GST compliance is a monthly obligation for Indian businesses, and at its core lies the proper use of Input Tax Credit (ITC). While ITC helps minimize tax outflow, even an unintentional error in its utilization can invite notices, penalties, and interest. A recent glitch on the GST portal has made this risk more real: the system sometimes permits ITC setoffs that contradict the law. Taxpayers relying solely on the portal may unknowingly fall into this compliance trap.
What Is Going Wrong on the GST Portal?
Taxpayers during GSTR-3B have noticed that the GST portal, during GSTR-3B filing, permits manual ITC entries against the order of legal utilization. That is, the system allowed utilizing CGST or SGST credit against IGST dues prior to clearing any respective CGST/SGST liabilities, which is quite against the law.
Even more concerning, the portal then generates a challan based on this incorrect ITC usage, without showing any immediate error or warning. This creates a false sense of compliance.
While this glitch may not strike every taxpayer, its very existence is a stark reminder: we simply cannot blindly trust the system's suggested utilization. This particular anomaly has been notably observed during the July 2025 GSTR-3B return filing period, making it a timely concern for many businesses. While no official GSTN communication has acknowledged this issue, multiple professionals have reported such behaviour during real-time filing.
While several sources mention error messages for incorrect cross-utilization, such as "Please offset the CGST Credit against CGST liability first before cross utilising CGST credit against IGST liability", the observed problem is that this error does not occur immediately upon manual entry or before challan generation. Instead, the system accepts the entry and proceeds to generate a challan, which is the core of the "trap." This implies a critical flaw in the real-time validation at the data entry stage. The actual error might only manifest at a later, irreversible stage, such as during the final Electronic Verification Code (EVC) or Digital Signature Certificate (DSC) filing.
What Really Says the Law?
According to Section 49(5) of the CGST Act, 2017, the order to utilize ITC of different types is given in Rule 88A of the CGST Rules, 2017 as follows:
Here's a simplified breakdown of how ITC must be utilized
|
ITC Type |
First Priority (Own Head) |
Second Priority (If Balance Remains) |
Restrictions (Cannot Be Used For) |
|
IGST ITC |
IGST liability (must be fully utilized first) |
CGST and/or SGST/UTGST (in any order and any proportion) |
None |
|
CGST ITC |
CGST liability (only after IGST ITC is exhausted) |
IGST liability (if balance remains after CGST liability) |
Cannot be used for SGST/UTGST liability |
|
SGST/UTGST ITC |
SGST/UTGST liability (only after IGST ITC is exhausted) |
IGST liability (if balance remains after SGST/UTGST liability) |
Cannot be used for CGST liability |
|
CESS ITC |
CESS liability |
None |
Cannot be used for IGST, CGST, SGST/UTGST liabilities |
Example: Legal versus Glitched Utilization
Assume the following tax position
- Liabilities → IGST Rs 75,000; CGST Rs 40,000; SGST Rs 40,000
- ITC Available → IGST Rs 20,000; CGST Rs 30,000; SGST Rs 30,000
Correct Legal Set-off
- IGST ITC Rs 20,000 → IGST liability (remaining IGST payable Rs 55,000 in cash)
- CGST ITC Rs 30,000 → part of CGST liability (Rs 10,000 payable in cash)
- SGST ITC Rs 30,000 → part of SGST liability (Rs 10,000 payable in cash)
Glitched Portal Set-off (Incorrect)
- CGST ITC wrongly used to pay part or full of IGST liability before clearing CGST dues
- Portal generates challan without objection → taxpayer assumes compliance
- Result: risk of notice, interest, and penalties
Compliance Risks of Wrong ITC Utilization
- Demand Notices (Sec. 73/74): Penalties up to 10% or 100% in fraud cases
- Interest (Sec. 50): 18% per annum from due date until corrected
- Penalties & Prosecution: Under Sec. 122 & 132 in severe cases
- Return Filing Delays: Errors surfacing at submission cause late fees
Checklist: Safeguard Before Filing GSTR-3B
- Understand Section 49(5) & Rule 88A - rely on law, not portal
- Use IGST ITC first - exhaust IGST dues before any other set-off
- Apply CGST ITC → CGST (then IGST, if balance remains)
- Apply SGST ITC → SGST/UTGST (then IGST, if balance remains)
- Never cross-utilize CGST ↔ SGST - strictly prohibited
- Compute liabilities manually before filling Table 6.1
- Take screenshots if the portal allows wrong utilization
- Use PMT-09 to correct wrong deposits in cash ledger
- Consult GST professionals if uncertain
- Report glitches with evidence to GST grievance portal
What If You've Already Filed Incorrectly?
- Voluntarily pay correct liability + interest before notice (may avoid penalties under Sec. 73(5))
- Retain all documents (screenshots, challans, acknowledgments)
- Consult advisor for rectification or response to notices
Final Word
The place of GST technology keeps being improved, but system errors do not dilute taxpayer liability. The simple golden rule to remember; follow the law, not the system. Awareness and proactive compliance sit squarely with you as your best shield.
Disclaimer: The views expressed in this article are my personal interpretation of the applicable GST laws as of the date of publication. This content is intended solely for informational and educational purposes and should not be considered professional or legal advice. While I have made every effort to ensure accuracy, GST laws and portal behaviour may evolve, and interpretations can vary. Readers are encouraged to consult a qualified tax professional before making any decisions based on this article.
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