Clarifications on ‘Rule 88A-Order of Utilization of Input Tax Credit’ issued by CBIC

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  • Last Updated on 19 October, 2021

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The CGST (Amendment) Act, 2018 made an amendment to section 49(5) and introduced two new sections 49A and 49B effective from February 01, 2019 laying new criteria towards utilization of input tax credit by a registered person while discharging its GST liability. These amendments provide that ITC of IGST shall be utilized for payment of IGST first, and if some amount remains, then it shall be utilized towards payment of CGST, SGST, UTGST in this order. However, this would create a situation where the suppliers would be required to pay the tax in cash even when they have the unutilized credit available in their electronic credit ledger, resulting in blockage of credit.
 
To remove such difficulties to some extent, CBIC on April 4, 2019 has inserted a new Rule 88A in CGST Rules, 2017 vide Notification No. 16/2019 –Central Tax prescribing the order of utilization of input tax credit. The language of the notified rule lead to many confusions with respect to utilization of input tax credit. To overcome such situation, CBIC issued a clarification on April 23, 2019 vide Circular No.-98/17/2019 regarding the same. According to this circular, input tax credit available in the electronic credit ledger on account of IGST shall be first utilized only towards payment of IGST and if any amount remains, it may be utilized towards the payment of CGST or SGST/UTGST, in any order and in any proportion at the option of a registered person.

This can be explained with the help of an example:-

Speaker: CA Rahul Dhuparh
 

 

 

Case I: Up to January 31, 2019(as per Old ITC Set-Off Rules):

 

 Particulars

IGST

CGST

SGST/UTGST

Output Liability

1000

300

300

ITC Available

1300

200

200

Order of Utilization

 

 

 

Intra Head Credit Utilization

1000

200

200

Utilization of IGST for payment of CGST & SGST

 

100

100

Balance Input Credit

100

–

–

Payable

–

–

–

 

Case II: On or After February 1, 2019 but up to March 31, 2019 (After the CGST Amendment Act, 2018):

 

 Particulars

IGST

CGST

SGST/UTGST

Output Liability

1000

300

300

ITC Available

1300

200

200

Order of Utilization

 

 

 

ITC Utilization from IGST

1000

300

–

Intra Head Credit Utilization

–

–

200

Balance Input Credit

–

200

–

Payable

–

–

100

 

Case III: Manner clarified by the Circular No.-98/17/2019 dated April 23, 2019 

 

Option I:

 Particulars

IGST

CGST

SGST/UTGST

Output Liability

1000

300

300

ITC Available

1300

200

200

Order of Utilization

 

 

 

ITC Utilization from IGST

1000

200

100

Intra Head Credit Utilization

–

100

200

Balance Input Credit

–

100

–

Payable

–

–

–

 

Option II:
 

 Particulars

IGST

CGST

SGST/UTGST

Output Liability

1000

300

300

ITC Available

1300

200

200

Order of Utilization

 

 

 

ITC Utilization from IGST

1000

100

200

Intra Head Credit Utilization

–

200

100

Balance Input Credit

–

–

100

Payable

–

–

–
 
This circular has brought certainty towards order/manner of utilization of ITC. However, GST common portal still supports the order of utilization of ITC before the implementation of CGST (Amendment) Act, 2018. Therefore, till the time functionality of ITC utilization as per Rule 88A is not implemented by the portal, taxpayers will continue to discharge their output tax liability by following the old manner of utilization of ITC. 
 
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