Availability Input Tax Credit - in special circumstances [Section 18 (1) & (2) of CGST Act] - GST Ready Reckoner - GST

Availability Input Tax Credit in special circumstances 1) Availability of credit in special circumstances. Section 18(1) of CGST Act Subject to such conditions and restrictions read with rules 40(1)(c) CGST Rules as may be prescribed the Availability of credit in specified circumstance- Supplier [Section 18(1) (a) to (d)] Inputs (Inputs held in Stock, Inputs contained in Semi-finished goods or finished goods held in stock) Capital Goods Stock to be considered. Unregistered person Mandatory registration: If 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. [section 18(1)(a)] Available Not available Day immediately preceding the date from which he becomes liable to pay tax. Voluntary Registration [section 25(3)] : A taxable person takes voluntary registration even if his turnover is below exemption limit. [section 18(1)(b)] Available Not available Day immediately preceding the date of grant of registration Registered person Switching from Composition Scheme: If a taxable person paying tax on compounding basis crosses the compounding threshold and becomes a regular taxable person. [section 18(1)(c)] Available Available, but reduce ITC 5% Day immediately preceding the date from which supplier is liable to pay tax under regular scheme Exempt supply become taxable: If an exempt supply of goods and or services by a registered taxable person becomes a taxable supply. [section 18(1)(d)] Available Available but only for capital goods used exclusively for exempt supplies, but reduce ITC 5% Day immediately preceding the date from which exempt supplies become taxable 2) A registered person shall not be entitled to take input tax credit under section 18(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. [Section 18(2)] 3) Manner of claiming credit in special circumstances specified under Rule 40 of CGST Rules (i) The input tax credit claimed in accordance with the provisions of section 18(1) - on the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or - the credit claimed on capital goods in accordance with the provisions of clauses (c) and (d) of the said sub-section, shall be subject to the following conditions, namely,- (a) the input tax credit on capital goods, in terms of clauses (c) and (d) of section 18(1), shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of the invoice or such other documents on which the capital goods were received by the taxable person. (b) the registered person shall within a period of 30 days from the date of becoming eligible to avail the input tax credit under section 18(1), or within such further period as may be extended by the Commissioner by a notification in this behalf, shall make a declaration, electronically, on the common portal in FORM GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid: Any extension of the time limit notified by the Commissioner of State tax or the Commissioner of Union territory tax shall be deemed to be notified by the Commissioner. The registered person shall within a period of 30 days from the date of becoming eligible to avail the input tax credit of section 18(1), or within such further period as may be extended by the Commissioner by a notification in this behalf, shall make a declaration, electronically, on the common portal in Form GST ITC-01 to the effect that he is eligible to avail the input tax credit. The details furnished in the declaration under clause (b) of rule 40(1) shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds Rs. 2,00,000/-. the input tax credit claimed in accordance with the provisions of in terms of section 18(1) (c) and (d) shall be verified with the corresponding details furnished by the corresponding supplier in Form GSTR-1 and in FORM GSTR-1A, if any (inserted vide N.N. 12/2024 dated 10/07/2024) or as the case may be, in Form GSTR - 4 , on the common portal. If person failed to apply for registration within 30 days then he is not eligible to take ITC mentioned in sec. 18(1) (a) to (d). Examples Example 1:- Vishal Pipe Steel Ltd. Is manufacturer of iron steel. It has been assumed that iron steel which is the outward supply by Vinay steel ltd. Is exempt from payment of taxes until 31 march 2022. Iron steel become taxable with effect from 01 April 2022. The method of availment of input tax credit on inputs contained in stock and capital goods as on 31 march 2020. S. No. Particular