EXAMPLE-118

 Manufacturer M produces Product “A” which was exempt earlier by notification of Govt. from duty under Central Excise. But on 28 Nov 2017, further notification is issued by Govt. which withdraw the earlier notification and makes product taxable on that date. Manufacturer has the following inputs and capital goods held in stock on 27^th Nov 2017:-

Determine the Input tax credit available to manufacturer “M”, when exempt supply became taxable.

Answer

 Section 18(1)(d) provides that the person, whose supply becomes taxable from exempt supply shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable. Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

  Thus in view of above provision Manufacturer “M”  entitled to take credit in respect of inputs as aggregate of raw material held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply on 27^th Nov (day immediately preceding the supply becomes taxable ).

  Thus Input tax credit available = 40000+35000+24500 = Rs. 99500

  Regarding eligibility of Credit on capital goods

Rule (40)(Manner of claiming credit in special circumstances) of Chapter - V of CGST Rules, 2017- specifies that ITC on capital goods shall be claimed after reducing the tax paid on capital goods by 5% points per quarter or part thereof from the date of invoice or taxpaying documents.

  Capital goods Used life in quarter = 7 quarter 1 month and 27 days

(Part of quarter taken as full quarter so used life is 8 quarter.)

Input tax credit available = 100000- [100000* (8*5%)]

                                       = Rs. 60000  

But Section 18(2) specifies that a registered person shall not entitled to take input tax credit under subsection (1) after the expiry of 1 year from the date of invoice in respect of which ITC is claimed. Thus No credit is eligible on capital goods as invoice of capital goods is older than 1 year. 

Total credit entitled on input  goods is = 99500

The registered person eligible for claiming credit on input or capital goods as per section 18(1) shall makes a declaration, electronically on the common portal in FORM GST ITC-01 with in 30 days from the date becoming eligible for ITC as per this section. This form containing the details relating to the inputs lying in stock or whether in semi finished or finished stock.