This circular provides clarification on the order of utilisation of input tax credit (ITC) following the insertion of sections 49A and 49B in the CGST Act and Rule 88A in the CGST Rules, with effect from 1 February 2019.

The circular explains that section 49A mandates complete utilisation of IGST credit before using CGST or SGST/UTGST credit for payment of any tax liability. However, this led to practical difficulties where taxpayers were forced to pay certain liabilities in cash despite having ITC under other tax heads. To address this issue, Rule 88A was inserted to allow flexibility in utilisation of IGST credit.

It is clarified that IGST credit must first be used to discharge IGST liability. Thereafter, the remaining IGST credit can be utilised for payment of CGST and SGST/UTGST in any order and in any proportion, at the option of the taxpayer, subject to the condition that IGST credit is completely exhausted before using CGST or SGST/UTGST credit. Cross-utilisation between CGST and SGST/UTGST credit continues to be not permitted.

The circular also provides illustrative examples to explain the revised order of utilisation. It is further clarified that until the GST common portal is updated to reflect Rule 88A, taxpayers may continue to utilise ITC as per the existing system functionality.

This clarification aims to ensure uniform implementation and reduce hardships faced by taxpayers in ITC utilisation.