ITC Utilization for IGST vs SGST Liability: Why AAR Tamil Nadu Refused to Rule in In re Supreme Fireworks Factory
Background of the Advance Ruling Application
M/s. Supreme Fireworks Factory, a registered entity under the GST regime in Tamil Nadu, approached the Authority for Advance Ruling (AAR), Tamil Nadu, seeking clarity on the order of utilization of input tax credit (ITC) across different tax components. The assessee is engaged in manufacturing fireworks and regularly avails ITC under IGST, CGST and SGST.
The controversy arose from the manner in which the assessee was using ITC on the GST portal, particularly in relation to the use of SGST credit for payment of IGST liability while there was still outstanding SGST output tax liability and unutilized CGST credit.
The assessee’s core doubt was:
Whether, in terms of
Section 49(5),Section 49AandRule 88Aof the CGST Rules, 2017, SGST input tax credit can be used to pay IGST liability when SGST output liability remains unpaid and CGST credit is still available, especially when such utilization is allowed by the GST portal?
The AAR, however, did not proceed to answer this question on merits. Instead, it examined whether such a query is even admissible as an advance ruling under Section 97(2) of the CGST Act, 2017, and eventually rejected the application as being outside its scope.
Facts Placed Before the AAR
Business Profile
- The assessee, M/s. SUPREME FIREWORKS FACTORY, located at No.1668/0, P.K.N. Road, Sivakasi, Virudhunagar – 626 189, holds GSTIN: 33AAJFS4494H1ZW.
- It manufactures fireworks and is a regular GST registrant in Tamil Nadu.
- It routinely accumulates ITC in its electronic credit ledger under IGST, CGST and SGST heads.
Illustrative Tax Position Submitted
To explain the issue, the assessee provided a numerical illustration of its tax liability and available ITC for a particular period. The figures were as follows:
Output GST liability:
- IGST: ₹1,00,000
- CGST: ₹50,000
- SGST: ₹50,000
Available ITC:
- IGST ITC: ₹10,000
- CGST ITC: ₹70,000
- SGST ITC: ₹70,000
The assessee adopted the following sequence for set-off:
Step 1 – Utilize IGST ITC
- IGST ITC of ₹10,000 was first adjusted against the IGST output liability of ₹1,00,000.
- Remaining IGST liability after this adjustment: ₹90,000.
Step 2 – Use CGST and SGST Credits for Remaining IGST
- From the balance IGST liability of ₹90,000, the assessee proposed to use:
- ₹45,000 from CGST ITC, and
- ₹45,000 from SGST ITC.
- From the balance IGST liability of ₹90,000, the assessee proposed to use:
Step 3 – Discharge CGST and SGST Output Liability in Cash
- Subsequently, the entire CGST liability of ₹50,000 and SGST liability of ₹50,000 were to be paid through the electronic cash ledger.
Importantly, this pattern of utilization was technically accepted by the GST portal while filing GSTR-3B. However, the assessee realized that under this approach:
- SGST output liability of ₹50,000 remained unpaid through ITC,
- Even though SGST ITC of ₹70,000 was available, part of it was diverted to offset IGST, and
- CGST ITC was also available at the same time.
This led the assessee to suspect that the set-off sequence allowed by the portal might not be in line with the statutory framework prescribed in the CGST Act and Rules.
Legal Interpretation Put Forth by the Assessee
Relevant Provisions Referred
The assessee based its interpretation on the combined reading of:
Section 49(5)of the CGST Act, 2017Section 49Aof the CGST Act, 2017Rule 88Aof the CGST Rules, 2017
The assessee contended as under:
Effect of Section 49A
Section 49Aobligates that ITC of IGST must be utilized first before using ITC of CGST or SGST.
Scope of Rule 88A
Rule 88Aprovides flexibility for the assessee to utilize IGST credit towards payment of either CGST or SGST (or both) in any order after the IGST liability has been fully adjusted.
Mandatory Utilization under Section 49(5)(b) and (c)
- Under
Section 49(5)(b)andSection 49(5)(c), ITC of CGST must first be used for CGST liability, and ITC of SGST must first be used for SGST liability.
- Under