Procedure to claim ITC when Unregistered supplier become liable to GST registration

When an unregistered supplier becomes liable for GST registration, they can claim Input Tax Credit (ITC) on inputs held in stock and semi-finished or finished goods. This guide provides a step-by-step procedure, calculations, and rules for claiming ITC under Section 18(1)(a) of the GST Act when the supplier is granted registration.

Section 18(1)(a): A person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration 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 the provisions of this Act.

Case: MR J is supplier of goods & services and his turnover exceeded RS .20 lakhs on 20 July 2023 and he applied for registration on 1 August 2023 (within 30 days from the date 20 July 2023 on which he becomes liable to registration ) and granted registration on 10 August 2023.

Rule 10: Issue of registration certificate:

10(2) The registration shall be effective from the date on which the person becomes liable to registration where the application for registration has been submitted within a period of thirty days from such date.

10 (3) Where an application for registration has been submitted by the applicant after the expiry of thirty days from the date of his becoming liable to registration, the effective date of registration shall be the date of the grant of registration under sub-rule (1) or sub-rule (3) or sub-rule (5) of rule 9.

Mr J has applied for registration within 30 days, therefore the effective date of registration will be 20 July 2023.

Now as per provisions of section 18(1)(a) :He will 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 i.e 19 July 2023) from which he becomes liable to pay tax under the provisions of this Act.

Calculations Of ITC:

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Journal entry in books will be : Assuming it an Intra-state Purchase

As Per Rule 40:

• MR. J need to file FORM GST ITC-01 to the effect that he is eligible to avail the input tax credit.
• A declaration containing 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 ,on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of the Act, in the case of a claim under clause (a) of sub-section (1) of section 18.
• the details furnished in the declaration shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees.
• In our case ITC is only 72000 ,therefore no need for CA certificate.

Section 18(2):A registered person shall not be entitled to take input tax credit under sub-section (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.

Conclusion: Claiming Input Tax Credit (ITC) for an unregistered supplier who becomes liable for registration is a process that requires proper adherence to the GST regulations. By applying for registration within the specified time frame, calculating the ITC accurately, and filing Form GST ITC-01, the supplier can avail themselves of the eligible ITC. It’s essential to follow the provisions of Section 18(2) to avoid claiming ITC beyond the stipulated one-year period from the date of the tax invoice.