GSTN Advisory for Set-Off of IGST Liability taken off from the GST Portal: Expected Consequences for Taxpayers!

The recent changes in GST portal functionality have created significant compliance challenges for taxpayers, particularly in the manner of utilization of Input Tax Credit (ITC) under Section 49 of the CGST Act, 2017. In March 2026, vide advisory in Jan'26 & Feb'26, the portal allowed taxpayers to discharge IGST liability by first exhausting IGST ITC and then permitting set-off from SGST ITC, even before CGST ITC was fully utilized. This advisory-based mechanism enabled taxpayers to clear liabilities entirely through ITC balances, thereby avoiding cash outflows. However, with the withdrawal of this facility in April 2026 on GST Portal, the statutory position under Section 49(5)(c) of CGST Act 2017 has been strictly enforced, which requires that CGST credit must be utilized before SGST credit can be applied towards IGST liability.

This shift has immediate implications. For example, in a scenario where IGST liability exceeds available IGST ITC, taxpayers must again first use CGST ITC before SGST ITC can be applied, as per earlier mechanism. The statutory sequencing under Section 49(5) thus overrides the earlier portal advisory, and any returns filed in March 2026 based on the old advisory may now be considered defective.

The Department may argue that returns filed in March 2026 are inconsistent with the law, since Section 49(5) does not permit SGST IGST utilization before CGST IGST utilization. This exposes taxpayers to potential interest liability under Section 50, as well as notices under Section 73 or Section 74 for short payment of tax. These disputes may escalate into litigation, with taxpayers contending that they merely followed the portal's advisory, while the Department insists on strict statutory compliance.

From a compliance perspective, this change underscores the primacy of statutory provisions over system advisories. Taxpayers must now realign their ITC utilization strategy to ensure conformity with Section 49 sequencing. Reliance on portal advisories without statutory backing can no longer be defended, as courts have consistently held that departmental instructions or system advisories cannot override the Act. Operationally, businesses will need to reassess their ITC planning and cash flow management. The inability to use SGST ITC for IGST liability before exhausting CGST ITC will result in increased cash payments, even when credit balances exist. This may particularly affect companies with skewed credit accumulation across different heads, such as exporters or businesses with high interstate transactions.

In conclusion, the April 2026 withdrawal of the portal advisory has reinforced the statutory sequencing of ITC utilization under Section 49(5), creating both compliance and cash flow challenges. Taxpayers who relied on the earlier advisory for February and March returns may face disputes, interest demands, and possible litigation. The episode highlights the critical need for businesses to prioritize statutory provisions over system advisories, and to maintain robust compliance frameworks that anticipate such shifts.

The following is a numerical illustration of The Change: