2018 (6) TMI 762 - AAR - GST

Construction company can claim transitional credit on closing stock despite operating under composition scheme if section 146(6) conditions met

In Re : M/s National Construction

The AAR Uttarakhand ruled on transitional credit carry forward post-GST implementation for construction materials like cement, sand, and steel held as ... Transitional Credit - carry forward of Credit - Post-GST implementation situation - Uttarakhand VAT Act - Whether Credit of Uttarakhand VAT paid on Construction material such as Cement, sand, steel etc. held in closing as on 30-06-2017 is allowed to be carried forward as transitional credit as Uttarakhand GST under GST regime? - If yes, then whether it is allowed when the assessee had opted for composition scheme under Uttarakhand VAT laws? Held That:- Since the applicant was availing the benefit of composition scheme under the Uttarkhand VAT laws, the provisions of section 146(6) for availing transitional credit get attracted. Therefore, if the applicant fulfills all the 5 conditions as enumerated within the provision of section 146(6), he will be eligible for ITC of transitional credit. 1. ISSUES:1.1 Whether credit of Uttarakhand VAT paid on construction materials such as cement, sand, steel, etc., held in closing stock as on 30.06.2017, is allowed to be carried forward as transitional credit under the Uttarakhand GST regime?1.2 Whether such transitional input tax credit is allowed if the assessee had opted for the composition scheme under Uttarakhand VAT laws?2. RULINGS / HOLDINGS:2.1 The Court held that input tax credit (ITC) on goods involved in the execution of works contract is not allowable under the Uttarakhand VAT Act, specifically referring to section 6(8)(k), which states 'No input tax credit shall be allowed on purchases of goods, other than the Capital Goods, when goods sold by way of transfer or property in goods involved in the execution of works contract.' Consequently, the provisions of section 140(1) of the Uttarakhand GST Act do not apply, and therefore, no transitional credit can be carried forward for such stock as on 30.06.2017.2.2 Regarding the second issue, the Court ruled that under section 140(6) of the Uttarakhand GST Act, a registered person who was paying tax at a fixed rate or a fixed amount under the existing law (including those under composition scheme) is entitled to take credit of VAT paid on inputs held in stock on the appointed day, subject to specified conditions. Hence, if the assessee fulfills the five conditions enumerated in section 140(6), including not paying tax under section 10 of the GST Act and possessing valid invoices, they are entitled to transitional input tax credit on stock held as on the appointed day despite having opted for the composition scheme under the VAT regime.3. RATIONALE:3.1 The Court applied the statutory framework under the Uttarakhand VAT Act, 2005 and the Uttarakhand Goods and Services Tax Act, 2017. Section 6(8)(k) of the VAT Act excludes input tax credit on goods used in works contracts, reflecting a clear legislative intent to disallow such credit for construction material stock.3.2 Section 140(6) of the Uttarakhand GST Act provides a transitional mechanism allowing registered persons who were paying tax on a fixed basis (including composition scheme taxpayers) to claim credit of VAT paid on inputs held in stock on the appointed day, subject to conditions such as intended use for taxable supplies under GST, possession of valid tax invoices issued within twelve months preceding the appointed day, and not being a composition taxpayer under GST (section 10).3.3 The Court confirmed that the composition scheme under the VAT law does not bar entitlement to transitional credit under GST if the statutory conditions are met, thus clarifying and affirming the transitional credit rights of composition scheme taxpayers migrating to GST.