Office of the Commercial Tax Department , Chennai issued Intimation Notice to all the taxpayer u/s 49B of the Tamil Nadu GST Act, 2017 read with Rule 88A of the Tamil Nadu GST Rules, 2017.
The issue highlighted is on the Wrong Order of Utilization of Input Tax Credit (ITC) which is in Violation of Section 49B of the TNGST Act, 2017 read with Rule 88A of the TNGST.
Penalty could be levied u/s 125 of the TNGST Act.
The letter reads as below –
Dear Taxpayer,
This is to inform you that upon scrutiny of your GSTR -3B return for the month of June – 2025, it has been observed that there has been an incorrect order of utilization of Input Tax Credit (ITC), which constitutes a violation of Sections 49B of the Goods and Services Tax Act, 2017, read with Rule 88A of the GST Rules, 2017.
Relevant provisions for your reference;
“Section 49B. Order of utilisation of input tax credit:
(1) Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub section (5) of section49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.”
Rule 88A. Order of utilization of input tax credit:-
Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilises towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:
Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully”
According to the aforesaid proviso, IGST Input Tax Credit (ITC) should first be utilized towards the payment of IGST tax liability. After exhausting the IGST ITC, the available CGST ITC and SGST ITC should next be utilized towards the payment of any remaining IGST tax liability.
Only after this, any remaining CGST ITC and SGST ITC, if available, should be utilized towards the payment of CGST and SGST tax liabilities, respectively.
However, contrary to the above provisions, the SGST Input Tax Credit (ITC) was first fully utilized to discharge the SGST liability, while the IGST liability was settled through a cash payment. This practice is not in accordance with the prescribed order of utilization as laid down under Rule 88A.
Such non-complaince attracts penalty under section 125 of the TNGST Act and CGST Act, 2017, i.e, the penalty may extend to RS.25,000.00 under TNGST Act and Rs.25,000.00 under CGST Act, 2017.
You are hereby advised to ensure that this violation does not occur in the monthly return for the month of June-2025 and thereafter and that the correct return is filed. In case of failure, a penalty will be imposed for each instance of violation under section 125 of the TNGST Act and CGST Act, 2017.
Sd/-P.Gangashree,
Deputy Commissioner (ST),
North-II Zone, Chennai-3.
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