Payment of tax and Transfer of input tax credit

Section 9 — Payment of tax

Section 9A — Utilisation of input tax credit

Section 9B — Order of utilisation

Section 10 — Transfer of input tax credit

BLOCK 2 — PARALLEL PROVISIONS

BLOCK 3 — COMMENTARY

1. Statutory Architecture

2. Historical Context

Section 9 UTGST establishes the utilisation order for intra-UT supplies. The CGST/UTGST mutual-exclusion principle in clauses (c) and (d) preserves the parallel-tax framework — CGST cannot pay UTGST because they represent two parallel taxes (analogous to CGST/SGST mutual exclusion).

Section 9A (non-obstante) reinforces the IGST-first principle — UTGST credit utilisation only after IGST exhausted. This mirrors Rule 88A CGST framework.

Section 9B gives Government power to prescribe order subject to s. 49(5)(e) CGST. This enabled FA 2019 amendments to s. 49 CGST + Rule 88A + Rule 88B for utilisation order changes.

Section 10 is the transfer mechanism — when UTGST credit is utilised for IGST payment (per s. 9(b) framework), Centre transfers equivalent from UTGST account to IGST account. Companion to s. 18 IGST framework.

3. Judicial Evolution

Union of India v VKC Footsteps India Pvt Ltd — (2022) 2 SCC 603 [Supreme Court — 2-Judge Bench]

Brief Facts: Manufacturer-exporters with inverted duty structure (input GST > output GST) sought refund of accumulated input tax credit under s. 54(3) read with Rule 89(5) of the CGST Rules. Rule 89(5) permitted refund of unutilised ITC only on 'inputs' (goods), excluding 'input services'. Gujarat HC struck down the exclusion; Madras HC upheld it. SC heard the conflict.

Issue: Whether Rule 89(5) of the CGST Rules — by restricting inverted-duty refund to inputs (goods) and excluding input services — is ultra vires s. 54(3) of the CGST Act.

HELD: Rule 89(5) upheld. The Court held that s. 54(3) is enabling, not mandatory, and the legislative policy choice to confine inverted-duty refund to inputs (goods) is constitutionally permissible. The refund of unutilised ITC is not a constitutional right; it is a statutory concession that the legislature can shape and limit. The Court urged the GST Council to revisit the formula but did not strike down the rule.

"Refund of unutilised ITC is a statutory entitlement, not a constitutional right. The legislature in its wisdom may choose to grant the entitlement with such conditions and limitations as it thinks fit. We cannot rewrite the formula by judicial fiat."

Relevance: Definitive authority on inverted-duty refund mechanics, the policy/discretion distinction in refund jurisprudence, and the standard of review for delegated legislation under GST.

Chief Commissioner of Central Goods and Service Tax v Safari Retreats Pvt Ltd — (2024) SCC OnLine SC 2966 [Supreme Court — 2-Judge Bench]

Brief Facts: Safari Retreats constructed a shopping mall and leased it out — output supply was taxable rental. It sought ITC on construction goods/services (cement, steel, works contract). Revenue invoked s. 17(5)(d) of the CGST Act to deny ITC on inputs/input services used in construction of immovable property other than plant or machinery 'on his own account'. Orissa HC read down s. 17(5)(d) for leasing-out cases; SC heard the appeal.

Issue: Whether s. 17(5)(d) bars ITC on construction inputs/services where the immovable property constructed is itself used to make taxable outward supplies (here, rental); and what is the scope of the 'plant or machinery' exclusion.

HELD: ITC permitted in a 'functionality test' framework. The Court held that whether a building qualifies as 'plant' within the 'plant or machinery' exclusion is a fact-specific functional inquiry — if the building itself is the means by which the registered person makes outward taxable supplies (e.g., a hotel, a mall, a warehouse), it can qualify as plant and ITC on its construction is admissible. Matter remitted for application of functionality test.

"Whether a particular building qualifies as a plant within the meaning of the expression 'plant or machinery' is a question of fact that has to be determined keeping in mind the business of the registered person and the role that building plays in that business."

Relevance: Critical reset on ITC architecture for real-estate / leasing / hospitality. Important for IGST place-of-supply (immovable property) disputes where ITC architecture interacts with location-of-supply rules under s. 12(3) of the IGST Act.

Union of India v Mohit Minerals Pvt Ltd — (2022) 10 SCC 700 [Supreme Court — 3-Judge Bench (Constitution Bench questions)]

Brief Facts: Importers of coal on CIF basis were held liable under Notification Nos. 8/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate) to pay IGST on ocean freight component under reverse charge under s. 5(3)/(4) of the IGST Act. Importers challenged the levy as ultra vires the charging section and contended that IGST had already been paid on CIF value (which included freight) at the time of import under s. 3(7) of the Customs Tariff Act.

Issue: Whether IGST could be levied separately on the ocean freight component of CIF imports when the entire CIF value (inclusive of freight) had suffered IGST under s. 3(7) of the Customs Tariff Act; and whether GST Council recommendations are binding on the Union and States.

HELD: Levy struck down. The Court held that the impugned notification offended the principle of 'composite supply' under s. 8 of the CGST Act because ocean freight in CIF imports is part of the composite supply of imported goods and cannot be artificially severed. Further, the GST Council's recommendations are recommendatory, not binding, on the Union and States — both Parliament and State legislatures have simultaneous legislative power under Article 246A.

"The recommendations of the GST Council are not binding on the Union and the States. The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST."

Relevance: Foundational authority on the IGST charging section, the limits of reverse-charge notifications under s. 5(3)/(4), and the constitutional architecture of the GST Council. Repeatedly cited in RCM, place-of-supply, and composite-supply disputes.

