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Section 37a

Shivani (Learner) (1881 Points)

12 October 2016

Dear Friends

Can anyone explain section 37A of model GST Law with the help of an example.

Regards

Shivani

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7 Replies

Sunil Kumar (Indirect Taxation ) (1246 Points)
Replied 13 October 2016

BACKGROUND OF SECTION 37A: TRANSFER OF INPUT TAX CREDIT

To understand better let me quote the wordings of section 37A which says

On utilization of input tax credit availed under the CGST Act for payment of tax dues under the IGST Act as per sub-section (5) of section 35,
the amount collected as CGST shall stand reduced
by an amount equal to the credit so utilized and
the Central Government shall transfer an amount
equal to the amount so reduced from the CGST account to the IGST account in the manner and time as may be prescribed.

Note: This provision is to be incorporated in the CGST Act.

On utilization of input tax credit availed under the SGST Act for payment of tax dues under the IGST Act as per sub-section (5) of section 35,
the amount collected as SGST shall stand reduced
by an amount equal to the credit so utilized and
the State Government shall transfer an amount
equal to the amount so reduced from the SGST account to the IGST account in the manner and time as may be prescribed.

Note. This provision is to be incorporated in SGST Act.

ANALYSIS:

As we are aware that on Intra state supply CGST & SGST applies and if transaction is interstate supply then IGST would be applicable. The amount charged as CGST will require to deposit in centre account and of SGST in state account and these amounts are specific to both of them. As far as IGST is concern Article 269A prescribes that on the recommendation of GST Council parliament will prescribe the manner of distribution of IGST between States and Centre. Further, section 35 (5) allow the assessee to claim credit of CGST/SGST against IGST.

Section 37A is a mechanism section which deals with a specific situation where in, if balance of any credit lies in the account of Electronic credit ledger as CGST/SGST and same is utilized against IGST on account of interstate transaction.

It cast responsibility on Centre/State Government to transfer such balance to IGST account, because specifically that amount neither belong to Centre or nor to any State. As credit which so utilized against IGST is now IGST and not CGST/SGST and which is subject to distribution among state and centre in the manner as specified above.

Regards

Sunil Kumar

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CA Kush Khattar (Chartered Accountant) (38 Points)
Replied 14 October 2016

Suppose goods are moving from Indore to Bhopal. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government respectively.

Now suppose later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied. Whole IGST goes to the central government.

Against IGST, both the input taxes are taken as credit. But we see that SGST never went to the central government, still the credit is claimed. This is the crux of GST. Since this amounts to a loss to the Central Government, the state government compensates the central government by transferring the credit to the central government.

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Shivani (Learner) (1881 Points)
Replied 14 October 2016

Thanks Sunil that makes sense.

But the Background material issued by ICAI on section 37A made no sense to me. They gave no example.

Kush ji, what you say i knew and kind of I understood it when i read section 37A (the part to be incorporated in SGST Act) but then i got confused in section 37A (the part to be incorporated in CGST Act).

While State Government compensating Central Government made sense to me, I got confused as to why Central Government will compensate itself in case of CGST.

But as Sunil said it needs to be done as IGST proceeds needs to be shared among Centre and States, so now it kind of makes sense.

I will still wait for the rules on section 37A for the picture to get completely clear.

thanks to both of you

regards

Shivani (Learner) (1881 Points)
Replied 14 October 2016

Dear All

While the governmnet has formulated section 37A for transfer of ITC of CGST/SGST utilised against IGST to the IGST account, what about the transfer of ITC of IGST utilised against CGST/SGST to compensate the State Government for the loss of revenue to it (igst set off against SGST)?

It would have been better had the Government formulated a section for that too as that would have fully cleared the picture.

Regards

Sunil Kumar (Indirect Taxation ) (1246 Points)
Replied 14 October 2016

Hi Shivani,

Thanks for your complements!!

The vice versa situation is also provided under law. Please refer section 9 of IGST ACT.

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Sunil Kumar (Indirect Taxation ) (1246 Points)
Replied 14 October 2016

To understand provision through constitution background please download file Detailed analysis The Constitution 122nd Amendment Bill 2014

in share file at caclub India.
Regards