(a) Change in Constitution:
Where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business, the transferor shall be allowed to transfer the input tax credit that remains unutilized in its books of account to the transferee provided that there is a specific provision for transfer of liabilities.
As per Rule 4 of the ITC Rules, transferor shall fill Form ITC-02 for transfer of unutilized credit and transferee need to accept the details of Form ITC-02.
In case of demerger the ITC shall be apportioned in the ratio of value of assets of the new units as specified in the demerger scheme.
The transferor shall also submit a copy of certificate issued by a practicing chartered accountant or cost account certifying that the sale, merger, demerger, amalgamation lease or transfer of business has been done with specific provision for transfer of liabilities.
(b) Goods and/or services supplied becomes absolutely exempt:
The registered taxable person who supplies goods and/or services which become absolutely exempt, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by prescribed percentage points on the day immediately preceding the date of such exemption, the balance, if any available in electronic credit ledger would lapse.
(c) Switching to Composition Scheme:
The registered taxable person, who was paying tax under normal scheme opts to pay tax under Compounding Scheme under, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by prescribed percentage points on the day immediately preceding the date of such switch over, the balance, if any available in electronic credit ledger would lapse.
(d) Supply of Capital Goods:
In case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by the five percentage points for every quarter or part thereof as may be specified in this behalf or the tax on the transaction value of such capital goods, whichever is higher.
However, where refractory, bricks, moulds and dies, jigs and fixtures are supplied as scrap; the taxable person may pay tax on the transaction value of such goods.
(e) Reversal of credit at the time of cancellation of registration
Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed.
Rule 9 of Input tax credit rules provide for the manner of reversal of credit in above mentioned circumstances
(1) The amount of input tax credit, relating to inputs lying in stock, inputs contained in semi-finished and finished goods lying in stock, and capital goods lying in stock, for the purposes of sub-section (4) of section 18 or sub-section (5) of section 29, shall be determined in the following manner namely,-
(a) For inputs lying in stock, and inputs contained in semi-finished and finished goods lying in stock, the input tax credit shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input.
(b) For capital goods lying in stock the input tax credit involved in the remaining residual life in months shall be computed on pro rata basis, taking the residual life as five years;
Illustration : Capital goods have been in use for 4 years, 6 month and 15 days. The useful remaining life in months = 5 months ignoring a part of the month Input tax credit taken on such capital goods=C Input tax credit attributable to remaining residual life=C multiplied by 5/60
(2) The amount, as prescribed in sub-rule (1) shall be determined separately for input tax credit of IGST and CGST.
(3) Where the tax invoices related to the inputs lying in stock are not available, the registered person shall estimate the amount under sub-rule (1) based on the prevailing market price of goods on the effective date of occurrence of any of the events specified in sub-section (4) of section 18 or, as the case may be, sub-section (5) of section 29.
(4) The amount determined under sub-rule (1) shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in Form GST ITC-03, where such amount relates to any event specified in sub-section (4) of section 18 and in Form GSTR- 10, where such amount relates to cancellation of registration.
(5) The details furnished in accordance with sub-rule (3) shall be duly certified by a practicing Chartered Accountant of Cost Accountant.