GST Transitional Credit and Works Contracts: Gujarat Appellate Ruling
Testing and commissioning after GST began does not allow you to claim old excise or VAT as transitional input tax credit.
- Ruling
- GUJ/GAAAR/APPEAL/2018/1 dated 16/5/2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- R.B. Construction Company asked about claiming old tax credits for a pipeline project.
- The authority ruled that completed pipeline work is immovable property, not goods.
- Transitional credit for materials is denied if the work was finished pre-GST.
In short
The company asked if they could claim tax credits for materials used in a project that was mostly finished before GST started, but still needed testing. They wanted to avoid paying tax on top of tax already paid under the old system.
What has changed
How it worked before
Many businesses assumed that if a project was not fully handed over or tested by the GST start date, they could treat the materials as 'semi-finished' and claim transitional credit for old taxes paid.
What has changed
The authority decided that once pipes are laid, they become immovable property and are no longer considered 'goods'. Because they are not goods, you cannot claim transitional credit for them under the GST transition rules. Practically, this means you must pay full GST on the remaining work without offsetting it with old excise or VAT credits.
Who this affects
Construction companies and works contractors who had projects in progress during the transition from the old tax system to GST.
An example
Imagine a contractor, BuildRight Ltd, who finished laying a bridge before GST but had not yet performed the final safety inspection. BuildRight wants to claim the excise duty paid on the steel used in the bridge as a credit. Based on this ruling, the tax department would likely deny the claim because the bridge is immovable property, not goods, and the work was effectively completed before the GST transition date.
What you should do
If you are in a similar situation, do not assume you can claim these credits. This ruling only binds the company that asked; your local tax officer may have a different view, but they will likely follow this logic. Consult your tax advisor to review your specific project status before filing.
If you do nothing
If you claim credit that the department later decides is ineligible, you will face a demand for the tax amount plus interest and potential penalties. A tax officer can issue a show-cause notice to recover the wrongly claimed credit. Relying on a ruling that does not apply to your specific facts is a common cause for costly tax disputes.
The terms explained
- Works contract
- A contract where you provide both goods and services, such as building a structure or installing a pipeline.
- Immovable property
- Land or anything permanently attached to the land, like a building or a pipeline, which cannot be moved without destroying it.
- Transitional input tax credit
- A mechanism that allowed businesses to carry forward tax credits from the old system into the new GST system.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. R.B. Construction Company
GUJ/GAAAR/APPEAL/2018/1 dated 16/5/2018 · Gujarat
Questions before the authority
- Does the work executed and invoice to be raised for the pending event of testing and commissioning by the applicant after the implementation of the Goods and Services Tax Act amount to supply, and specifically supply of works contract?
- Is the applicant entitled to enjoy proportionate credit worth 10% duty of excise and VAT paid on materials bought vide invoices showing Excise and VAT separately, under the transition provisions so that there is no double taxation i.e. levy of tax on tax is avoided?
Facts
The applicant is a works contractor who was engaged in a pipeline project for the Rajkot Municipal Corporation. The supply of pipes and laying work was completed in the pre-GST era, while testing and commissioning remained pending upon the implementation of GST. The applicant sought to claim transitional input tax credit for the materials used, arguing that the project was still in a semi-finished state.
Ruling
| Question | What the authority ruled |
|---|---|
| Entitlement to transitional input tax credit | Not entitled Under sub-sections (3) and (6) of Section 140 of the CGST and GGST Acts |
| GST liability on pending supply | Required to be paid For that part of the supply where the time of supply is on or after the appointed date |
The authority ruled that the applicant is not entitled to claim transitional input tax credit under the specified sections of the CGST and GGST Acts. Furthermore, it held that the portion of the supply occurring on or after the appointed date is subject to GST liability.
Reasoning
The authority reasoned that the applicant was not holding the pipes as inputs or as part of semi-finished goods on the appointed date because the supply and laying were already completed. It determined that the pipeline network constitutes **immovable property**, which falls outside the definition of goods under the Act. Consequently, the provisions of Section 140 do not permit transitional credit for this scenario. The activity is classified as a **works contract** under Section 2(119), making the post-GST portion of the supply taxable.
Provisions relied on
- Section 2(52) of the CGST Act, 2017
- Section 2(119) of the CGST Act, 2017
- Section 7 of the CGST Act, 2017
- Section 13 of the CGST Act, 2017
- Section 140(3) of the CGST Act, 2017
- Section 140(6) of the CGST Act, 2017
- Schedule II of the CGST Act, 2017
For the practitioner
This ruling clarifies that transitional credit under Section 140 is unavailable for works contracts where the material supply and installation were completed pre-GST, even if testing remains pending. It reinforces that **immovable property** does not qualify as goods for the purpose of transitional credit claims. Practitioners should note that the authority strictly interprets the status of goods on the appointed date.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/guj_gaaar_2018-1_16.05.18.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.