Cross Utilisation of Eligible ITC for Payment of Output Tax Liability across business verticals under the same GST registration

[GAURAV SHARMA]

As per our understanding, under the GST law, a taxpayer engaged in both restaurant services and trading activities under a single GSTIN can utilise eligible ITC accumulated (lying in excess in credit ledger after payment of output liability pertaining to trading business) from the trading business for payment of output GST liability pertaining to restaurant services, after reversing the ineligible ITC specifically attributable to restaurant services and common credits.

Considering that Notification No. 11/2017-CT (Rate) only restricts availment of specific ITC relating to restaurant services and does not mandate payment of restaurant output liability exclusively through the electronic cash ledger, unlike the specific cash payment restriction prescribed for certain real estate services. Please shed light on this and provide any case law specific to this secanrio.

For eg: A taxpayer is running a trading business and restaurant under the same GSTN and has incurred ITC of Rs. 1000 from the restaurant and Rs. 2000 from the trading business.

He further has output liability of Rs. 1200 in restaurant business and Rs. 300 in trading business sale.

So, once the taxpayer has reversed ITC of Rs. 1000 pertaining to restaurant services (blocked u/s 17(5)].

The remaining eligible ITC of Rs. 2000 accrued from the trading business can be freely utilised to pay off output liabilities of trading business i.e. Rs. 300. Thereafter, the excess ITC of Rs. 1200 lying in the ECL can be used to pay restaurant liabilities.

Please provide matter specific case laws; if any.

AI Summary

Cross-utilisation of ITC under GST permits trading credits to offset restaurant liability absent a cash-ledger mandate.
Notification No. 11/2017-CT (Rate) restricts only the availment of ITC attributable to restaurant services and does not require restaurant output tax to be paid exclusively through the electronic cash ledger. After reversing ineligible restaurant-related credit under Section 17(2) read with Rules 42 and 43, the remaining eligible ITC in the common Electronic Credit Ledger may be utilised against any output tax liability under Section 49. The law does not require one-to-one correlation between the source of ITC and the outward supply, and this is supported by Dai Ichi Karkaria, Larsen & Toubro Limited, and Aristo Bullion Pvt. Ltd.