Section 18 of CGST Act-Availability of Credit in Special Circumstances

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1. Persons who are eligible to take Input Tax Credit (ITC) under Section 18(1) of CGST Act, 2017

Subject to such conditions and restrictions as may be prescribed under Rule 40, the following persons are eligible to take input credit—

(A) Person already doing business before introduction of GST who requires mandatory Registration under GST (Section 18(1)(a)]

A person who has applied for registration under this Act within 30 days from the date on which he becomes liable to registration under GST and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under GST provisions;

(B). Person who is although not required to have Registration but goes for Voluntary Registration [Section 18(1)(b)]

A person who takes registration under section 25(3) shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock on the day immediately preceding the date of grant of registration:

(C) Person who ceases to pay GST under Composition Scheme and shifts to Regular Scheme [Section 18(1)(c)]

Where any registered person ceases to pay tax under section 10 (i.e. composition scheme), he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately
preceding the date from which he becomes liable to pay tax under section 9 (See also section 18(4) below):

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed

(D) Person whose Exempt Supply becomes a Taxable Supply [Section 18(1)(d)]

Where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

The amount of credit under section 18(1) shall be calculated in such manner as may be prescribed. [Section 18(5)]

2. Time limit for taking Input Tax Credit (ITC)  by a Person covered under Section 18(1) [Section 18(2)]

A registered person shall not be entitled to take input tax credit under section 18(1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.

(B) Manner of taking Input Tax Credit (ITC) Under Section 18(1) [Rule 40]

In the following cases tax credit shall be available to supplier of goods or services or both on the stocks and or capital goods subject to fulfilment of conditions and restrictions as specified in each case:

Case / SituationRules Applicable
Any person who has applied for registration within 30 days from the date on which he becomes liable for registration and has been granted such registration — Section 18(1)(a)(1) He is entitled to take Input Tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. [Rule 40(1)(a)]

(2) The registered person shall within 30 days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration, electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. [Rule 40(1)(b)]

(3) The declaration under rule 40(1)(b) shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act, in the case of a claim under Section 18(1)(a). [Rule 40(1)(c)]

(4) The details furnished in the declaration under rule 40(1)(b) shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of claim on account of central tax, State tax, Union territory tax and integrated tax exceeds Rs. 2,00,000. [Rule 40(1)(d)]
A person who takes registration under subsection (3) of section 25 i.e. a person who takes voluntarily
registration, though not liable to be registered under the provisions of CGST Act -Section 18(1)(b)
(1) He is entitled to take Input Tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration [Rule 40(1)(a)]

(2) The registered person shall within 30 days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration, electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. [Rule 40(1)(b)]

(3) The declaration under rule 40(1)(b) shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date of grant of registration, in the case of a claim under Section 18(1)(b). [Rule 40(1)(c)]

(4) The details furnished in the declaration under rule 40(1)(b) shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of claim on account of central tax, State tax, Union territory tax and integrated tax exceeds Rs. 2,00,000. [Rule 40(1)(d)]
Where any registered person ceases to pay tax under section 10 i.e. composition Levy and shifts to regular scheme — Section 18(1)(c)(1) He is entitled to take Input Tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9 i.e. at regular rates. [Rule 40(1)(a)]

(2) The registered person shall within thirty days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration, electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. [Rule 40(1)(b)]

(3) The declaration under rule 40(1)(b) shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 
9, in the case of a claim under Section 18(1)(c). [Rule 40(1)(c)]

(4) The details furnished in the declaration under Rule 40(1)(b) shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of claim on account of central tax, State tax, Union territory tax and integrated tax exceeds Rs. 2,00,000. [Rule 40(1)(d)]

(5)The input tax credit claimed in accordance with the provisions of section 18(1)(d) shall be verified with the corresponding details furnished by the corresponding supplier in FORM CSTR-4on the Common Portal. [Rule 40(1)(e)]

(6) The input credit claimed on capital goods shall be subject to subject rule 40(1)(a) read with rule 40(2). (See Rule 40(1)(a) and rule 40(2) below the box.
Where an exempt supply of goods or services or both by a registered person becomes a taxable supply —Section 18(1)(d)(1) He is entitled to take Input Tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable [Rule 40(1)(a)]