Union of India v Bharti Airtel Ltd — (2022) 4 SCC 328 [Supreme Court — 2-Judge Bench]

Brief Facts: Bharti Airtel claimed it had under-reported ITC in GSTR-3B for July-Sept 2017 (the early GST months when GSTR-2A was not operational) and sought rectification of GSTR-3B for those months to correct the under-claim. Delhi HC permitted rectification; Revenue appealed to SC.

Issue: Whether GSTR-3B for past periods can be rectified to correct an under-claim of ITC where the registered person's books would support the correction but GSTN does not allow retrospective edit.

HELD: Rectification not permitted. The Court held that the GST return-filing regime is self-assessed; the registered person is duty-bound to verify entitlements at the time of filing and cannot, after the fact, claim that GSTR-2A was not available. ITC is a statutory entitlement that must be claimed within the period prescribed under s. 16(4) and not through retrospective rectification.

"GST is a self-assessment regime. The registered person bears the burden of correctly computing and reporting tax liability at the time of filing the return. The unavailability of GSTR-2A does not absolve the assessee of this duty."

Relevance: Substance-over-form authority on self-assessment, the finality of GSTR-3B, and limits on retrospective rectification — critical for place-of-supply disputes where mis-classification may be alleged years later.

All India Federation of Tax Practitioners v Union of India — (2007) 7 SCC 527 [Supreme Court — 3-Judge Bench]

Brief Facts: The constitutional validity of the service-tax levy on chartered accountants, cost accountants, and architects was challenged on the ground that these professions had been historically regulated by State legislation and were therefore outside Union legislative competence.

Issue: Constitutional foundation of the service-tax levy — whether 'service' can be taxed by the Union under the residuary entry (Entry 97 List I) and what is the doctrinal nature of a service-tax levy.

HELD: Service-tax upheld. The Court held that service-tax is a value-added tax on the value of services rendered, traceable to Entry 97 of List I until Entry 92C was inserted by the Constitution (88th Amendment). The economic concept of value addition through services is the doctrinal basis on which service-tax — and now GST on services — rests.

"Service-tax is a value-added tax on the commercial activity of providing services. The taxable event is the rendition of service and the levy attaches to the value addition at the point of service delivery."

Relevance: Constitutional anchor for taxation of services under GST — pre-101st-Amendment doctrinal framework that informs the place-of-supply concept under s. 12 and s. 13 of the IGST Act.

4. Circulars and Notifications

Rule 88A CGST Rules dated Effective 01.04.2019 — IGST-first utilisation principle

Applies to UTGST utilisation order under s. 9 + 9A.

FA 2019 + s. 49A/B CGST dated Effective 01.02.2019 — Restrictions on cross-utilisation

Applies to UTGST via s. 9B framework.

CGST Form PMT-09 dated Effective 01.01.2020 — Cross-ledger cash transfer

Inter-head cash transfer mechanism; UT-component transfers via s. 17A IGST framework.

CBIC Settlement Procedure dated Operational — Monthly Centre-UT settlement

Operational framework for s. 10 transfers.

Circular 98/17/2019-GST dated 23.04.2019 — Rule 88A operational clarification

Applied to UTGST utilisation.

5. Worked Examples

6. Practitioner Planning

• For intra-UT clients, apply IGST-first utilisation under Rule 88A + s. 9A.
• For CGST/UTGST mutual exclusion, recognise s. 9(c)/(d) bar.
• For cross-utilisation, plan to optimise s. 9 order.
• For PMT-09 (post 01.01.2020), recall s. 17A IGST framework for cash transfers.
• For s. 10 transfers, recognise back-end Centre-UT settlement.
• Coordinate with CGST + IGST utilisation frameworks.
• Maintain master log of utilisation pattern per UT GSTIN.
• Periodic review of CBIC notifications for ongoing utilisation order changes.

7. Litigation Defence

• Rule 88A IGST-first defence.
• VKC Footsteps statutory entitlement.
• Safari Retreats functionality test for upstream ITC chain.
• Bharti Airtel finality.
• Mohit Minerals — utilisation cannot enlarge charging section.
• Vatika Township prospectivity for Rule 88A amendments.
• AIFTP constitutional anchor.
• Hierarchy-of-instruments defence.

8. Procedural Map

Step 1. Compute output tax liability

IGST + CGST + UTGST.

Step 2. Check credit balances

IGST + CGST + UTGST in credit ledger.

Step 3. Apply Rule 88A IGST-first

Mandatory.

Step 4. For surplus IGST, use for CGST per s. 9(a)

s. 10 transfer to IGST account.

Step 5. For surplus IGST further, use for UTGST

s. 10 transfer applies.

Step 6. For UTGST credit, only after IGST exhausted per s. 9A

Non-obstante.

Step 7. For CGST credit, cannot pay UTGST per s. 9(c)

Mutual exclusion.

Step 8. For residual liability, cash from electronic cash ledger

Standard.

Step 9. Report utilisation in GSTR-3B Table 6.1

Per Rule 88A.

Step 10. For PMT-09 transfers, apply s. 17A IGST framework

Cross-ledger.

CROSS-REFERENCES

• s. 7 UTGST — Charging.
• s. 11 UTGST — Officers assist.
• s. 21 UTGST — Application of CGST.
• s. 49(5) CGST — Master utilisation order.
• s. 49A CGST — Restriction.
• s. 49B CGST — Order prescription.
• s. 49(10)/(11) CGST — PMT-09.
• s. 18 IGST — ITC transfer.
• s. 17A IGST — Cross-ledger cash.
• Rule 88A CGST — IGST-first principle.
• Form PMT-09.
• CBIC Settlement Procedure.
• VKC Footsteps (2022).
• Safari Retreats (2024).