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10. The facts are not in dispute. The petitioner is a service
provider. It did not have registration under the KVAT Act.
However, it purchased computers/laptops locally suffering tax
under the KVAT Act. The petitioner was not entitled to the input
credit in the KVAT regime. Once GST was rolled out, the
petitioner obtained registration under the GST Scheme. It
claims the benefits of the transitional credit under Chapter XX
of the KSGST Act, as regards the tax paid on the purchase of
computers/laptops while effecting purchase as above.
11. Chapter XX of the KSGST Act provides for transitional
provisions with respect to migrating taxpayers. Section 140
provides for transitional arrangements for input tax credits.
Sub-section (1) thereto is with reference to the entitlement of
the registered person other than one paying tax under Section
10 (composition levy) to avail the credit of the VAT/entry tax
carry forward in the return filed for June 2017.
12. Sub-section (2) is with reference to the entitlement of
the same person as regards the credit of unavailed input credit
in respect of "capital goods" which was not carried forward in
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return. The petitioner had filed the application seeking
clarification not with reference to the afore sub-section. This is
clear from Ext.P1 application itself. The afore application was
filed specifically with reference to entitlement under sub-
section (3) to Section 140. On the face of the afore, the
findings contained in Ext.P2 issued by the Advance Ruling
Authority are to be noticed. The said Authority made reference
to the provisions of sub-section (2) to Section 140. The
Authority thereafter referred to the definition of "input" under
Section 2(59) of the KSGST Act and found that capital goods
are not entitled to input credit. Similarly, reference is also
made to the proviso to sub-section (2) denying transitional
credit, if the same was not admissible as input credit under the
existing VAT Act. True, under the KVAT Act, capital goods like
computers/laptops are not eligible for extension of input credit
as regards the tax paid on their purchase. However, the
petitioner's claim, as noticed earlier, was not with reference to
Section 140(1) or (2). Therefore, the reference made to the
afore provision while issuing Exts.P2 and P4 were without any
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basis and it is found accordingly.
13. Now the claim of the petitioner with reference to the
provisions of Section 140(3), under which Ext.P1 was filed, is
to be noticed. Section 140(3) reads as under:
"(3) A registered person, who was not liable to be registered
under the existing law or who was engaged in the sale of
exempted goods or tax free goods, by whatever name called, or
goods which have suffered tax at the first point of their sale in
the State and the subsequent sales of which are not subject to
tax in the State under the existing law but which are liable to tax
under this Act or where the person was entitled to the credit of
input tax at the time of sale of goods, if any shall be entitled to
take, in his electronic credit ledger, credit of the value added tax
and entry tax in respect of inputs held in stock and inputs
contained in semi-finished or finished goods held in stock on the
appointed day subject to the following conditions, namely:-
(i) such inputs or goods are used or intended to be used for
making taxable supplies under this Act;
(ii) the said registered person is eligible for input tax credit on
such inputs under this Act;
(iii) the said registered person is in possession of invoice or other
prescribed documents evidencing payment of tax under the
existing law in respect of such inputs; and
(iv) such invoices or other prescribed documents were issued
not earlier than twelve months immediately preceding the
appointed day:
Provided that where a registered person, other than a
manufacturer or a supplier of services, is not in possession of an
invoice or any other documents evidencing payment of tax in
respect of inputs, then, such registered person shall, subject to
such conditions, limitations and safeguards as may be
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prescribed, including that the said taxable person shall pass on
the benefit of such credit by way of reduced prices to the
recipient, be allowed to take credit at such rate and in such
manner as may be prescribed."
Reading of the afore provision would show that a "registered
person" is entitled for taking credit of VAT/entry tax. The claim
can arise in the following situations as laid down under sub-
section (3):
i. The registered person was not liable under the
existing law.
ii. The registered person was engaged in the sale of
exempted goods or tax-free goods.
iii. The registered person was entitled to the input tax
at the time of the sale of goods.
In the case at hand, as already noticed, 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.
