Section 18: Availability of Credit in Special Circumstances

Section 18 provides for input tax credit (ITC) availability in specific situations where a person becomes eligible under special circumstances. The section outlines when ITC can be claimed and the conditions for doing so.

Sub-section (1): Eligibility to Claim ITC in Special Cases

A registered person shall be entitled to take input tax credit in the following cases:

Clause (a): New Registration

When a person becomes liable to register under GST and obtains registration, they can claim ITC on inputs held in stock, inputs contained in semi-finished or finished goods, held on the dayimmediately before the date of registration.

Clause (b): Voluntary Registration

When a person voluntarily takes registration (though not liable), they can claim ITC on:

• Inputs held in stock,
• Inputs contained in semi-finished and finished goods,as on the day immediately before the date of registration.

Clause (c): Exempt to Taxable Supply

When a registered person ceases to make exempt supplies and starts making taxable supplies, they can claim ITC on:

• Inputs held in stock,
• Inputs in semi-finished or finished goods,
• Capital goods (reduced by prescribed percentage),as on the day immediately before the date of change.

Clause (d): Composition to Regular Taxpayer

When a person switches from the composition scheme under Section 10 to the normal scheme, they can claim ITC on:

• Inputs in stock,
• Inputs in semi-finished or finished goods,
• Capital goods (reduced by the prescribed percentage), held on the day immediately before the switch.

Sub-section (2): Time Limit to Claim Credit

The input tax credit under sub-section (1) can be claimed within 30 days from the date of becoming eligible, or within a further period as extended by the Commissioner.

Note: This time frame is strict and non-compliance results in loss of entitlement to claim ITC under this section.

Sub-section (3): Conditions for Capital Goods

If a registered person has claimed ITC on capital goods under sub-section (1), and such capital goods are later supplied, the person must pay tax on such supply as per Section 18(6).

Sub-section (4): Apportionment and Blocked Credits

The provisions of:

• Section 16 (Eligibility and Conditions), and
• Section 17 (Apportionment and Blocked Credits)shall apply mutatis mutandis to the claims made under this section.

This ensures consistency in ITC treatment, even in special cases.

Sub-section (5): ITC on Transfer of Business

In case of transfer of business, including:

• Sale,
• Merger,
• Demerger,
• Amalgamation,
• Lease, or
• Transfer of ownership,

The unutilized ITC in the electronic credit ledger may be transferred to the new entity, provided:

• There is a specific provision in the scheme of arrangement, and
• The transferor has furnished all required details.

Such a transfer is subject to prescribed conditions.

Sub-section (6): Supply of Capital Goods or Plant and Machinery

When a registered person supplies capital goods or plant and machinery, on which ITC was claimed, they must pay an amount equal to:

• ITC taken on the said asset reduced by the prescribed percentage, or
• The tax on transaction value (whichever is higher),

as per Section 15 of the Act.

This ensures the government recovers ITC when such assets are sold.

Summary Table: Key Situations under Section 18

Important Notes:

• ITC on capital goods is subject to reduction by a prescribed percentage (for wear and tear).
• If the above time limits or conditions are not followed, the credit is forfeited.
• The section ensures seamless credit flow during transitions in a taxpayer's status.

Thank You for Reading

Thank you for taking the time to read this article. I appreciate your attention and interest in the topic. I hope the insights shared here prove valuable in your professional endeavours. Your feedback or perspective is always welcome-please feel free to connect or continue the conversation.

Disclaimer: The author has tried to avoid mistakes, but doesn't promise that the information in this document is complete, correct, or up to date. The author isn't responsible for any problems, losses, or damages caused by using this information. Readers are encouraged to consult with qualified professionals to obtain advice tailored to their individual circumstances.