Beginning this month, the companies have to follow the credit utilisation mechanism that government came out with late last year. Earlier, companies could set off IGST credit against both CGST and SGST. But IGST credit has to be first utilised before availing CGST or SGST credit under the new mechanism.
According to Tax experts this will lead to situations where on one hand companies have credit lying in their books but they still have to end up paying GST in cash. This regulation could also result in litigation in coming months.
Abhishek A Rastogi, partner, Khaitan & co. Said that 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. He added that the constitutional validity of this tax cascading could be challenged in court as credit refunds could only be availed under the inverted duty structure.
Companies can solve this problem only by altering their supply chain structures which may not be possible for most companies.
Companies that have national presence could see that in one state they would have huge credit lying while in other states they could have huge pending taxes.
