Dated 3rd October, 2017

Restriction on manner of utilization of Credit challenged before Delhi High Court – Writ admitted

Restriction on manner of utilization of Credit challenged before Delhi High Court – Writ admitted


With the onset of GST, the registered person are required to file monthly return i.e. GSTR 3B on the common portal and fill up the payment liability table in GSTR 3B in which any liability needs to be set off with the credit available or the payment for the same shall be made.

A registered person can utilise the amount available in the electronic credit ledger in the payment of output tax under IGST Act. The amount available as Input tax credit in the Electronic Credit Ledger of the registered person can be utilized towards payment of liability if any as per the relevant Section .

As per the aforementioned Section, the credit available in the electronic ledger of a registered person on account of integrated tax shall first be utilised towards the payment of integrated tax, then central tax and if any remaining shall be utilised towards the payment of state tax. In the same manner, the central/state tax credit shall first be utilized towards the payment of Central/state tax and then against integrated tax.

Manner of such utilization was challenged before the Delhi High Court by filing a writ petition wherein it was contended that payment of IGST can be made partially from CGST and partially from SGST, whereas the GST portal restricted such payment and required the same to be fully made from CGST, before taking recourse to SGST.

It was argued by the council that the system cannot be programmed so as to deny the utilization of CGST and SGST credit in a manner not mentioned in the Act or Rules. The GSTN site cannot override any Act or Rule laid by the Government. As per the Section 49(4) of CGST Act,

The amount available in the electronic credit ledger can be utilised by the registered person in the payment of output tax under Central Tax Act or Integrated Tax Act. Even the form that is available on the Portal does not show any instruction for the same.

Reference to Rule 86(2) of the CGST Rules also provided that the electronic credit ledger shall be debited to the extent of discharge of any liability in accordance with the provisions of Section 49 of CGST Act, 2017Hence, the pop error showed by the common portal does not hold any relevance.

Delhi High Court have accepted the above arguments and admitted this writ petition.

Conclusion

The pop-up error message stating that CGST credit must be exhausted fully before the utilization of SGST credit for payment of integrated tax is arbitrary and unreasonable. In the petitioner’s case, if a liability arises as to the payment of Central Tax after the payment of integrated tax, the petitioner will be at loss. Credit on account of SGST cannot be utilised for the payment of Central Tax as per section 49(4). Therefore, in spite of having credit in the electronic credit ledger, the same will remain unutilized and the liability for payment of Central tax will be met by cash. This is not a proper justification of the law. Thus, this case finds reasonable grounds for argument in Court.


1 Section 49(4) of CGST Act, 2017

2Section 14(5) of CGST Act, 2017


Restriction on manner of utilization of Credit challenged before Delhi High Court – Writ admitted

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Restriction on manner of utilization of Credit challenged before Delhi High Court – Writ admitted

Restriction on manner of utilization of Credit challenged before Delhi High Court – Writ admitted
Founder Member

Bhaskar Thakkar

Chief Executive officer

BT Associates, India

thakkar@btassociate.com

Twenty years of exprience in tax practice, specialist in structuring & planing and tax optimization under indirect tax. Lead eastern India indirect tax practice of Ernst & Young in past.