Chapter VIII - Transitional provisions
Section 18
Section 18: Transitional arrangements for input tax credit
Section 18 set out how VAT and entry tax credit under the pre-GST law could be taken into the electronic credit ledger under the UTGST Act. It covers carried-forward return credit, unavailed credit on capital goods, credit on stock held on the appointed day in specified cases, and inputs received after the appointed day on which tax was paid under the existing law.
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This article is for general information. Refer to the Union Territory Goods and Services Tax Act, 2017 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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.
Introduction
Sections 18 to 20 came into force on 1 July 2017 under Notification No. 3/2017-Union Territory Tax (Section 17 on 22 June 2017 under Notification No. 1/2017-Union Territory Tax). Their practical relevance today is mainly to legacy claims, assessments and disputes from the move to GST.
Section 18 was not amended by the Finance Acts we checked. Procedure and time limits for claims come from the rules made under the Act.
Key takeaways
Carried-forward credit
Sub-section (1): a registered person (other than a composition taxpayer) could take VAT and entry tax credit carried forward in the last pre-GST return, subject to admissibility, the six-month return-filing condition and the Central Sales Tax substantiation provisos.
Capital goods and stock
Sub-section (2) covers unavailed credit on capital goods. Sub-sections (3), (4) and (6) cover credit on inputs held in stock for specified classes of persons, subject to conditions including invoices issued not earlier than twelve months before the appointed day.
Inputs in transit
Sub-section (5): credit for inputs received on or after the appointed day where the supplier paid tax under the existing law, if the invoice was recorded in the books within thirty days (extendable by thirty days by the Commissioner).
Carried-forward VAT credit
Sub-section (1) allowed the closing VAT and entry tax credit in the return for the period before the appointed day to be taken into the electronic credit ledger, in the manner prescribed. The first proviso bars the credit if it is not admissible under the UTGST Act, if returns for the previous six months were not filed, or if it relates to goods sold under notified exemption notifications.
The second and third provisos deal with credit attributable to Central Sales Tax Act claims (sections 3, 5(3), 6, 6A or 8(8)) not substantiated under rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957. That portion is not credited, but an equivalent amount is refundable under the existing law once the claims are substantiated.
Capital goods and stock in hand
Sub-section (2) allows unavailed credit on capital goods that was not carried forward in a return, if admissible under both the existing law and the UTGST Act. The Explanation defines 'unavailed input tax credit'.
Sub-section (3) covers persons who were not registered, dealt in exempted or tax-free goods, or dealt in goods taxed at the first point of sale in the Union territory. They could take credit on stock held on the appointed day, subject to four conditions. Traders without invoices could take credit at a prescribed rate if they passed the benefit on through lower prices. Sub-section (4) covers persons dealing in both taxable and exempt goods, and sub-section (6) covers persons who paid tax at a fixed rate or a fixed amount.
Inputs received after the appointed day
Sub-section (5) allows credit on inputs received on or after the appointed day where the supplier paid tax under the existing law. The invoice must have been recorded in the books within thirty days of the appointed day; the Commissioner could extend this by up to thirty more days for sufficient cause. A statement of such credit had to be filed as prescribed.
Sub-section (7) requires the credit under sub-sections (3), (4) and (6) to be calculated as prescribed.
Practical checklist
Do
- For a legacy transitional-credit claim, link each amount to the specific sub-section and its conditions.
- Check the rules and any official directions on the time and manner of the claim for the relevant period.
Avoid
- Do not treat Section 18 as giving a fresh, open-ended right to claim transitional credit today; its conditions, time limits and prescribed manner apply.
Frequently asked questions
Could a composition taxpayer carry forward VAT credit?
No. Sub-sections (1) and (2) exclude persons opting to pay tax under section 10 of the CGST Act, and sub-section (6) requires that the person is not paying tax under that section.
What was the time limit for recording invoices for inputs in transit?
Thirty days from the appointed day under sub-section (5), extendable by the Commissioner by up to thirty more days for sufficient cause.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026