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14. The petitioner's entitlement for availing credit of
VAT/entry tax was in respect of "inputs" held in stock and
"inputs" contained in semi-finished or finished goods held in
stock as on the appointed date, provided they are used or
intended to be used for making taxable supplies under the
KSGST Act. The term "input", true, has a separate definition
under Section 2(59) which reads as under:
"2(59) "input" means any goods other than capital goods
used or intended to be used by a supplier in the course or
furtherance of business;"
(Underlining supplied)
A reading of the afore provision makes it clear that capital goods
used by a supplier in the course of furtherance of business are
outside the purview of the term "input". The original authority,
while issuing Ext.P2, has referred to the definition of the term
"input" alone while considering the claim of the petitioner. The
Appellate Authority while issuing Ext.P4 has also referred to the
definition of the term "capital goods" under Section 2(19) of the
KSGST Act, which reads as under:
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"2 (19) "capital goods" means goods, the value of which
is capitalised in the books of account of the person
claiming the input tax credit and which are used or
intended to be used in the course of furtherance of
business;"
to hold that insofar as the petitioner has treated the
computers/laptops as capital assets in their books of accounts,
the petitioner is not entitled to transitional credits. The findings
of the Appellate Authority in Ext.P4, which read as under:
"v) Further, 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 erstwhile 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."
With reference to the definition of the term "capital goods" and
"input", as noticed above, the afore decision could have been
upheld, but for a separate treatment with respect to the term
"capital goods" under Chapter XX of the KSGST Act.
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15. The provisions of Chapter XX of the KSGST Act also
provided for an Explanation as under:
"Explanation.- For the purposes of this Chapter, the
expression "capital goods" shall have the same meaning
as assigned to it in the Kerala Value Added Tax Act,
2003 (30 of 2004)."
(Underlining supplied)
Thus, as regards the provisions of Chapter XX of the KSGST Act,
the term "capital goods" is to have the same meaning as
assigned under the KVAT Act. Section 2(x) to the KVAT Act,
2003, defined "capital goods" as under:
"(x) "Capital goods" means plant, machinery, equipments
including pollution/quality control, lab and cold storage
equipments used in manufacture, processing, excluding for
job works or rendering of services, packing or storage of
goods in the course of business and delivery vehicles but
shall not include such goods and civil structure as may be
notified by Government. "
(Underlining supplied)
True, 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
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"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.
16. Sri.Sreejith, the learned Senior Standing Counsel,
contended that the Explanation referred to above would not
apply to Section 140(3) of the KSGST Act since the term "capital
goods" do not find a reference thereunder. According to him,
the Explanation applies only to those provisions of Chapter XX
in which the term "capital goods" is referred to.
17. I am unable to agree to the afore contention raised by
the learned counsel since the Explanation extracted above
adopts the definition from the KVAT Act wherever the term
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"capital goods" comes up for consideration under Chapter XX of
the KSGST Act. In the case at hand, the claim is raised under
Chapter XX with reference to Section 140(3). Therefore, though
Section 140(3) does not mention "capital goods", while
considering the definition of inputs, one has to refer to the term
"capital goods" as explained under Chapter XX. In such
circumstances, wherever the term "input" is referred to under
Chapter XX, one comes across the term "capital goods" also.
Hence, the Explanation has to be applied. The interpretation as
suggested by Sri.Sreejith would render the provision of the
Explanation in-operative.
18. When that be the position, 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.
19. With respect to the contention raised by Sri.Sreejith
that the petitioner was not entitled to input credit under the
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KVAT Act and hence not entitled to credit under the KSGST, as
already noticed, the claim of the petitioner was with respect to
the first limb of Section 140(3) as already found.
20. On the whole, I am of the opinion that the petitioner
was entitled to transitional credit under Section 140(3) of
Chapter XX of the KSGST Act as regards computers/laptops.
21. Exts.P2 and P4 issued by the concerned authority are
set aside. The respondents to consider the claim of the
petitioner in the light of the afore declaration.
The writ petition stands allowed as above.
Sd/-
HARISANKAR V. MENON, JUDGE
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W.P(C) No.11956 of 2019 2025:KER:6218
APPENDIX OF WP(C) 11956/2019
PETITIONER'S EXHIBITS:
EXHIBIT P1 TRUE COPY OF APPLICATION FOR ADVANCE RULING
IN FORM GST ARA-01 DATED 8.5.2018.
EXHIBIT P2 TRUE COPY OF ADVANCE RULING NO.KER/13/2018
DATED 19.9.2018.
EXHIBIT P3 TRUE COPY OF APPEAL TO THE APPELLATE
AUTHORITY FOR ADVANCE RULING IN GST ARA-02
DATED 26.10.2018.
EXHIBIT P4 TRUE COPY OF APPELLATE ORDER NO.AAR/05/2018
DATED 14.12.2018.
