Correcting an anomaly regarding input tax credit utilisation under Section 49A of the Central Goods and Services Tax (Amendment) Act, 2018, tax authorities have changed the sequence of credit utilisation to do away with credit accumulation and to improve the cash flow of retailers. The sequence of Integrated GST credit utilization has now been changed by introducing Rule 88A. Based on this rule, IGST credit will first be utilised against IGST liability and the balance credit will be available for set off against Central GST or State GST based on the option of the taxpayer. With this new mechanism, there will be no accumulation of credits in CGST and cash payment in SGST which was expected due to Section 49A, finds Retailers Association of India.
The Association on behalf of retailers had raised concerns about the introduction of Section 49A. As per Section 49A, the input tax credit on account of central tax, state 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 towards such payment. This section was inserted to impose restriction on cross utilizing CGST/SGST credits against IGST liability when IGST credits are still available and to minimize the fund settlement on account of IGST to the states. “By virtue of this amendment, there will be credit accumulation in the category of CGST for any business that procures goods from outside the state by paying IGST and sells locally on payment of CGST and SGST. Such accumulation would further lead to cash flow issues. RAI had informed the tax authorities.