2025 (3) TMI 477 - HC - GST

Seeking to challenge Ext.P4 order issued by the Appellate Authority for Advance Ruling Kerala - Transitional input tax credit - computers laptops etc. used by the applicant for providing output service would qualify as inputs or not - If the said goods are physically available as closing stock with the Applicant as on 30th June 2017 can the Applicant avail input tax credit of the VAT paid on the same? HELD THAT - In the case at hand the petitioner herein was not liable to tax or was not supposed to take out registration under the existing law (KVAT). Therefore the petitioner was making a claim with respect to the first limb of Section 140(3) of the KSGST Act. The computers/laptops would fall under the former portion of the afore definition. However a conscious exclusion is provided in the latter portion with respect to such capital goods used for rendering of service . Therefore insofar as the petitioner was using the computers/laptops for rendering services they were not capital goods under Section 2(x) of the KVAT Act. When that be so computers/laptops were not capital goods for the purposes of Chapter XX of the KSGST Act on account of the afore Explanation. In the light of the afore the computers/laptops which were used by the petitioner for rendering services would definitely fall under Chapter XX and were entitled to transitional credit. There cannot be any doubt regarding the entitlement of the petitioner for transitional credit under Section 140(3) especially since the petitioner is eligible for input credit as against the computers/laptops under the KSGST Act. Conclusion - The petitioner was entitled to transitional credit under Section 140(3) of Chapter XX of the KSGST Act as regards computers/laptops. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether computers and laptops used by the petitioner for providing output services qualify as inputs for availing transitional input tax credit under Section 140(3) of Chapter XX of the Kerala State Goods and Services Tax Ordinance, 2017.
• If the said goods are physically available as closing stock with the petitioner as of 30th June 2017, can the petitioner avail input tax credit of the VAT paid on the same?

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

The legal framework revolves around the transitional provisions under Chapter XX of the Kerala State Goods and Services Tax Act, 2017 (KSGST Act), specifically Section 140(3), which deals with the entitlement of registered persons to avail credit of VAT and entry tax in respect of inputs held in stock. The definitions of "input" and "capital goods" under the KSGST Act and the Kerala Value Added Tax Act, 2003 (KVAT Act) are also crucial in this context.

Court's interpretation and reasoning

The Court examined whether the petitioner, who was not registered under the KVAT Act but purchased computers and laptops locally, could claim transitional credit under Section 140(3) of the KSGST Act. The Court noted that the Advance Ruling Authority and the Appellate Authority had incorrectly applied the provisions of Section 140(2) instead of Section 140(3), which was the basis of the petitioner's claim.

Key evidence and findings

The petitioner was not liable to be registered under the KVAT Act and claimed entitlement to transitional credit under Section 140(3) of the KSGST Act for computers and laptops used in providing services. The Court found that the authorities had misapplied the definitions of "input" and "capital goods" and failed to consider the Explanation in Chapter XX of the KSGST Act, which adopts the definition of "capital goods" from the KVAT Act.

Application of law to facts

The Court applied the provisions of Section 140(3) and the relevant definitions to determine that the petitioner was entitled to transitional credit. The computers and laptops, though treated as capital assets in the petitioner's accounts, were used for rendering services and thus fell outside the definition of "capital goods" under the KVAT Act for the purposes of Chapter XX of the KSGST Act.

Treatment of competing arguments

The Court rejected the argument that the petitioner was not entitled to credit under the KSGST Act because it was not entitled under the KVAT Act. It also dismissed the contention that the Explanation to Chapter XX did not apply to Section 140(3), reasoning that the Explanation must be considered wherever the term "capital goods" arises under Chapter XX.

Conclusions

The Court concluded that the petitioner was entitled to transitional credit under Section 140(3) of the KSGST Act for the computers and laptops used in providing services.

SIGNIFICANT HOLDINGS

The Court held that the petitioner was entitled to transitional credit under Section 140(3) of Chapter XX of the KSGST Act regarding computers and laptops. The Court set aside the decisions of the Advance Ruling Authority and the Appellate Authority, directing the respondents to reconsider the petitioner's claim in light of this declaration.

Core principles established

• The definition of "capital goods" for the purposes of Chapter XX of the KSGST Act is aligned with the definition under the KVAT Act, which excludes goods used for rendering services.
• The transitional credit provisions under Section 140(3) apply to registered persons who were not liable under the existing law, allowing them to claim credit for inputs held in stock.

Final determinations on each issue

• The petitioner is entitled to transitional credit for computers and laptops used in providing services, as they do not qualify as "capital goods" under the KVAT Act for the purposes of Chapter XX of the KSGST Act.
• The decisions of the Advance Ruling Authority and the Appellate Authority were incorrect in applying the provisions of Section 140(2) and failing to consider the Explanation in Chapter XX.