TaxTMI 
TaxTMI 
TaxTMI 
Introduction:
The promise of a seamless credit and simple life under this GST regime has often lately thrown practical dilemmas in the path of taxpayers. One such question is:
Can Input Tax Credit from one business be used for paying GST on yet another unrelated out-of-registered business?
A 2022 ruling by the Gujarat Appellate Authority for Advance Ruling (AAAR) on the case of In Re: M/s. Aristo Bullion Pvt. Ltd. - 2022 (1) TMI 1056 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT has pretty much settled this important question-especially for businesses where different commodities or product lines may be involved.
The Business Context:
Aristo Bullion was in the business of refining gold and silver dore bars. It also decided to start dealing in Castor Oil Seeds, which it bought from agriculturists, exempt from charging GST. Although inward supplies of seeds were not taxable, their onward sale was.
Since Aristo's input tax credit was collected from its bullion business, they wanted to use this ITC to pay for the outward supply of Castor Oil Seeds.
But this raised a red flag at the Gujarat Authority for Advance Ruling (GAAR).
First Ruling: GAAR Takes a Narrow View
GAAR said that no nexus could be drawn between the inputs (i.e. gold and silver dore bars) and the outward supply, which was castor oil seeds. Hence, as per Section 16(1) of the CGST Act, it held that ITC cannot be used for paying output tax on an unrelated supply.
The position thus taken by the GAAR was, in essence:
'There is no link between gold and castor seeds; no cross-utilisation of ITC allowed.'
The Appeal: A Rational Approach by AAAR
This interpretation has been overturned by the AAAR on appeal, and it has brought back the discussion to the fundamental principles of GST.
Here is what they highlighted:
Section 16(1) allows ITC on inputs used in the course or furtherance of business, but it does not necessitate any specific nexus between inputs and outputs for recovering the input tax credit.
Once ITC is validly availed, it merges into a common pool in the Electronic Credit Ledger and can be used to pay any output tax, as per Section 49(4).
The GST framework does not mandate commodity-wise tracking or utilization of ITC—doing so would defy the intended simplicity of the system.
The AAAR pointed out that business establishments such as supermarkets or dealers of multiple goods shall not and should not be under any requirement to maintain ITC matching item-wise. Such a requirement would impose unnecessary and impractical compliance burdens.
Key Takeaway: ITC is Fungible
The AAAR thereby rightly inferred that validly availed ITC, however it may have been earned from purchases for one business activity, can now be used for any outwards taxable supply, including that of unrelated commodities.
The conclusion stated:
'The applicant can use the Input Tax Credit Balance available in its Electronic Credit Ledger, legitimately earned on inward supplies (meant for Bullions), for payment of output tax on outward supply of Castor Oil Seeds.'
Thus, not only was this compliant with the legal provisions but reinforced the spirit the GST was intended to have-a tax on the value added throughout the whole supply chain.
What This Means for Taxpayers
This ruling is now very comfortable for diverse businesses operating under a single GST registration: metals or agro-products or all possible combinations involving electronics or apparel. Keep in mind the following truths regarding the electronic credit ledger, one solid pool, and valid cross-utilization of ITC:
ITC is lawfully availed.
The inputs are in the course or furtherance of the business.
This again brings forward that GST is not a commodity-wise tax-it is a business-wise system with the whole support of ITC and not isolated activities.
Conclusion:
The ruling of Aristo Bullion brings the aspect of common sense rightly back into compliance. It is a clear indication that earning ITC involves no link to a specific output at all. For professionals and businesses grappling with GST, this is an extremely welcome precedent, based on law and practical approach.