Section 18- Availability of credit in special circumstances -Simplified

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

(a) A person who has applied for registration under the 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;

(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.  

(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.  

The credit on inputs held in stock and inputs contained in semi-finished goods and finished goods held in stock is available in the following manner:

Supplier Inputs Input Services Capital Goods Stock to be considered
Liable for registration (crosses the turnover of Rs 20 /40Lakhs) – Applies for registration within 30 days of becoming liable for registration and obtains registration

 

Available Not Available Not Available Day immediately preceding the date from which he becomes liable to pay tax

 

Voluntary Registration

Sec 25(3)

Available Not Available Not Available Day immediately preceding the date of grant of registration

 

Composition Scheme to Regular Scheme

 

Available

 

Not Available

 

Available

 

Day immediately preceding the date from which

supplier is liable to pay tax under regular scheme

 

Exempt Supplies become Taxable Available Not Available Available but

Only for capital goods used exclusively for  exempt supplies

Day immediately preceding the date from which exempt supplies become taxable

 Credit on inputs includes inputs and inputs contained in semi-finished and finished goods. Credit on input services is not available under any circumstance.

Conditions- Declaration in Form GST ITC-01 must be filed within thirty days from the date of becoming eligible to input tax credit. Rule 40 of Central Goods and Service Tax Rules, 2017 requires a declaration to be filed containing details of stocks and capital goods along with a certificate from a practicing Chartered Accountant or Cost Accountant where the aggregate credit of CGST, SGST/UTGST and IGST so claimed exceeds ` 2 lakhs.

  • The supplier would not be entitled to credit of goods or services or both after expiry of 1 year from date of issue of tax invoice
  • The credit on capital goods shall be reduced by five percentages per quarter or part thereof from the date of invoice.

Example- A person becomes liable to pay tax on 1st August 2019 and has obtained registration on 15th August 2019. Such person is eligible for input tax credit on inputs held in stock as on 31st July 2017.

(3) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision 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.  

(4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 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 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.  

(5) The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated in such manner as may be prescribed  

(6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person 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:

♣ Analysis- Section  18(3)- Input tax credit and change in constitution of registered person: The registered person is allowed to transfer the input tax credit remaining unutilized in the electronic credit ledger .to such sold, merged, demerged, amalgamated, leased or transferred business. Rule 41 prescribes such credit transfer be made on the Common Portal in FORM GST ITC-02 and in case of demerger, credit to be transferred must be apportioned to the value of assets transferred in the arrangement to each such unit. Form ITC-02A-If a person wishes to obtain separate registration for multiple places of business in a state, the law provides the mechanism for transfer of unutilized input tax credit lying in the electronic credit ledger to these new registrations

Section 18 (4)- Rule 44 mandates credit reversal when a registered person switches from regular scheme to composition scheme or goods and services supplied by him become wholly exempt:

  • Pay an amount by debiting electronic cash ledger / credit ledger, equivalent to input tax credit of –
    • Inputs held in stock
    • Inputs contained in semi-finished or finished goods held in stock and
    • Capital goods
    • On the day immediately preceding the date of such switch over.
    • Balance of input tax credit lying in the electronic credit ledger, after payment of the above said amount, shall lapse.

Section 18(6)- Supply of Capital goods on which ITC already taken- Pay tax on higher of –

  1. ITC availed earlier minus reduced percentage points as may specified or
  2. Transaction Value

Examples – Section 18 (4)- Where Input credit lapses-

Value of capital goods – Rs 100000, ITC Rs 12000, Invoice value – Rs 112000
Date of shift to composition scheme – 01.04.2019 (can be opted in F.Y beginning)
Date of use of Capital goods –         01.09.2017
Period of use-           19 months
Residual life –          41 months (60 months as full life)
ITC attributable to residual life- 12000*41/60 – Rs 8200 –added to output tax liability of registered person
If ITC as on 31.03.2019 – Rs 10000
ITC to be lapse-        10000 -8200 =1800

Example -Section 18 (5)- Sale of capital goods-

Actual Cost Rs 50000
ITC Taken Rs 9000
Suppose Asset used for 4 yrs 7 months so balance life – 5 months

 

So ITC of balance useful life- 9000*5/60 =750
Now let us assume asset sold Rs. 4000 *18/100 = Rs. 720
Now comparing ITC Rs 750 or 720 WHICHEVER IS HIGHER Rs 750
So Rs 4000+750 =4750 will be Invoice value

 My Next Article- Section 19- Taking input tax credit in respect of inputs and capital goods sent for job work

Submit your feedback/queries at mamta0581@gmail.com. Have a nice day ….

Author Bio

More Under Goods and Services Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031