Understanding Section 18 of the CGST Act: Availability of Credit
in Special Circumstances
The Central Goods and
Services Tax (CGST) Act, 2017, is a cornerstone of India's indirect taxation
framework. Among its many provisions, Section 18 stands out for its detailed
rules on the availability of input tax credit (ITC) under special circumstances.
This section specifies the conditions under which a registered person can claim
ITC and covers various scenarios, ensuring that businesses correctly manage
their ITC claims. Let's delve into the specifics of Section 18.
Eligibility for ITC: Section 18(1)
Section 18(1) outlines
the circumstances under which a registered person is entitled to take ITC.
These circumstances include:
a. New Registration:
Section 18(1)(a) A person who applies for registration within 30 days of becoming
liable to register and is granted such registration can claim ITC on 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 they become liable to pay tax.
b. Voluntary Registration:
Section 18(1)(b) A person who opts for voluntary registration under Section 25(3)
is entitled to ITC on 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 of grant of registration.
c. Exemption
Withdrawal: Section 18(1)(c) When an exempt supply of goods or services
becomes taxable, the registered person can claim ITC on 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 such supply
becomes taxable.
d. Composition Scheme
Withdrawal: Section 18(1)(d) A registered person who ceases to pay tax
under the composition scheme is entitled to ITC on 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 they become liable
to pay tax under Section 9.
Conditions for Claiming ITC: Section 18(2)
Section 18(2)
specifies that ITC on capital goods must be reduced by a prescribed percentage
for every quarter or part thereof from the date of the invoice for such goods.
This ensures that ITC is adjusted appropriately based on the usage period of
the capital goods.
Reversal of ITC: Section 18(3) Section 18(3) mandates
the reversal of ITC in certain situations:
Switching to Composition Scheme or Exempt Supplies: When a registered
person switches to the composition scheme or goods or services supplied by them
become exempt, they must pay an amount equal to the ITC on inputs held in
stock, inputs contained in semi-finished or finished goods held in stock, and
on capital goods, reduced by a prescribed percentage. This amount is payable
through an electronic cash ledger or credit ledger, and any remaining ITC in
the electronic credit ledger will lapse.
Transfer of Credit on Account of Change in Constitution: Section
18(4)
Section 18(4) allows
for the transfer of ITC when there is a change in the constitution of a
registered person due to sale, merger, demerger, amalgamation, lease, or
transfer of business. The unutilized ITC in the electronic credit ledger of the
registered person can be transferred to the resultant entity.
ITC in Case of Centralized Registration: Section 18(5)
Section 18(5) states
that a registered person who had centralized registration under the earlier law
and carried forward credit in the last return furnished under that law is
entitled to take the carried forward CENVAT credit in their electronic credit
ledger, subject to prescribed conditions.
Supply of Capital Goods: Section 18(6)
Section 18(6)
specifies that in the case of supply of capital goods or plant and machinery on
which ITC has been taken, the registered person must pay an amount equal to the
ITC on the said capital goods or plant and machinery, reduced by a prescribed
percentage, or the tax on the transaction value of such capital goods or plant
and machinery, whichever is higher.
Importance of Compliance
The provisions
mentioned in Section 18 are subject to detailed procedural rules prescribed
under the CGST Rules. These rules outline specific calculations, forms, and
documentation required to comply with the conditions set out in the section.
Adherence to these provisions is essential to maintain the integrity of the GST
system and avoid disputes.
Conclusion
Section 18 of the CGST
Act is pivotal for businesses as it regulates the availability and reversal of
ITC under special circumstances. It covers various scenarios, such as new
registrations, voluntary registrations, exemption withdrawals, and transitions
to the composition scheme, ensuring accurate ITC claims and reversals. For
businesses, understanding and adhering to the provisions of Section 18 is
crucial for effective tax management and compliance with the GST regime.
