Availability of Input Tax Credit (ITC) in special circumstances

[Ganeshan Kalyani]

Section 18 of the CGST Act, 2017 provides for the availability of Input Tax Credit (ITC) in special circumstances. A taxpayer referring this section should also refer section 16 and 17 to ascertain the eligibility of input tax credit which he would be claiming under this section. In other words, the input tax credit should first be eligible under section 16 and 17 and then only the benefit of section 18 can be availed.

Sub-section 1(a) of Section 18, provides for the eligibility of ITC on obtaining a new registration: A person is liable to get register under GST when his turnover exceeds the basic exemption  limit of registration or when he is liable for compulsory registration or otherwise. A person liable to register must apply for registration within 30 days of becoming liable to register. In case he is granted registration, he becomes eligible to take input tax credit on the  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.

Sub-section 1(b) provides for the eligibility of ITC in case of voluntarily obtained registration: A person willing to take registration under GST on a voluntary basis then he becomes eligible to take input tax credit on the  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.

Sub-section 1(c) provides for the eligibility of ITC in case of opting out of composition levy: When a registered person ceases to pay tax under composition levy u/s 10 and chooses to pay tax under regular basis provided u/s 9, he becomes 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 ceases to pay tax under composition levy. In case of capital goods he is eligible to take credit after reducing the credit by such percentage as may be prescribed.

Sub-section 1(d) provides for the eligibility of ITC when an exempt supply of goods or services or both becomes a taxable supply: When an exempt supply of goods or services or both becomes a taxable supply then a registered person becomes 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.  And in case of capital goods the input tax credit after reducing the input tax credit by such percentage points as may be prescribed.

Sub-section 2 provides a condition that the invoice corresponding to the stock on which ITC is claimed should not be more than one year old: A registered person claiming input tax credit under the circumstances stated in above paras should ensure that the invoices corresponding to the stock on which input tax credit is taken are not more than one year old. If the invoices are more than a year old then the input tax credit taken shall be disallowed.

Sub-section 3 provides for eligibility of input tax credit when there is change in the constitution of a registered person: 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 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.

Sub-section (4) instructs a person to pay tax when he opts for composition levy or when the goods or services or both supplied by him becomes exempt: When any registered person shifts the method of payment of tax from regular method to composition levy then he should reverse the input tax credit contains in inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, input tax credit should be paid after reduced the credit by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option.

Similarly, when the goods or services or both supplied by the taxpayer becomes exempt the registered person shall become liable to reverse the input tax credit containing in 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.

The reversal of input tax credit as stated in above paras can either be done through debit in electronic credit ledger or through electronic cash ledger.

Sub-section (5) provides the manner in which the input tax credit shall be claimed or reversed whichever when requires to be done: The manner in which the amount of credit eligible to be taken under sub-section (1) and the manner in which the amount payable under sub-section (4) shall be worked out in such manner as may be prescribed.

Sub-section (6) provides the way in which the tax shall be paid on outward supply of capital goods or plant and machinery: A registered person who has claimed input tax credit on capital goods and plant and machinery and want to supply them then he can either:

• 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:

Further, a taxpayer supplying refractory bricks, moulds and dies, jigs and fixtures as scrap may pay tax on the transaction value of such goods determined under section 15. Section 15 provides for value of taxable supply.