Cross Utilization of Input Tax Credit Between Business Verticals Under the Same GSTIN:

1. Introduction:

The Goods and Services Tax (GST) regime in India was designed to ensure a seamless flow of Input Tax Credit (ITC) across the supply chain. However, questions have arisen regarding the cross-utilization of ITC across business verticals operating under the same GSTIN. This article delves into the legal provisions, judicial precedents, and practical implications surrounding this issue.

2. Legal Framework Governing ITC Utilization:

2.1 Section 16(1) of the CGST Act, 2017:

• This section entitles every registered person to take credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business. It is significant to note that:

• The provision does not impose a requirement for a direct nexus between ITC availed and specific outward supplies.

• This allows flexibility in utilizing ITC for different taxable supplies without being restricted to a particular business vertical.

2.2 Section 49(2) and 49(4) of the CGST Act, 2017:

• ITC is credited to the Electronic Credit Ledger (ECL) as part of a common pool.

• Section 49(4) of CGST Act, 2017 allows the utilization of ITC for payment of output tax on any taxable supply, without restrictions based on business verticals.

• This reinforces the principle that once ITC is legally availed, it can be freely used for discharging output tax liability.

2.3 Rule 86 of the CGST Rules, 2017:

• This rule governs the payment of tax through the ECL.

• It does not mandate segregation of ITC based on business verticals.

• The lack of such a requirement indicates that ITC can be utilized against any output tax liability within the same GSTIN.

3. Judicial Pronouncements Favouring Cross-Utilization of ITC:

3.1 Aristo Bullion Pvt. Ltd. (2022) (1) TMI 1056 (AAAR-Gujarat):

• The Appellate Authority for Advance Ruling (AAAR) held that once ITC is legally availed, it merges into a common pool in the ECL.

• The ruling confirmed that the ITC balance could be utilized for payment of GST on any outward supply, irrespective of the nexus between inputs and outputs.

• This decision emphasizes that ITC is not required to be maintained business-vertical-wise.

3.2 CCE v. Lakshmi Technology & Engineering Indus Ltd. (2011) (23) STR 265 (Tri. – Chennai):

• The Tribunal ruled that ITC utilized for manufacturing excisable goods and providing output services need not be maintained separately.

• This supports the principle of seamless ITC utilization across different business operations.

3.3 Sumita Tex Spin Pvt. Ltd. v. CCE [2015 (39) STR 502 (Tri. – Ahmedabad)]:

• The tribunal held that once CENVAT credit is legally availed, it becomes part of a common pool that can be used for payment of excise duty as well as service tax.

3.4 CCE v. V. Thangavel & Sons Pvt. Ltd. [2015 (37) STR 144 (Tri. – Chennai)]:

• It was held that CENVAT credit availed on inputs can be used for payment of service tax on Business Auxiliary Service.

• Rule 3(4) of the Credit Rules allows cross-utilization of common CENVAT credit.

3.5 Coca-Cola India Pvt. Ltd. v. CCE (2009) (8) TMI 50 (Bombay HC):

• The Bombay High Court ruled that once ITC is availed, it forms part of a common credit pool.

• It need not have a one-to-one correlation with outward supply.

• This ruling reinforces the principle of fungibility of ITC within a single GSTIN.

3.6 Nitin Spinners Ltd. v. CCE (2016) (11) TMI 1287 (CESTAT – Delhi):

• The Tribunal reaffirmed that ITC accumulated from inputs used in various businesses can be freely utilized against any output tax liability.

• The tribunal ruled that ITC does not require a direct correlation between input and output.

• The tribunal reinforced that ITC is meant for overall business use and not just for specific transactions.

• This ruling reinforces the common credit pool principle.

4. Judicial Pronouncements Against Cross-Utilization of ITC:

4.1 Advance Ruling in Re: Aristo Bullion Pvt. Ltd. (2021) (4) TMI 561 (AAR – Gujarat):

• Initially, the Gujarat AAR ruled that ITC on inputs like gold and silver dore bars cannot be utilized to pay output tax on Castor Oil Seeds due to a lack of nexus.

• However, this ruling was later overturned by the AAAR, which emphasized the common credit pool concept.

4.2 AAR Rulings Restricting ITC Utilization:

• In certain cases, AARs have ruled against cross-utilization where an explicit link between input tax and output liability was not established.

• These rulings cite the necessity to prove a clear business intent behind ITC claims.

5. Practical Implications for Businesses:

5.1 Unified ECL Treatment

• The ECL format (GST PMT-02) does not segregate ITC business-wise.

• This supports the argument for cross-utilization of ITC across different business verticals.

5.2 Compliance Considerations

• Businesses should maintain proper records and justifications for ITC utilization to avoid disputes.

• In case of scrutiny, a clear rationale linking business operations to ITC claims should be presented.

5.3 Impact on Multi-Vertical Businesses

• Large retail chains like D-Mart and Big Bazaar operate diverse product categories but manage ITC centrally.

• The absence of a legal requirement for vertical-wise segregation simplifies tax compliance and optimizes credit utilization.

6. Conclusion:

• Favourable Position: Several judicial pronouncements and statutory provisions support the cross-utilization of ITC across business verticals under the same GSTIN.

• Opposing Views: Certain AAR rulings have attempted to introduce a nexus requirement, though these have been largely overturned in higher forums.

• Business Takeaway: Companies should ensure compliance by maintaining transparent records and leveraging judicial precedents to support ITC claims.

• The GST law, as interpreted by various judicial forums, generally permits the cross-utilization of ITC across different business verticals within the same GSTIN, in the absence of explicit restrictions.

• However, taxpayers should exercise caution and ensure compliance with all statutory provisions. It is advisable to seek an Advance Ruling from the Authority of Advance Ruling (AAR) for specific business models to avoid future disputes and litigations.