Havoc due to Sec 49A in GST

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Havoc due to Sec 49A in GST

Section 49A under the Goods and Services Act reads as under:

49A. 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.”

“Order of utilisation of input tax credit”

49B. 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.”.

Order of Utilisation as per Section 49A & 49 B-

Output Liability First Set Off Next Set Off Not Allowed to Set Off
IGST IGST CGST& SGST/UTGST  
CGST IGST CGST SGST/UTGST
SGST IGST SGST CGST
UTGST IGST T UTGST CGST

The amendment by way of introducing Sec 49A under CGST Amendment Act, 2019 is causing severe problems to the industry.  I would hereby like to explain this by way of an example

Assume the following figures:

Output CGST & SGST: Rs.250000 each.

Input CGST & SGST of Rs. 150000 each.

Input IGST of Rs 240000.

Situation before Amendment :- 

ITC Adjustment rule was as under:

Output Liability         Input ITC Adjustment
IGST CGST SGST
IGST 0
CGST 250000 100000 150000
SGST 250000  100000 150000

 

 

 Input IGST carry forward is Rs. 40000

Input CGST/ SGST carry forward is ZERO.

Amount Payable in Cash is ZERO.

 

Situation After Amendment :- 

ITC Adjustment rule is as under:

Output Liability         Input ITC Adjustment
IGST CGST SGST
IGST 0
CGST 250000 240000 10000
SGST 250000 150000

Input IGST carry Forward is Rs. ZERO

Input CGST carry forward is RS. 140000

Output Tax payable in Cash is Rs. 100000 SGST.

Problem due to amendment

On the one hand I have already Rs 140000 in my ITC balance and on the same time I have to pay Rs 100000 by cash.

With the passage of time the situation shall become worst as registered person will be required to pay Lakhs of rupees in form of SGST while having lakhs of rupees standing ITC in CGST which would not be used in any manner which shall cause blockage of huge amount of liquidity since refund of ITC CGST is not allowed. Also it cannot be adjusted in any manner.

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