Input Tax Credit in special circumstances under GST Law

Introduction

In India GST law implemented in July 2017. As there are so many things, questions, complexities which are remain un-answerable even after introducing GST Law. For all this scenarios GST Council make the necessary changes after considering the queries raised by taxpayers, their associations, GST Department or any other authorities. CBEC/GST Department make the changes on the recommendations given by GST Councils from time to time. With this there are many situations under which, how and when taxpayer can claim the input tax credit under special scenarios. Special situations are such as New GST Registration, Business Changes, Shifting from Composition to Regular, from exempt to taxable supplies etc. Section 18 along with Rule 40 under CGST law deals with the special circumstances and complexities under which taxpayer may get the credit on Inputs and capital goods with certain conditions and restrictions.

In this video we are going to discuss section 18(1), 18(2) along with the Rule 40 of CGST Rules, which states the provisions of credit in case of New GST Registration (Compulsory or voluntarily), switching to Regular taxpayer from Composition Scheme and shifting from Exempt supplies to taxable event.

Section 18(1) & (2) Bare Provision:

(1) Subject to such conditions and restrictions as may be prescribed-

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;

b) a person who takes registration under sub-section (3) of section 25 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) where any registered person ceases to pay tax under section 10, 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: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;

e) 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;

(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.

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

Let’s discuss all points with examples:-

A. Person who has applied for registration within 30 days from the date on which he becomes liable to registration and has been granted such registration (Mandatory Registration under GST Law):

Person namely Mr. X applying for GST registration within thirty days of becoming liable to obtain GST Registration. Here Mr. X  is entitled to claim input tax credit on inputs, as well as semi-finished or finished goods, held in stock on the day immediately preceding  the date of liability.

For example, Mr. X becomes liable to pay tax on 1^st October and has obtained registration on 10^th October w.e.f. 30^th September ‘X’ is eligible for ITC on inputs held in stock and as part of semi-finished goods or finished  goods held in stock as on 30^th September.

Point to be noted: ‘X’ cannot eligible to take ITC on capital goods.

Although, ITC can be availed within 1 year from the date of the issue of the tax invoice by the supplier. That means Mr. X (from the above example), can avail ITC of goods purchased whose invoice date is not older  than 1 year from the date on which he files Form GST ITC-01.

B. Person who obtains Voluntary Registration:

For those who applying for registration voluntarily under Section 25(3) of the GST Act, i.e., all such taxpayers eligible to claim input tax credit on inputs, semi-finished, or finished goods held in stock on the day immediately preceding the date of registration.

For example, A applies for voluntary registration on 11^th December and obtains registration w.e.f. 24^th December. A is eligible for ITC on inputs held in stock and as part of semi-finished goods or finished goods held in stock as on 23^rd December.

Point to be noted: ‘A’ cannot eligible to take ITC on capital goods.

Similarly, as point A, ITC can be availed within 1 year from the date of the issue of the tax invoice by the supplier.

C. Registered person who switch from the composition scheme to the Regular scheme:

In the case where a registered person ceases to pay tax under the composition scheme, they are entitled to claim  input tax credit on inputs, semi-finished, or finished goods, and even on capital goods. The credit is available on the day immediately preceding the date from which the person becomes liable to pay tax under regular  scheme. It is noted that, unlike point 1 (Compulsory Registration) & 2 (Voluntary Registration), ITC on capital goods can also be availed. ITC on capital goods will be reduced by 5% per quarter of a year or part of the quarter from date of invoice.

For Example, ‘D’, a registered taxable person, was paying tax under composition scheme up to 31^st March. However, w.e.f. 1^st April, ‘D’ shift from composition to regular scheme. ‘D’ will be eligible for ITC on inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods as on 31^st March.

ITC on capital goods will be reduced by 5% per quarter or part thereof from the date  of the invoice.

Similarly, as point A & B, ITC can be availed within 1 year from the date of the issue of the tax invoice by the supplier.

D. Registered person whose exempt supplies become taxable supplies:

When an exempt supply of goods or services becomes taxable, the registered person is entitled to claim input tax credit on related inputs and on capital goods exclusively used for the exempt supply.

For example, ABC Limited is dealing in product X which is exempted from GST. However, it become taxable w.e.f. 1^st April 2023 vide a notification. ABC Limited is eligible to claim ITC for product X held in semi-finished or finished form. Also ABC limited will become eligible for ITC on  capital good specifically used for producing Product X.

Similarly, as point A , B & C,  ITC can be availed within 1 year from the date of the issue of the tax invoice by the supplier.

Rule 40 (Manner and way of claiming ITC):

Rule 40 of CGST outlines the manner and way under which taxpayer can claim the input tax credit under such special circumstances. For claiming the ITC whether in the form of inputs, Semi-finished Goods (WIP) or finished, taxpayer need to submit the Form GST ITC-01 electronically on the GST common portal. This form should explicitly outline details concerning the inputs in stock, inputs within semi-finished (WIP) or finished goods, and capital goods, corresponding to the respective dates mentioned in column (4) of the applicable table.

The deadline for filing this form is within 30 days from the date when the registered person becomes eligible for availing IInput Tax Credit(ITC).

It`s noteworthy that if taxpayer misses this deadline then he may not be entitle to claim the ITC. The missed deadline extendable only under the discretion of the Commissioner/Commissioner of State GST/Commissioner of UTGST.

Furthermore, if the cumulative claim for ITC, encompassing CGST, SGST/UTGST, and IGST, surpasses the threshold of Rs. 2,00,000, the declaration necessitates certification by a practicing Chartered Accountant or Cost Accountant. This stringent process ensures the accuracy and reliability of the ITC claim when it involves substantial amounts across different tax categories.

Conclusion: Navigating the complexities of claiming Input Tax Credit under the GST law requires a thorough understanding of Section 18 and Rule 40 of the CGST Act. Whether dealing with new registrations, business transitions, or changes from exempt to taxable supplies, it is crucial for taxpayers to follow the prescribed conditions and deadlines. Accurate and timely filing, along with necessary certifications, ensures compliance and maximizes the benefits of ITC. Always consult with legal or tax professionals to stay updated with any amendments or specific provisions applicable to your situation.