Availability of credit in special cases under GST – 9 Questions Answered. Section 18 of CGST Act, made applicable to IGST vide Section 20 of IGST Act and Section 21 of UTGST. Hopefully GST will be implemented by July 1, 2017. On bringing GST into practice, there would be merger of Central and State taxes into a single tax payment. The CAknowledge is striving to organise more and more workshops and lecture meets on GST. This article explains Availability of credit in special cases as per Goods & Service Tax Act 2017, GST effective date, Short term and long term impact on GST & latest updates related to Availability of credit in special cases under GST Regime.
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Availability of credit in special cases under GST
Q 1. Whether input tax credit can be availed on input services and capital goods (lying in stock) when there is application for new registration or during voluntary registration under section 18?
Ans. No. In case of new registrations and voluntary registrations, input tax credit can be availed only on the stock held (inputs, semi-finished goods or finished goods) preceding the day when he is liable to pay tax or preceding to the date of grant of voluntary registration. Input service and capital goods lying in stock are not eligible for ITC.
Q 2. What is the difference between the availment of credit in case of Compulsory Registration and Voluntary Registration?
Ans. In case of compulsory registration, the input tax credit can be availed on the stocks held immediately preceding the date from which he becomes liable to pay tax (date of grant of registration may be later) and in case of voluntary registration, the input tax credit can be availed on the on stocks held immediately preceding the date of grant of registration.
Q 3. In case of change of scheme from composition scheme to Regular scheme whether input tax credit on capital goods is eligible.
Ans. Yes. In such a scenario, the registered person will be entitled to claim input tax credit on the stock held (inputs, semi-finished goods or finished goods) and on the capital goods preceding the day when he is liable to pay tax under the regular scheme. The credit of capital goods shall stand reduced by five percentage points for every quarter.
Q 4. When an exempt supply becomes taxable supply then in such case credit on inputs and capital goods exclusively used for such exempted supply is eligible? What about input tax credit pertaining to capital goods used for both taxable and exempt supply?
Ans. In terms of Section 18(1)(d) of the Act, where an exempt supply made by a person becomes taxable supply, such a person will be entitled to claim credit of tax paid on stock held (inputs, semi-finished goods or finished goods) relatable to exempt supply and on the capital goods exclusively used for exempt supply preceding the day when the supply becomes taxable. Tax paid on capital goods used for both, taxable and exempt supply will not be eligible as input tax credit.
Q 5. When there is change in the constitution of registered taxable person without specific provision of transfer of liabilities is it possible to transfer unutilized input tax credit?
Ans. No. In terms of Section 18(3) of the Act, transfer of unutilized input tax credit is permissible only when there is change in constitution of the business with the specific provision of transfer of liabilities.
Q 6. Where a supplier transfers a running business as a whole either due to sale, merger, amalgamation of such business, whether the portion of the un-utilized input tax credit by the supplier can be claimed immediately by the recipient?
Ans. There is no specific provision under the Act prohibiting transfer of such unutilized credit. Rather, Section 18(3) specifically provides that when there is a change in constitution of a registered person on account of sale, merger, or amalgamation of business with specific provision of transfer of liabilities, the registered taxable person shall be allowed to transfer the input tax credit which remains unutilized. Therefore, if the recipient is registered under the Act, he should be eligible to claim such unutilized credits. In a situation, where the recipient is not registered under the Act, he may have to make a fresh application for registration and claim such unutilized credits after making an intimation to the department.
Q 7. In case of switchover from taxable to exempt transactions or from Regular to composition whether input tax credit is fully restricted?
Ans. Yes. In terms of Section 18(4) of the CGST Act, an amount equal to the credit of tax paid on stock held (inputs, semi-finished goods or finished goods) and capital goods (reduced by percentage points) on the day preceding the date of opting for composition/ effecting exempt supplies will have to be paid. The same can be paid by utilization of credit/ cash payments.
Q 8. Whether Input tax credit availed on capital goods is to be reversed in case of supply of such capital goods?
Ans. Yes. In terms of Section 18(6) of CGST Act, in case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered person will have to pay an amount equal to:
- Input tax credit taken on the said capital goods/ plant and machinery reduced by the percentage points specified ; or
- the tax on the transaction value of such goods whichever is higher.
Q 9. Whether Input tax credit availed on refractory bricks, moulds and dies, jigs and fixtures is to be reversed in case of supply of such goods?
Ans. Yes. In terms of proviso to Section 18(6) of CGST Act, in case of supply of such goods as scrap, the registered person is required to pay the tax on the transaction value of such goods.