 2017. However, government has made certain changes in the cross utilisation of credit applicable w.e.f. 01.02.2019 and this update seeks to cover the said amendment. The amended section 49(5) and relevant amendments are produced for the sake of convenient reference as follows:- (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; “Provided that the input tax credit on account of State tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for 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;
“Provided that the input tax credit on account of Union territory tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for 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. Furthermore, two new sections 49A and 49B have been added in the CGST Act, 2017 which read as follows:- 49A. UTILISATION OF INPUT TAX CREDIT SUBJECT TO CERTAIN CONDITIONS:- 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. 49B. ORDER OF UTILISATION OF INPUT TAX CREDIT:- 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.”. The highlighted bold text represents the changes made in the CGST Act, 2017 to be applicable with effect from 01.02.2019. The harmonious reading of the
section 49 and newly inserted section 49A leads to following interpretation of the manner of utilisation of credit:- 1. Firstly, the credit balance of IGST is to be exhausted for discharging tax liability for IGST, CGST and SGST respectively. 2. Thereafter, the balance of CGST is to be exhausted for discharging tax liability of CGST and IGST respectively. 3. Lastly, the balance of SGST is to be exhausted for discharging tax liability of SGST and IGST respectively. It is to be noted that the balance of SGST is to be used for payment of IGST only if the balance of CGST has been exhausted. The above amendment can be explained with the help of example as follows:- INPUT TAX CREDIT BALANCE IGST CGST SGST 5,00,000 10,00,000 10,00,000 + 1,00,000 transitional credit The balance of SGST is more as transitional VAT credit was carried forward in the GST regime. OUTPUT TAX LIABILITY IGST CGST SGST 2,00,000 12,00,000 12,00,000
As per the amendment applicable w.e.f. 01.02.2019, the liability shall be discharged through credit in the following manner:- PARTICULARS IGST CGST SGST Output Tax Liability 2,00,000 12,00,000 12,00,000 Less: IGST credit utilised (2,00,000) (3,00,000) - Less: CGST credit utilised - (9,00,000) - Less: SGST credit utilised - - (11,00,000) Liability to be paid in cash 0 0 1,00,000 However, prior to this amendment, the liability used to be discharged as follows:- PARTICULARS IGST CGST SGST Output Tax Liability 2,00,000 12,00,000 12,00,000 Less: IGST credit utilised (2,00,000) - -
Less: CGST credit utilised - (10,00,000) - Less: SGST credit utilised - - (11,00,000) Less: IGST credit utilised for CGST and SGST - (2,00,000) (1,00,000) Liability to be paid in cash 0 0 0 It can be inferred that the new mechanism of set off leads to additional liability to pay SGST in cash to the extent of Rs. 1,00,000/- due to the reason that the input tax credit of IGST is to be exhausted first and is required to be utilised for the payment of CGST first irrespective of the balance of CGST input tax credit available to the assessee. This leads to additional liability of SGST to be discharged in cash.

Comments

GST Update on manner of utilisation of credit

Post a Comment

Query