No Transitional GST Credit for VAT Composition Works Contractors in Uttarakhand
Uttarakhand AAR ruled that construction contractors under the pre-GST VAT composition scheme cannot claim transitional GST credit on stock.
- Ruling
- Ruling No 01/2018-19 dated 20.04.2018
- Dated
- 20 Apr 2018
- Authority
- 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
- Company asked if VAT paid stock on June 2017 gets transitional GST credit.
- AAR ruled transitional GST credit is not allowed on this stock.
- Pre-GST Uttarakhand VAT rules strictly blocked credit on works contract inputs.
- GST law permits transitioning tax credit only if allowed under old laws.
In short
A construction firm in Uttarakhand was registered under the VAT composition scheme before GST started. As on 30 June 2017, the firm held closing stock of construction materials such as cement, sand, and steel on which VAT had been paid. The company asked tax authorities if it could carry forward this VAT as transitional input tax credit under GST.
What has changed
How it worked before
Many contractors shifting from VAT composition schemes to standard GST assumed they could claim transitional tax credit on all stock held on 30 June 2017.
What has changed
The Authority for Advance Ruling decided that transitional GST credit cannot be claimed on this stock. Section 6(8)(k) of the Uttarakhand VAT Act barred input tax credit on purchases used in works contracts. Because Section 140(6) of the GST Act allows credit transition only if the tax was creditable under pre-GST law, the firm is not eligible.
Who this affects
Works contractors and commercial building builders in Uttarakhand who operated under the pre-GST VAT composition scheme.
An example
A commercial builder in Dehradun operated under the Uttarakhand VAT composition scheme until June 2017. On 30 June 2017, the builder held ₹5 lakh worth of steel and cement with paid VAT in closing stock. When registering under standard GST, the builder asked if that VAT could be claimed as GST credit. Following Order 02/2018-19, the tax department would reject the claim because state VAT rules prohibited input tax credit on works contracts.
What you should do
Review your state's pre-GST VAT provisions to see if input tax credit on works contract purchases was permitted. Note that an advance ruling binds only the specific business that applied and its local tax authority. Other businesses cannot treat this ruling as law, though tax officers may use the same reasoning.
If you do nothing
If you claim transitional GST credit on pre-GST stock that was barred under state VAT law, tax officers can reject the claim during audit. You will be required to repay the credit used, along with interest and penalties. Relying on this ruling outside Uttarakhand without checking local VAT laws can also result in tax demands.
The terms explained
- transitional credit
- Tax credit for taxes paid under older laws like VAT that a business carries forward into the GST system.
- input tax credit
- A deduction that lets a business reduce tax owed on sales by the tax already paid on purchases.
- composition scheme
- A simplified tax system where small businesses pay tax at a lower fixed rate but cannot claim credit on purchases.
- works contract
- A contract that involves both supplying goods and performing construction or installation services together.
The ruling in detail
Authority for Advance Ruling
M/s National Construction, 16, Awas Vikas NH-87 Rudrapur, U.S. Nagar, Uttarakhand
Ruling No 01/2018-19 dated 20.04.2018 · Uttarakhand
Questions before the authority
- 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.
Facts
The applicant is engaged in the construction of commercial and industrial buildings and structures. Under the pre-GST regime, the applicant was registered under the Uttarakhand Value Added Tax Act and had opted for the composition scheme. As on 30.06.2017, the applicant held closing stock of construction materials such as cement, sand, and steel on which VAT was paid, and sought to carry forward this credit into the GST regime.
Ruling
| Question | What the authority ruled |
|---|---|
| Carry forward of Uttarakhand VAT paid on closing stock of construction material as transitional credit | Not allowed ITC on inputs used in works contracts was explicitly barred under Section 6(8)(k) of the Uttarakhand VAT Act |
| Transitional credit availability for dealers under VAT composition scheme | Not allowed Failed the prerequisite condition of ITC eligibility under existing VAT laws under Section 140(6) |
The Authority held that transitional input tax credit of Uttarakhand VAT paid on construction material held in stock as on 30.06.2017 is **not allowable** under GST. Since Section 6(8)(k) of the Uttarakhand VAT Act specifically barred input tax credit on purchases involved in works contracts, the mandatory condition of eligibility under pre-GST law was not met.
Reasoning
The Authority examined Section 140(1) and Section 140(6) of the CGST/SGST Act, 2017 alongside Section 6(8)(k) of the Uttarakhand Value Added Tax Act. Section 6(8)(k) of the Uttarakhand VAT Act clearly mandated that no input tax credit shall be allowed on purchase of goods involved in the execution of works contracts. Under Section 140(6) of the GST Act, a registered person transitioning from a composition scheme under existing law is entitled to take credit of VAT in respect of inputs held in stock only if such inputs are eligible for input tax credit under the existing law. Because the applicant was legally disentitled from claiming VAT credit on works contract inputs under the VAT Act, the statutory condition for transitioning credit under Section 140 was not satisfied.
Provisions relied on
- Section 140(1) of the Uttarakhand Goods and Services Tax Act, 2017
- Section 140(6) of the Uttarakhand Goods and Services Tax Act, 2017
- Section 97(2)(d) of the Uttarakhand Goods and Services Tax Act, 2017
- Section 6(8)(k) of the Uttarakhand Value Added Tax Act
For the practitioner
This ruling establishes that works contractors who were under the VAT composition scheme cannot carry forward VAT paid on closing stock as **transitional credit** under Section 140 of the GST Act if the state VAT law barred ITC on works contract inputs. It reinforces that pre-GST credit eligibility under state tax laws is a strict prerequisite for claiming transitional credit under GST.
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/AAR/02-2018-19_dtd_20-04-18_uttrakhand.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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