(2) The registered person shall within thirty days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration. electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. [Rule 40(1)(b)]

(3) The declaration under rule 40(1)(b) shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date from which supplies made by the registered person becomes taxable, in the case of a claim under Section 18(1)(d). [Rule 40(1)(c)]

(4) The details furnished in the declaration under rule 40(1)(b) shall he duh certified by a practicing chartered accountant or a cost accountant if the aggregate value of claim on account of central tax, State tax, Union territory tax and integrated tax exceeds Rs. 2,00,000. [Rule 40(1)(d)]

(5) The input tax credit claimed in accordance with the provisions of section 18(1)(c) shall be verified with the corresponding details furnished by the corresponding supplier in FORM GSTR-1 on the Common Portal. [Rule 40(1)(e)]

(6) The input credit claimed on capital goods shall be subject to subject rule 40(1)(a) read with rule 40(2). (Sec rule 40(1)(a) and rule 40(2) below the box. [Rule 40(1)(f)]

3. How to Claim Input Tax Credit on Capital Goods of CGST Act, 2017

The credit on capital goods shall be reduced by 5% Points per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received by taxable person. [RuIe 40(1)(a)]

Further, the amount of credit in the event of supply of capital goods or plant and machinery, as provided in Section 18(6), shall be calculated by reducing the input tax on the said goods at the rate of 5% Points for every quarter or part thereof from the date of issue of invoice for such goods. [Rule 40(2)]

For capital goods, input tax credit involved shall be computed by taking the useful life as 5 years.

Example :

R was under a composition scheme from 1.7.2017. He plans to shift to regular scheme w.e.f. 10.1.2019.

R provides the following information:

Date of invoice in respect of purchase of plant and machinery1.10.2017
(Rs.)
Value of Plant and Machinery excluding GST10,00,000
GST charged in respect of Plant and Machinery @ 18%1,80,000
Date when the registered person ceases to pay tax under section 10 i.e. composition Levy  and shifts to regular scheme — Section 18(1)(c)10.1.2019

Determine how much input tax credit of capital goods i.e. plant and machinery R can take, when he has shifted from composition scheme to regular scheme.

Solution :

The amount of input tax credit which can be taken by R on shifting from composition scheme to regular scheme shall be computed as under:

A.Tax paid on purchase of Plant and MachineryRs. 1,80,000
B.Time gap between date of purchase under composition scheme and shifting to regular scheme1 year 3 months and 10 days (i.e. 6 quarters including the part of the month which is rounded off)
C.Rate of Reduction in tax paidFive percentage points per quarter of a year or part thereof (as the total life is taken as years amounting to 20 quarters)
D.Total reduction in tax paid for five quarters or part thereofFive percentage points x Six quarters
E.Amount of Reduction in tax paid30% of Rs. 1 .80,000 = Rs. 54,000
F.Amount of input tax credit on capital goods allowed on shifting from composition scheme to regular schemeRs. 1.80,000 — Rs. 54,000 = Rs. 1,26.000

4. GST is to be Paid on Capital Goods or Plant and Machinery if they are Supplied or Sold Outward after Use [Section 18(6)]

In case of supply of capital goods or plant and machinery, on which input tax credit has been taken are supplied outward by the registered person he shall pay an amount equal to—

— the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed, or

— the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.

However, where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15

Rule 44(6): The amount of input tax credit availed earlier which is subsequently required to be paid under section 18(6) on supply of capital goods shall be determined in the same manner as prescribed in Rule 44(1)(b) and the amount shall be determined separately for input tax credit of IGST and CGST. Where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1.

Example :

R Ltd. provides the following information:

Date of invoice in respect of purchase of plant and machinery1.11.2017
Rs.
Value of Plant and Machinery excluding GST20,00,000
GST charged in respect of Plant and Machinery @ 1 8%3,60,000
Date of supply of Plant and Machinery owing to obsolescence10.1.2019
Value of outward supply of Plant and Machinery12,00,000

Determine how much amount of GST to be paid on the supply of such machine.

