In the notification, government inserts new rule 88A that clarifies that the input of IGST has to be first used against output of IGST followed by set-off of IGST against either CGST or SGST as per the dealer’s requirement.
Vinkesh Gulati, Vice-President, FADA who led the discussion with the GST Commissionerate, said, “Dealers will not have to make cash payments if they have inputs. It will be a relief for auto dealers as the amount stuck for working capital due to inventories, will no longer be a worry.”
This is an update after the circular of February 1, which stated IGST has to be adjusted first and CGST and SGST later. However, with the new notification from government, IGST credit can be utilised first. The provision has been notified and soon it will be implemented on the GST network.
“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 utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order,” read the government notification.
According to Amit Bhagat, Partner, indirect tax practice, Dhruva Advisor, the impact of the new rule will improve the
cash flow with automotive dealers. “Centre has to compensate the state now. Because most of the sales were local, IGST was getting accumulated. The whole process of cash flow for the central government will also be easier.”
This may assuage the Indian automotive retail that has been suffering since September due to high inventory backlog.
A dealer who wished to maintain anonymity said, “GST has been a major factor for increased working capital as well as financial pressure for dealers. Recent changes in GST had restricted our cash flow and made the whole condition worse.”
Dealer fraternity, however, is relieved now as the new rule will give a boost to their sentiments, thus helping them temporarily from the web of restricted cash flow.