ITC utilization cronology

Hi Namrata,

Regarding the utilization of IGST Input Tax Credit (ITC), here’s the clarity based on the latest official guidance:

What Circular No. 98/17/2019 says:

• ITC of IGST can be utilized first for payment of IGST, then CGST, and then SGST/UTGST in any order.

• This means IGST credit is flexible in usage.

But what is actually prescribed in the GST Law (Section 49 of CGST Act)?

• The prescribed order of utilization of ITC is:

  1. IGST credit shall be utilized first for payment of IGST.

  2. Then for payment of CGST.

  3. Then for payment of SGST/UTGST.

This is a strict order laid down in the law, and circulars are only clarifying or explaining it.

So, despite the circular’s wording, the legal provision is clear that IGST credit must be utilized first towards IGST, then CGST, then SGST.

Why are departments asking for SGST payment in cash?

• If you have already exhausted IGST credit for IGST and CGST, and your SGST liability still remains, you must pay SGST liability in cash.

• ITC of IGST cannot be directly used to pay SGST without first exhausting IGST and CGST liabilities.

Are there any recent changes or updated circulars?

• No significant changes or circulars overriding the provisions of Section 49 have been issued after Circular No. 98/17/2019.

• The department's stand of following the strict legal order is consistent.

Summary:

• Circular 98/17/2019 is clarificatory but does not override the legal order in Section 49.

• IGST credit usage order must be followed as per law.

• Department’s demand to pay SGST in cash (if IGST credit exhausted for IGST and CGST) is correct.

• You can cite Section 49 of the CGST Act and relevant rulings or clarifications if contesting, but the legal provision is unambiguous.