1. Priority of tax types under GST Act, 2017:

• IGST credit: Utilize all available IGST credit first towards payment of IGST liability.
• Remaining credit: After exhausting IGST credit, utilize the remaining credit on account of CGST, SGST, or UTGST in any order.

2. Within each tax type under GST Act, 2017:

• You can utilize the credit available within each tax type (CGST, SGST, or UTGST) in any proportion.

Important points to remember under GST Act, 2017:

• This order of utilization is mandatory and cannot be changed.
• There was a change in the utilization method in 2019. The information provided above reflects the current method.
• If you have any doubts or specific scenarios, it’s recommended to consult a tax professional for personalized guidance.

EXAMPLE

The order of utilizing ITC under the GST Act 2017 depends on the type of credit you have:

1. Integrated Tax (IGST) Credit:

• Utilize IGST credit first towards payment of IGST liability.
• Remaining IGST credit, if any, can be used towards payment of Central Tax (CGST) or State Tax (SGST) in Tamil Nadu, in any order.

2. Central Tax (CGST) or State Tax (SGST) Credit:

• Utilize CGST credit only towards payment of CGST liability.
• Similarly, utilize SGST credit only towards payment of SGST liability in Tamil Nadu.

Important Note:

• The above order is mandatoryas per Rule 88A of the CGST Rules, 2017, effective from July 1, 2019.
• This rule applies uniformly across all states, including Tamil Nadu.

Example:

Let’s say you have the following ITC in your electronic credit ledger:

• IGST Credit: ₹5,000
• CGST Credit: ₹3,000
• SGST Credit (Tamil Nadu): ₹2,000

Your GST liabilities are:

• IGST: ₹4,000
• CGST: ₹2,000
• SGST (Tamil Nadu): ₹1,500

Here’s how you would utilize your ITC:

1. Utilize ₹4,000 of your IGST credit towards your IGST liability. This leaves you with a remaining IGST credit of ₹1,000.
2. You can utilize this remaining ₹1,000 IGST credit towards either your CGST liability or SGST (Tamil Nadu) liability. Let’s say you choose to use it for CGST.
3. This leaves you with ₹1,000 remaining CGST liability and ₹1,500 SGST (Tamil Nadu) liability.
4. Utilize your ₹3,000 CGST credit to fully pay off your CGST liability.
5. Utilize your ₹2,000 SGST (Tamil Nadu) credit to pay ₹1,500 of your SGST (Tamil Nadu) liability  this leaves you with ₹500 remaining SGST liability.

Remember: You cannot use your CGST credit to pay SGST liability or vice versa.

FAQ QUESTIONS

1. What is the current order of utilising ITC under GST Act, 2017 ?

• As of today (February 23, 2024), the order is:
  • Fully utilize IGST credit first: This means you must use all your available ITC on Integrated Goods and Services Tax (IGST) before utilizing any Central GST (CGST) or State GST (SGST) credit.
  • Then utilize CGST or SGST credit :Whichever is higher, either your CGST or SGST credit, can be used next.

2. When did this order change under GST Act, 2017?

• The current order came into effect on July 1, 2019. Before that, the order was to utilize CGST and SGST credit first, followed by IGST credit.

3. Why is there a specific order under GST Act, 2017?

• This order helps minimize fund settlements between the central and state governments related to IGST.

4. Are there any exceptions to this order under GST Act, 2017?

• Yes, there are a few exceptions:
  • Export of goods and services: For exports, you can utilize any type of ITC (IGST, CGST, or SGST) first, regardless of the usual order.
  • Composition taxpayers: Composition taxpayers have a simplified ITC utilization method and don’t need to follow the specific order.
  • Specific notifications: The government might issue notifications for certain sectors or situations with different ITC utilization rules.

5. What are the consequences of not following the order under GST Act, 2017?

• If you don’t utilize ITC in the correct order, you might face:
  • Interest and penalty: You may be liable to pay interest on the tax amount you should have paid using the correct ITC order.
  • Demand for tax payment:  The tax authorities might demand you pay the tax amount you should have utilized ITC for.

CASE LAWS

The order of utilization of input tax credit (ITC) under the GST Act, 2017 is primarily governed by Rule 88A of the CGST Rules, 2017, with clarifications provided by Circular No. 98/17/2019 and judicial pronouncements on specific situations. Here’s a breakdown:

Rule 88A:

• Integrated Tax (IGST) Credit:
  • Must be fully utilized first towards payment of IGST liability.
  • Any remaining IGST credit can then be used for Central Tax (CGST) and State Tax (SGST)/Union Territory Tax (UTGST), in any order.
• CGST, SGST/UTGST Credit:
  • Can only be used after exhausting the available IGST credit.
  • Can be utilized towards payment of IGST, CGST, SGST/UTGST, as the case may be, in any order.

Circular No. 98/17/2019:

• Reiterates the mandatory utilization sequence: IGST -> CGST -> SGST/UTGST.

Case Laws:

While there are no specific case laws directly addressing the general order of ITC utilization, there are rulings on related aspects like:

• Time Limit for Claiming ITC: High Courts have upheld the time limit for claiming ITC under Section 16(4) of the CGST Act, clarifying that ITC is a concession, not a right.
• Ineligible ITC: Judgments have addressed specific scenarios where ITC was deemed ineligible due to non-compliance with conditions.