2019 (3) TMI 758 - AAAR - GST

Input Tax Credit (ITC) - Transitional credit - Whether computers, laptops etc., used by the applicant for providing output service would qualify as inputs for the purpose of availing transitional ITC under Section 140(3) of KSGST Act? - If the goods are physically available as closing stock as on 30th June, 2017, can the applicant avail ITC for the VAT paid? Held that - In the GST period, the input tax credit of Tax paid on Computers, Laptops etc., can only be claimed as Capital Goods but not as Inputs. - As per Clause (ii) of Section 140(3) of the KSGST Act, 2017, a registered person is eligible for Input Tax credit, if he is also eligible under the KSGST Act, 2017 to claim thc Input Tax credit on such Inputs. Since, the Computers, laptops etc., fail to qualify as Inputs under KSGST Act, 2017 and thereby fail to satisfr the condition set under Clause (ii) of Section 140(3) of the KSGST Act, 2017, hence they are not eligible to claim Input Tax credit under transitional provisions of the VAT paid during the pre-GST period on the computers and laptops etc., physically available on 30th June, 2017 - the Computers, Laptops etc., which were lying in stock as on 30,06.2017 were declared as capital assets prior to GST and used by the appellant for providing output services. Thereby they had no tax liability under the erstwhilc KVAT law. Further, they squarely fall under the definition of Capital Goods under Section 2(19) of the KSGST Act, 2017 and not under Section 2(59) of the KSGST Act, 2017. Hence the relevant transitional provision applicable in the instant case is Section 140(2) of the KSGST Act, 2017 and Section 140(3) Of the KSGST Act cannot be invoked. As per section 140(2) of the KSGST Act 2017, a registered person, other than a person opting to pay under Section 10, shall be entitled to take, in his electronic credit ledger, credit Of un-availed 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. Proviso to the said sub-section of the Kerala SGST Act stipulates that the registered person shall not be allowed to take credit unless such credit was admissible as input tax credit under the existing law and is also admissible as input tax credit under the Act. The appellant being a service provider, had no tax liability under the erstwhile KVAT Act, and thereby was not eligible to avail input tax credit on computers and laptops held during the transition period. Hence the transitional input tax credit claim of the Taxpayer in respect of capital goods is not admissible as per the transitional provisions of the KSGST Act, 2017.

Issues Involved:
1. Eligibility of computers, laptops, etc., as inputs for availing transitional ITC under Section 140(3) of KSGST Act.
2. Eligibility to claim ITC for VAT paid on goods physically available as closing stock as on 30th June 2017.

Detailed Analysis:

Issue 1: Eligibility of Computers, Laptops, etc., as Inputs for Availing Transitional ITC under Section 140(3) of KSGST Act

Appellant's Argument:
The appellant argued that the computers, laptops, etc., used for providing output services should qualify as inputs under Section 140(3) of the KSGST Act, 2017. They contended that these items do not constitute capital goods under the Kerala VAT Act, 2003, and hence should be considered as inputs eligible for input tax credit.

Appellate Authority's Analysis:
The authority examined the definitions under the GST Act and the Kerala VAT Act. Section 2(19) of the KSGST Act defines "capital goods" as goods capitalized in the books of account and used in the course of business. Section 2(59) defines "inputs" as any goods other than capital goods used in the course of business. The authority noted that the computers and laptops were capitalized as capital assets in the appellant's books of accounts both before and after the GST period. Therefore, these items qualify as capital goods and not as inputs. Consequently, they do not satisfy the conditions under Section 140(3) of the KSGST Act for availing input tax credit.

Issue 2: Eligibility to Claim ITC for VAT Paid on Goods Physically Available as Closing Stock as on 30th June 2017

Appellant's Argument:
The appellant claimed that since the goods do not qualify as capital goods under the Kerala VAT Act, they should be considered as inputs eligible for ITC under Section 140(3) of the KSGST Act. They argued that they meet all conditions stipulated under Section 140(3) for availing transitional credit.

Appellate Authority's Analysis:
The authority noted that the appellant's services were not taxable under the Kerala VAT law, and the computers and laptops were declared as capital assets. Under the GST regime, these items continue to be capitalized as capital goods. Section 140(2) of the KSGST Act allows credit for un-availed input tax credit on capital goods, provided such credit was admissible under the existing law and the GST Act. Since the appellant had no tax liability under the Kerala VAT Act and was not eligible to claim input tax credit on these items during the transition period, the transitional credit claim is not permissible under Section 140(2) of the KSGST Act.

Conclusion:
The Appellate Authority upheld the decision of the Authority for Advance Ruling. The computers, laptops, etc., used by the appellant for providing output services do not qualify as inputs for the purpose of availing transitional input tax credit under Section 140 of the KSGST Act, 2017. The appeal was disallowed.

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