Puzzling order on utilisation of input tax credit
A plain reading of Section 49 of the CGST Amendment Act, 2018 is not possible due to the manner in the changes have been drafted.
Not surprisingly, the wordings of the sections have left everyone flummoxed.
Through Notification No 02/2019 of January 29, 2019, twenty-eight sections and three schedules of the CGST Act have been amended while the amendment of five sections has been deferred. The amendments that have got folks talking are those to Section 49 and the new clauses 49A and 49B.
If read sequentially, the three sections read as follows: 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.
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.
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 CBIC, it appears, does not intend to change the sequence of IGST/CGST/SGST to set off credits. What would change is that some taxes may have to be paid in cash due to non-availability of set off from the other balances.
A tailor-made example could be an output tax liability of Rs. 100 each in I/S/C and input tax credit of Rs. 200, Rs. 50 and Rs. 50 each in I/S/C. As per the present set-off rules, no tax would be need to be paid in cash since the output liability equals the input tax credit of Rs. 300 and can be sequentially set off.
As per the CGST Amendment Act, 50 per cent of the SGST portion would need to be paid in cash and 50 per cent of the CGST portion would be carried forward.
The lack of examples to explain the amendments to Section 49 and the new Sections 49A/49B is bound to lead to multiple interpretations and possible litigation. Litigation could also arise on a very basic question: Can the CBIC impose restrictions on the manner in which taxpayers utilise credits?
It would lead to a situation of one nation, one tax, restricted credits. Rs. 1 lakh crore has been set as a sort of a minimum threshold for monthly GST revenues and actual monthly collections are mapped against this.
If GST revenue crosses this magic numerical benchmark over the next few months, it could be attributed to the combined effects of Sections 49, 49A and 49B.
The Amendment Act also closes an existing loophole in input tax credit as per which credit could not be claimed on a motor vehicle but could be claimed on services of general insurance, servicing, and repairs and maintenance of these vehicles.
Credit on these services can now be claimed only if credit can be claimed on the motor vehicle.
The writer is a chartered accountant