Value CGST SGST IGST 1 Value of inputs in stock as on 31 March 2022 1,00,000 - - 18,000 2 Value of inputs contained in semi-finished goods held in stock as on 31 march 2022 4,00,000 24,000 24,000 - 3 All inputs contained in semi-finished goods were procured after 01 may 2021 - - - - 4 Value of inputs contained in finished goods held in stock as on 31 march 2022 50,000 3,000 3,000 - 5 Value of capital goods used exclusively in relation to exempted goods held on 31 march 2022 20,00,000 - - 3,60,000 Note :- 1) all inputs were procured after 01 July 2021 2) Only inputs worth 40,000 in finished goods were procured after 01 April 2021 3) Date of invoice of capital goods is 22 January 2022 4) CGST, SGST, IGST rate 6%,6% 18% respectively. Solution: - As per Rule 40 of CGST Act, The amount of input tax credit attributable as when goods exempt earlier become taxable rule provides the manner for computation i.e. as follows Note 1:- Input tax credit on inputs in stock held as on 31.03.2022 CGST SGST ITC on value of inputs contained in semi-finished goods: - as all acquired within 1 year prior to the effective date on which goods become taxable, hence full ITC eligible 24,000 24,000 ITC on the value of inputs contained in finished goods :- As out of total stock of input 50,000 contained in finished goods inputs worth 10,000 are older than 1 year from effective date on which goods become taxable. Therefore, ITC on such inputs shall be disallowed. Thus, eligible credit 4000 @6% each (CGST + SGST) 2,400 2,400 Total credit available on inputs 26400 26400 Note 2:- IGST credit on inputs on stock held as on 31.03.2022 IGST ITC on value of inputs contained in stock :- as all inputs acquired within 1 year prior to the effective date on which goods become taxable , hence full ITC eligible 18,000 Note 3:- Credit available in respect of capital goods Date of invoice of capital goods 22.01.2022 Date from which exempt goods become taxable 01.04.2022 No. of quarters from the date of invoice 1 % Point to be reduced (5% per Quarter) (Note 3) 5% GST paid on the capital goods used exclusively in relation to goods exempted upto 31 March 2022 3,60,000 ITC to be reduced by % 18,000 Therefore credit available on capital goods 3,42,000 Example 2:- Voluntary registration Case , Mr. Narender applies for voluntary registration on 17 th August 2022 and obtained registration on 22 August 2022. Mr. Narender has stock on the following two dates Date Closing Stock (units) 16 th August 2022 24,000 21 August 14,000 On 21 August Mr. Narender has also purchased plant Machinery for 2,00,000 plus GST 28%. Mr. Narender purchased goods at uniform rate throughout the year 100 per unit GST paid 18%. Solution:- As per Provision of section 18(1)(c) of CGST Act 2017, Stock of Input in stock as on the day immediately preceding the date of grant of registration shall be eligible for ITC to the person who is getting himself voluntarily registered, In the given case such stock in 14,000 units (stock in hand on 21 October 2020. Thus, admissible amount is as follows Value of stock = 14,00,000 (i.e.,14,000 unit x 100 per unit) Tax paid thereon which is admissible ad ITC is 2,52,000 (14,00,000*18%) ITC on capital goods not allowed as per section 18(1)(b) of CGST Act. Example 3:- Bhanu Ltd. is engaged in supply of taxable goods to its customer within state and it is not liable for registration u/ 22 of CGST Act,2017, from 18-11-20218, it statred inter state supply of taxable goods hence it applied for registration on 25-11-2018 and same has been granted to him. CGST , SGST and IGST liablity for the month of November 2018 is Rs. 20,500, Rs.20,500 and 41,000 respectively and has to make e-payment of tax on the due date 20-12-2018. Bhanu Ltd. has provided the following details of stock of input held on 17-11-2018 and tax paid thereon. Particulars CGST SGST Inputs received on 16-07-2018(invoice dated 17-07-2018) lying in stock 5,600 5,600 Input received on 20-10-2018 (Invoice dated 20-10-2018) lying in semi finished goods 9,500 9,500 Inputs received on 10-06-2017 (invoice dated 10-06-2017) contained in finished goods 11,600 11,600 Solution:- Computation of tax payable by Bhanu Ltd. for November 2018 Particular CGST SGST IGST Output tax liability November 2018 20,500 20,500 41,000 Less:- Input Tax credit Input received on 16/07/2018 (5600) (5600) - Input received on 20/10/2018 (9500) (9500) - inputs received on 10/06/2017 - - - Liability to be paid in cash