GST UPDATE ON NEW ORDER OF UTILISATION OF CREDIT

Today we are sharing an update on the new order of utilization of input tax credit. A few days ago, government had inserted sections 49A and 49B in the CGST Act 2017 through CGST Amendment Act 2018 which came into effect from 01.02.2019. We had prepared an update on the same in which comparision was made between the existing and the new manner of utilization of input tax credit and it was pointed that the new mechanism is leading to payment of tax in cash under SGST inspite of credit balance available in CGST head.This update seeks to discuss the manner of utilisation of input tax credit as per Rule 88A of the CGST Rules, 2017.
Before proceeding further, let us recall the provisions of newly inserted Sections 49A and 49B.
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.”.
Now a new notification 16/2019-Central tax has been issued on 29^th March 2019 by the government making changes in the Central Goods & Service Tax (Rules) 2017. This notification has inserted a new rule 88A dealing with the provisions of order of utilisation of credit which is in line with the newly inserted section 49A stated above. New Rule 88A is stated below as follows:-
“Rule 88A. Order of utilization of input tax credit.-
Input tax credit on account of 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 Union territory tax, as the case may be, in any order:
Provided that 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.”.
The new Rule 88A provides that the ITC of IGST shall be utilised first towards discharging IGST liability and further gives an option to the taxpayers to offset the remaining balance of IGST ITCagainst liability of CGST/SGST/UTGST in any manner.In our point of view, as per Rule 88A credit can be utilized in the following manner:

The credit balance of IGST is to be exhausted for discharging tax liability for IGST and thereafter, the remaining balance of IGST is to be used for discharging CGST or SGST or UTGST in any manner as per the choice of assessee. It is to be noted that firstly the ITC balance of IGST is required to be exhausted completely.
Thereafter, the balance of CGST is to be exhausted for discharging tax liability of CGST and IGST.
Lastly, the balance of SGST is to be exhausted for discharging tax liability of SGST and IGST.

This interpretation is explained with the help of same example as taken by us in our earlier update on utilisation of credit.

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 utilized	(2,00,000)	(3,00,000)	-
Less: CGST credit utilized	-	(9,00,000)	-
Less: SGST credit utilized	-	-	(11,00,000)
Liability to be paid in cash	0	0	1,00,000
ITC Carried Forward	0	1,00,000	0

After the insertion of Rule 88A of the CGST Rules, 2017, the order of utilisation of credit will be as follows:

PARTICULARS	IGST	CGST	SGST
Output Tax Liability	2,00,000	12,00,000	12,00,000
Less: IGST credit utilized	(2,00,000)	(2,00,000)	(1,00,000)
Less: CGST credit utilized	-	(10,00,000)	-
Less: SGST credit utilized	-	-	(11,00,000)
Liability to be paid in cash	0	0	0
ITC Carried Forward	0	0	0

If we compare the provisions, it is found that prior to introduction of Rule 88A, there was requirement to pay Rs. 1,00,000 in cash in SGST while the balance of CGST was unutilised to the extent of Rs. 1,00,000/-. However, as per the new Rule 88A, the assessee has the option to set off the credit in any manner but only after utilizing the balance first towards discharging IGST liability. So in the above example there is neither any balance in the tax ledgers nor there is requirement to pay tax in cash.
Now, the question arises here is whether Rule 88Acan prescribe additional mechanism for utilisation of credit when the section 49A which overrides section 49 does not provide for? However, in GST regime, the irony is that the software of GST portal is supreme and should be compatible with the mechanism provided by the GST Act and Rules as until the software doesn’t support the new mechanism, the introduction of new sections and rules for the benefit of the taxpayers would be of no use.

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GST UPDATE ON NEW ORDER OF UTILISATION OF CREDIT

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