Recently, the Indian government has introduced some changes in the credit utilization mechanism under GST wherein the companies initially have to settle down the tax liability by availing IGST credits even before the utilization of central GST (CGST) and state GST (SGST) credits. But, previously companies were allowed to avail IGST credits to pay the tax liability of CGST and SGST.
This amendment made some of the companies to pay GST in cash even if they have appropriate credits in their electronic credit ledger maintained under the GST. As per a tax expert, “This amendment has become a point of worry for most industry players as they may now have to pay SGST liability in cash even in scenarios where prior to this amendment, these could be paid by utilising credits. The reason being the introduction of this new rule of utilisation of IGST credit.”
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By adding that, IGST credits are collected by the companies that deal in importing goods from different countries or import goods from other state vendors. The tax amount collected under IGST would be equally distributed to the central and the state governments. Tax officials stated that changes in the credit utilization mechanism could lead to legal disputes.
As per the tax expert, “The main objective of GST is that there should be no tax cascading, but the underutilised or non-utilised credit would lead to exactly that. The constitutional validity of this tax cascading could be challenged in court.”
Tax officials stated that To deal with this problem, the companies have to make some alteration in its supply chain structure. However, it is not possible for most of the companies as a supply chain cannot be held only responsible for evading or saving taxes.
Under the new amendment of GST, companies are required to avail IGST credit first, In respect of this industry experts stated that various company would be having credits deposited in one state while having taxes pending in other states.
