In-Depth Analysis of Input Tax Credit under the GST Act: Section 18 – Availability of Credit in Special Circumstances

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 day immediately 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 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 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 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.

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