Input tax credit on unsold closing stock is not preserved by a GST transition where VAT conditions were unmet.

Input tax credit under the Uttar Pradesh VAT regime was not retainable on goods that remained in closing stock because credit depended on fulfilment of statutory conditions, including purchase, valid invoices, and resale or other taxable use. Mere purchase without taxable turnover did not make the credit finally admissible. The shift to the Goods and Services Tax regime did not, by itself, preserve credit that had not crystallised under the earlier law, and authorities concerning discontinuance of business under different provisions were treated as inapposite. The revision was allowed and the input tax credit was set aside.

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Issues: (i) Whether input tax credit could be retained on goods that remained in closing stock and were not resold as taxable sales under the Uttar Pradesh Value Added Tax regime. (ii) Whether the introduction of the Goods and Services Tax regime justified the assessee's claim to carry forward input tax credit notwithstanding the statutory conditions governing availment of credit.

Issue (i): Whether input tax credit could be retained on goods that remained in closing stock and were not resold as taxable sales under the Uttar Pradesh Value Added Tax regime.

Analysis: Credit under the value added tax scheme was available only on fulfilment of the statutory conditions governing purchase, possession of tax invoices, and subsequent resale of the goods as taxable sales. Where the purchased goods were not resold and remained in closing stock, the credit could not be treated as finally admissible. The statutory scheme also linked availing of credit with the use of the purchased goods in taxable turnover, and mere purchase without resale did not satisfy the requirement.

Conclusion: The assessee was not entitled to retain input tax credit on the unsold closing stock.

Issue (ii): Whether the introduction of the Goods and Services Tax regime justified the assessee's claim to carry forward input tax credit notwithstanding the statutory conditions governing availment of credit.

Analysis: The change from the earlier value added tax regime to the Goods and Services Tax regime did not, by itself, create a right to preserve credit where the statutory conditions for credit under the earlier law were not met. The reliance on authorities dealing with discontinuance of business under different statutory settings was found inapposite because the relevant provisions were not shown to be analogous. The earlier decision applied directly because the same principle governed the transition from the old regime to the new regime and no taxable resale had occurred before the change.

Conclusion: The transition to the Goods and Services Tax regime did not entitle the assessee to the disputed credit.

Final Conclusion: The revision succeeded and the order granting input tax credit was set aside, with the substantial questions of law answered against the assessee and in favour of the revenue.

Ratio Decidendi: Input tax credit is available only when the statutory conditions for resale or taxable use are satisfied, and a mere regime change does not preserve credit on unsold or exempt closing stock.

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