Section 18 of UTGST Act 2017: Transitional Arrangements for Input Tax Credit (ITC)

Provisions under Section 18 of the Union Territory Goods and Services Tax (UTGST) Act, 2017 relating to “Transitional Arrangements for Input Tax Credit (ITC)”, are as under:

Section 18 of UTGST Act 2017: Transitional Arrangements for Input Tax Credit (CHAPTER VIII – TRANSITIONAL PROVISIONS)

(1) A registered person, other than a person opting to pay tax under section 10 of the Central Goods and Services Tax Act, shall be entitled to take, in his electronic credit ledger, credit of the amount of Value Added Tax and Entry Tax, if any, carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law, not later than ninety days after the said day, in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—

(i) where the said amount of credit is not admissible as input tax credit under this Act; or

(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed day; or

(iii) where the said amount of credit relates to goods sold under such exemption notifications as are notified by the Government:

Provided further that so much of the said credit as is attributable to any claim related to section 3, sub-section (3) of section 5, section 6 or section 6A or sub-section (8) of section 8 of the Central Sales Tax Act, 1956 that is not substantiated in the manner, and within the period, prescribed in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 shall not be eligible to be credited to the electronic credit ledger:

Provided also that an amount equivalent to the credit specified in the second proviso shall be refunded under the existing law when the said claims are substantiated in the manner prescribed in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957.

(2) A registered person, other than a person opting to pay tax under section 10 of the Central Goods and Services Tax Act, shall be entitled to take, in his electronic credit ledger, credit of the unavailed input tax credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as input tax credit under the existing law and is also admissible as input tax credit under this Act.

Explanation: For the purposes of this section, the expression ‘‘unavailed input tax credit’’ means the amount that remains after subtracting the amount of input tax credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of input tax credit to which the said person was entitled in respect of the said capital goods under the existing law.

(3) A registered person, who was not liable to be registered under the existing law or who was engaged in the sale of exempted goods or tax free goods or goods which have suffered tax at first point of their sale in the Union territory and the subsequent sales of which are not subject to tax in the Union territory under the existing law but which are liable to tax under this Act or where the person was entitled to the credit of input tax at the time of sale of goods, shall be entitled to take, in his electronic credit ledger, credit of the value added tax and entry tax, if any, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:—

(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;

(ii) the said registered person is eligible for input tax credit on such inputs under this Act;

(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of tax under the existing law in respect of such inputs; and

(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day:

Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of tax in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.

(4) A registered person, who was engaged in the sale of taxable goods as well as exempted goods or tax free goods under the existing law but which are liable to tax under this Act, shall be entitled to take, in his electronic credit ledger,—

(a) the amount of credit of the value added tax and entry tax, if any, carried forward in a return furnished under the existing law by him in accordance with the provisions of sub-section (1); and

(b) the amount of credit of the value added tax and entry tax, if any, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to such exempted goods or tax free goods in accordance with the provisions of sub-section (3).

(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of value added tax and entry tax, if any, in respect of inputs received on or after the appointed day but the tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:

Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days:

Provided further that the said registered person shall furnish a statement, in such manner as may be prescribed, in respect of credit that has been taken under this sub-section.

(6) A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of value added tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:—

(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;

(ii) the said registered person is not paying tax under section 10 of the Central Goods and Services Tax Act;

(iii) the said registered person is eligible for input tax credit on such inputs under this Act;

(iv) the said registered person is in possession of invoice or other prescribed documents evidencing payment of tax under the existing law in respect of inputs; and

(v) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.

(7) The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed.

Amendments History:

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Commentary on Section 18 of UTGST Act, 2017

Section 18 of the Union Territory Goods and Services Tax (UTGST) Act, 2017, titled “Transitional Arrangements for Input Tax Credit (ITC),” provides guidelines for registered persons transitioning from the previous tax system to the new Goods and Services Tax (GST) regime.

Section 18(1) of UTGST Act, 2017

Registered persons (excluding those paying tax under section 10) can claim credit of the amount of Value Added Tax (VAT) and Entry Tax carried forward from the previous tax system. This is subject to certain conditions such as admissibility, filing of required returns and non-applicability to goods sold under specific exemption notifications.

Section 18(2) of UTGST Act, 2017

Registered persons can claim unavailed input tax credit (ITC) for capital goods not carried forward in a return. The credit is only allowed if it was admissible under the existing law and remains admissible under the UTGST Act.

Section 18(3) of UTGST Act, 2017

Registered persons, who were not liable for registration under existing law, engaged in the sale of exempted/tax-free goods or goods taxed at their first sale point, are entitled to credit of VAT and Entry Tax for inputs held in stock and inputs contained in semi-finished or finished goods. This is subject to conditions related to intended use for taxable supplies, eligibility for ITC, possession of invoice or prescribed documents and the issuance of such documents within twelve months preceding the appointed day.

Section 18(4) of UTGST Act, 2017

Registered persons engaged in the sale of both taxable and exempted/tax-free goods can claim credit of VAT and Entry Tax for inputs held in stock and inputs contained in semi-finished or finished goods related to exempted or tax-free goods.

Section 18(5) of UTGST Act, 2017

Registered persons can claim credit of VAT and Entry Tax for inputs received on or after the appointed day, provided the tax has been paid by the supplier under the existing law and the invoice or other tax paying documents are recorded in the books of account within 30 days from the appointed day (extendable by another 30 days on sufficient cause).

Section 18(6) of UTGST Act, 2017

Registered persons who were paying tax at a fixed rate or a fixed amount under the existing law can claim credit of VAT for inputs held in stock and inputs contained in semi-finished or finished goods, subject to certain conditions.

Section 18(7) of UTGST Act, 2017

The amount of credit under sub-sections (3), (4) and (6) must be calculated following the prescribed manner.

Overall, Section 18 provides transitional provisions for input tax credit to ensure a smooth transition for taxpayers from the previous tax regime to the new GST system. It helps taxpayers claim credits under specific conditions, facilitating a seamless shift without losing any eligible input tax credit.

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Note: The UTGST Act 2017 has been notified vide GOI Notification dated 12/04/2017, which has subsequently been amended  through UTGST (Amendment) Act 2018, Finance Act 2019, Finance Act 2020, Finance Act 2021, Finance Act, 2022 and Finance Act, 2023 including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective UTGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of the Amendments made by various Notifications issued by CBIC from time to time, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.