Cgst & sgst itc set-off

This query is : Resolved

BILAL CHAUHAN (Querist)
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30 March 2018 Dear Experts,
One of my client has a practice of purchasing goods in bulk required for 3-4 months and for the succeeding months he only sells the goods till he finds another opportunity to purchase in bulk again. The problem we are facing is that:

Suppose in month 1 the purchases is made for Rs. 1,00,00,000 (all local) and sales of Rs. 40,00,000/- (50% interstate, 50% local) and balance is in stock. The GST position will be as follows

GST Rate = 5%
Input CGST = 2,50,000/- Input SGST = 2,50,000/-
Output IGST = 1,00,000/- Output CGST = 50,000/- Output SGST = 50,000/-

The GST portal first uses the entire CGST balance to adjust against IGST liability. It does not permit to use SGST balance till CGST is completely exhausted. So the after set-off the position will be:

CGST Credit = 1,00,000/- SGST Credit = 2,00,000/-

In month 2 again Sales of Rs. 40,00,000/- (50-50) and no purchase

Output IGST = 1,00,000/- Output CGST = 50,000/- Output SGST = 50,000/-

So the after set-off the position will be:

CGST Credit = NIL SGST Credit = 1,00,000/-

Now the problem arise in month 3 taking the sales of Rs. 10,00,000/- and no purchase

Output IGST = 25,000/- Output CGST = 12,500/- Output SGST = 12,500/-

Since the CGST balance is NIL we will have to CGST.
However, this is due to the compulsion made by the GST portal. If I were allowed to set-off CGST or SGST credit evenly, this situation would not have arisen. The law does not bars the same but the portal does.

This situation worsens in case of textile industry where the Raw material is taxed @ 12% and sales is taxed @ 5% with no refund of ITC overflow. So, whatever payment the taxpayer makes due to this situation its his cash loss. He already have credit piled up but cannot use and consequently have to make payment.

Please guide with our valuable suggestion to avoid such situation and mitigate the losses caused.