2018 (6) TMI 762 - AAR - GST

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.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling, Uttarakhand, were:

Whether the credit of Uttarakhand VAT paid on construction materials such as cement, sand, and steel held in closing as of June 30, 2017, is allowed to be carried forward as transitional credit under the GST regime.
If the above is permissible, whether it remains allowed when the assessee had opted for the composition scheme under Uttarakhand VAT laws.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Transitional Credit of Uttarakhand VAT

Relevant Legal Framework and Precedents: The analysis focused on Section 140(1) of the Uttarakhand GST Act, 2017, which governs the carry forward of input tax credit (ITC) from the previous tax regime to the GST regime. Additionally, Section 6(8)(k) of the Uttarakhand VAT Act was considered, which restricts ITC on goods involved in the execution of works contracts.
Court's Interpretation and Reasoning: The Authority noted that under Section 6(8)(k) of the VAT Act, no input tax credit is allowed on goods involved in works contracts. Consequently, the provisions of Section 140(1) of the GST Act, which allows for the carry forward of ITC, do not apply to such cases.
Key Evidence and Findings: It was established that the applicant was involved in works contracts, and thus, the input tax credit on materials like cement, sand, and steel could not be carried forward as transitional credit.
Application of Law to Facts: The Authority applied the statutory provisions to the facts and determined that since the goods were used in works contracts, the transitional credit could not be availed.
Treatment of Competing Arguments: The applicant's argument for carrying forward the credit was countered by the statutory restriction under the VAT Act, which the Authority upheld.
Conclusions: The Authority concluded that the transitional credit for VAT paid on construction materials held as of June 30, 2017, is not permissible under the GST regime for works contracts.

Issue 2: Transitional Credit under Composition Scheme

Relevant Legal Framework and Precedents: Section 140(6) of the Uttarakhand GST Act, 2017, was examined. This section pertains to registered persons who were under a composition scheme under the previous law and outlines conditions for availing transitional credit.
Court's Interpretation and Reasoning: The Authority interpreted Section 140(6) to mean that registered persons who were paying tax at a fixed rate or a fixed amount under the previous law could avail transitional credit, provided they meet certain conditions.
Key Evidence and Findings: The applicant had opted for the composition scheme under the VAT regime, and the jurisdictional officer confirmed this status.
Application of Law to Facts: The Authority applied the conditions under Section 140(6) to the applicant's situation, noting that if all conditions were met, the applicant could avail the transitional credit.
Treatment of Competing Arguments: The Authority considered the applicant's eligibility under the composition scheme and the conditions under Section 140(6), ultimately finding that the applicant could avail the credit if the conditions were satisfied.
Conclusions: The Authority concluded that the applicant could carry forward the transitional credit under the GST regime, subject to fulfilling the conditions specified in Section 140(6).

SIGNIFICANT HOLDINGS

Core Principles Established: The Authority established that transitional credit for VAT paid on goods used in works contracts is not permissible under the GST regime. However, registered persons under the composition scheme could avail transitional credit if they meet the specific conditions outlined in Section 140(6) of the GST Act.
Final Determinations on Each Issue:
- Transitional credit of Uttarakhand VAT on works contracts is not allowed.
- Transitional credit under the composition scheme is allowed if the conditions in Section 140(6) are met.

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