QUESTION

The Company has received advance against the supply of services. The same has been reported as advance in GSTR-1 and IGST has been paid through GSTR-3B as this was inter-state supply of service. But due to some reason, services have not been rendered and advance received by the Company has been refunded to the party. whether on refunding this advance on the cancellation of services can adjust the IGST paid on advance received against the IGST liability on outward supplies only or can also adjust the same with CGST an SGST liability on outward supplies?

ANSWER
 

Facts of the case: A Company has received advance against the supply of services. The same has been reported as advance in GSTR-1 and IGST has been paid through GSTR-3B. But due to some reason, services have not been rendered and advance received has been refunded to the party. Whether IGST paid on advance received against the IGST liability can be adjusted against IGST on outward supplies only or can also be adjusted with CGST an SGST liability on outward supplies?

Law Applicable: CGST RULE 88A

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 utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:

Interpretation: In GST specific order is prescribed for utilization of ITC. But the instant case is not related to ITC rather it is payment of tax. Therefore tax paid under one head cannot be adjusted against tax liability of other head.

If invoice was issued against receipt of advance, then issue credit note at the time of refund of advance, this will automatically reduce the tax liability under IGST in the month credit note is issued and declared in GSTR-1.

However, if IGST cannot be adjusted in subsequent months then you can claim refund of IGST. But claiming of refund will be a lengthy procedure and requires filing of applications and documentation, therefore if possible adjust the IGST paid on advance against future IGST liabilities.

Conclusion: IGST paid on advance received against the IGST liability can only be adjusted against IGST on outward supplies and cannot be adjusted with CGST and SGST liability on outward supplies. (Reply dt. 16/03/2021)