Section 18 of CGST Act - Availability of Credit in Special Circumstances

Section 18 of the Central Goods and Services Tax Act, 2017 provides special rules for claiming, transferring and reversing input tax credit (ITC) when a taxpayer enters the regular tax system, leaves the composition scheme, an exempt supply becomes taxable, or a business is transferred.

Related provisions: Section 18 operates with the CGST Rules governing the manner of claiming credit, transfer of unutilised credit and reversal of credit. General ITC eligibility and restrictions under Section 16 and Section 17 should also be checked.

Meaning and scope of Section 18

Ordinarily, ITC is claimed on eligible inward supplies under the general provisions of the CGST Act. Section 18 deals with specified changes in a taxpayer's status or business. It permits credit on eligible stock and, in specified cases, capital goods, subject to statutory conditions, prescribed reductions and procedural requirements.

Section 18(1): When special input tax credit becomes available

Registration after becoming liableA person applying for registration within 30 days of becoming liable, and receiving registration, may claim eligible input tax on stock and inputs contained in semi-finished or finished goods held immediately before liability begins.

Voluntary registrationA person registered voluntarily under Section 25(3) may claim eligible input tax on qualifying stock held immediately before the date registration is granted.

Exit from composition levyWhen a registered person ceases to pay tax under Section 10, credit may extend to qualifying stock and capital goods held immediately before becoming liable under Section 9, with the prescribed reduction for capital goods.

Exempt supply becomes taxableWhen an exempt supply becomes taxable, eligible credit may be claimed on qualifying stock relatable to that supply and on capital goods exclusively used for it, subject to the prescribed reduction.

Section 18(2): One-year invoice restriction

A registered person cannot take ITC under Section 18(1) in respect of a supply after one year from the date of the tax invoice relating to that supply. This special one-year restriction should be checked separately from the general time limits applicable to ordinary ITC claims.

Section 18(3): Transfer of unutilised ITC on business reorganisation

Where the constitution of a registered person changes because of sale, merger, demerger, amalgamation, lease or transfer of business, and there is a specific provision for transfer of liabilities, unutilised ITC in the electronic credit ledger may be transferred to the resulting or transferee business in the prescribed manner.

The prescribed procedure is generally linked to FORM GST ITC-02. In a demerger, the applicable rules governing apportionment of credit should be followed.

Section 18(4): Reversal when opting for composition or supplies become wholly exempt

A registered person who has availed ITC and later opts to pay tax under Section 10, or whose supplies become wholly exempt, must pay the prescribed amount attributable to inputs in stock, inputs contained in semi-finished or finished goods, and capital goods, after the prescribed reduction. After such payment, any remaining ITC balance in the electronic credit ledger lapses.

Section 18(5): Prescribed calculation

The credit available under Section 18(1), and the amount payable under Section 18(4), must be calculated in the manner prescribed under the CGST Rules. The rules should therefore be read with the section before a claim or reversal is reported.

Section 18(6): Supply of capital goods or plant and machinery

When capital goods or plant and machinery on which ITC was taken are supplied, the registered person must pay the higher of: (i) ITC taken reduced by the prescribed percentage points, or (ii) tax on the transaction value determined under Section 15.

For refractory bricks, moulds and dies, jigs and fixtures supplied as scrap, tax may be paid on their transaction value determined under Section 15.

Important CGST Rules and forms

Rule 40: manner of claiming credit in special circumstances, including the prescribed declaration in FORM GST ITC-01 and reduction relating to capital goods.
Rule 41: transfer of credit on sale, merger, demerger, amalgamation, lease or transfer of business, generally through FORM GST ITC-02.
Rule 44: manner of determining ITC in specified reversal situations, including events covered by Section 18(4).

Practical checklist before claiming ITC under Section 18

Identify the exact clause of Section 18(1), verify the relevant eligibility date, reconcile eligible stock and capital goods with tax invoices and books, check the one-year restriction in Section 18(2), apply the prescribed capital-goods reduction where relevant, and comply with the applicable declaration, certification and electronic filing requirements under the CGST Rules.

Official reference

For the current statutory text and rules, verify the latest version on the official India Code and CBIC-GST portals. Amendments, notifications and procedural changes should be checked as on the date of the transaction or claim.