Section 18 of the CGST Act, 2017 – Availability of Input Tax Credit (ITC) in Special Circumstances

Section 18 deals with situations where a person becomes eligible to claim Input Tax Credit (ITC) even though they were not previously entitled to it.

1. New GST Registration

When a person becomes liable for GST registration and obtains registration within the prescribed time, they can claim ITC on:

• Inputs held in stock
• Inputs contained in semi-finished goods
• Inputs contained in finished goods

Condition: Stock should be held on the day immediately preceding the date from which GST becomes payable.

Example:
Mr. A crossed the registration threshold on 15 June and obtained GST registration within the prescribed period. He can claim ITC on stock available as of 14 June.

2. Voluntary Registration

A person taking voluntary GST registration can claim ITC on:

• Inputs held in stock
• Inputs contained in semi-finished goods
• Inputs contained in finished goods

Condition: Stock should exist on the day immediately preceding the date of registration.

3. Exempt Supply Becomes Taxable

When goods/services that were earlier exempt become taxable, ITC can be claimed on:

• Inputs in stock
• Inputs in semi-finished goods
• Inputs in finished goods
• Capital goods (after prescribed reduction)

Condition: Goods should relate to the taxable supplies.

4. Composition Scheme to Regular Scheme

When a taxpayer opts out of the Composition Scheme and becomes a regular taxpayer, ITC can be claimed on:

• Inputs in stock
• Inputs in semi-finished goods
• Inputs in finished goods
• Capital goods (after prescribed reduction)

Condition: Stock should be held on the day immediately preceding the date of becoming liable to pay tax under the regular scheme.

5. Taxable Supply Becomes Exempt

When taxable supplies become exempt, the taxpayer must reverse ITC relating to:

• Inputs in stock
• Inputs in semi-finished goods
• Inputs in finished goods
• Capital goods (proportionate ITC)

This amount is added to the output tax liability.

6. Sale of Capital Goods or Plant & Machinery

When capital goods on which ITC was claimed are sold, the taxpayer must pay:

• ITC availed reduced by prescribed percentage points, or
• GST on transaction value,

whichever is higher.

Quick Summary Table

Practical Importance for CAs

Section 18 ensures that:

• Businesses get credit when entering the GST system.
• Businesses do not retain ITC benefits when supplies become exempt.
• Proper adjustment is made when capital goods are sold.

In simple terms: Section 18 is the "Entry and Exit Adjustment Section" for Input Tax Credit under GST. It tells taxpayers when ITC can be newly claimed and when previously claimed ITC must be reversed.