Solutions :

In the light of above information, the amount to be paid by R Ltd. shall be computed as under :

A.Input tax credit taken on purchase of Plant and MachineryRs. 3,60,000
BTime gap in quarters between date of purchase and supply of plant and machinery1 year 2 months and 10 days i.e. 5 quarters (including part of the month)
C.Rate of Reduction in tax paid5% Points per quarter of a
year or part thereof (as the total life is
taken as 5 years amounting to 20
quarters)
D.Total reduction in tax paid for five quarters or part thereofFive percentage point x quarters = 25% Points
E.Amount of Reduction in tax paid25% x of Rs. 3,60,000 = Rs. 90,000
F.Amount of GST to be paid on the basis of reduction in input tax credit taken [A-E]Rs. 2,70,000
G.Transaction Value of the Plant and MachineryRs. 12,00,000
H.Tax on the transaction value of Plant and MachineryRs. 2,16.000 [Rs. 12.00.000 x 18%]
I.in terms of Section 18(6) amount to be paid-Higher of the amount given at Si. No. F and Sl. No. HRs. 2,70,000

5. Transfer of Unutilized Input Tax Credit (ITC) due to change in the Constitution [Section 18(3)]

Where there is a change in the constitution of a registered person onaccount of sale, merger. demerger. amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities. the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

Unutilized input tax credit in the electronic credit ledger of transferor of business in the situations specified above shall be transferred to the transferee subject to following conditions:—

  1. There is a specific provision for transfer of liabilities: and
  2. Tax credit shall be transferred to transferee in the manner discussed in Rule 41 of the CGST Rules, 2017.

6. Reversal of Input Tax Credit (ITC) if a Registered Person under Normal Scheme Opts for Composition Scheme [Section 18(4)]

(A) Reversal of Input Tax Credit (ITC) if Goods and Services supplied by him which were earlier Taxable become wholly Exempt [Section 18(4)]

Where any registered person who has availed of input tax credit—

— opts to pay tax under section 10 (i.e. composition scheme) or,

— where the goods or services or both supplied by him become wholly exempt,

he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption.

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

The amount payable under section 18(4) shall be calculated in such manner as may be prescribed.See Rule 44 below [Section 18(5)]

(B) Manner of Reversal of Input Tax Credit (ITC) under Special Circumstances [Rule 44 of the CGST Rules, 2017]

(1)       As per Rule 44(1), the inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock shall, for the purposes of section 18(4) (see above) or section 29(5) (relating to reversal of credit on cancellation of registration), be determined in the following manner namely,—

(a) For inputs held in stock, and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input.

Example :

R is a trader and entitled to Composition Levy Scheme. On 1.12.2017 he switches over from Normal Scheme to Composition Levy. On 30.11.2017 the position of ITC is as under:

ParticularsAmount (Rs.)
(A)ITC in respect of input contained in finished goods held in stockRs. 47,500
(B)Total ITC available in the Electronic Credit Ledger as on 30.11.2017Rs. 54,000
(C)Amount to be paid by way of debit in the Electronic Credit or Cash LedgerRs. 47,500
(D)Balance of ITC that shall lapse in terms of proviso to Section 18(4) i.e. (B)—
(C)
Rs.6,500

(b)       For capital goods held in stock the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years;

Example :

Capital goods have been in use4 years, 6 month and 15 days.
The useful remaining life in months5 months ignoring a part of the month
Input tax credit taken on such capital goodsSay ‘C’
Input tax credit attributable to remaining useful life‘C’ multiplied by 5/60

(2)       The amount, as prescribed in rule 44(1) shall be determined separately for input tax credit of integrated tax and central tax [Rule 44(2)]

(3)       Where the Lax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount under rule 44(1) based on the prevailing market price of goods on the effective date of occurrence of any of the events specified lit, section 18(4) i.e. shifting from regular rate to composition levy or goods supplied by supplier have become wholly exempt, or 29(5) which deals with reversal of input tax credit in the event of cancellation of registration. [Rule 44(3)]

(4)       The amount determined under rule 44(1) shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03, where such amount relates to any event specified in section 18(4) and in FORM GSTR-10, where such amount relates to cancellation of registration. [Rule 44(4)](5)       The details furnished in accordance with rule 44(3) shall be duly certified by a practicing chartered accountant or cost accountant. [Rule 44(5)]

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