Overview Of Sec 18(3) – Availability of credit in special circumstances
(3) Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
Further, Rule 41 of CGST Rules provides as under :-
Transfer of credit on sale, merger, amalgamation, lease or transfer of a business
(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in Form GST ITC – 02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee: Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
(2) The transferor shall also submit a copy of a certificate issued by a practicing-chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.
(3) The transferee shall, on the common portal, accept the details so furnished by the transferer and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-o2 shall be credited to his electonic credit ledger.
(4) The inputs and capital goods so transfered shall be duly accounted for by the transferee in his books of account.
Advance Ruling
Name and address of the applicant ;- M/s Shilpa Medicare Limited Application No. and date :- AARNo.o5/AP/GST/2020 Date 24/02/2020
Brief Facts :-
M/s Shilpa Medicare Limited under takes Research & Dcvelopment work in Active Pharmaceutical Ingredient (API) & formulation moleculcs & manufacture of formulation products in small quantity for R & D purposc.
Questions Sought by Applicant :-
Whether the transaction would amount to supply of goods or supply of services or supply of Goods & Services?”
Can we file GST ITC-o2 return and transfer unutilized ITC from Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit?
Applicant’s Interpretation of Law and Facts:-
The applicant refers to Notification No. 12/2017 – Central Tax (Rate). Serial number 2 of the Notification provides for “Services by way of transfer of a going concern, as a whole or an independant part thereof”. This indicates that the activity of transfer a going concern constitutes a supply of service. The Notification further provides Nil Rate of Tax on such a supply.
The applicant requested for a clarification whether the transfer of capital assets would cover Sl.No.2 of the above-mentioned Notification.
Facts and Findings – As per concerned officer :-
We have examined the issues raised in the application and the submissions made by the authorised representative of the applicant as well, regarding the classification, tax liability of the transaction involved and the transferability of unutilised input tax credit in the case of ongoing concern.
The issue at hand is to decide whether the transaction of the applicant would amount to supply of goods or supply of services or supply of goods & services.
From the record we find that the business of the applicant i.e., Shilpa Medicare Limited of Andhra Pradesh unit, as a whole along with the capital assets is being transferred as going concern to Shilpa Medicare Limited of Karnataka Unit for a monetary consideration. The applicant had submitted no documentary evidence proving that the transaction is a going concern except for his categorical declaration in the application as such. Taking into consideration the facts as put forth by the applicant, the following series of observations are made to arrive at a conclusion finally.
Section 7 (1)(a) of the CGST Act, 2017 defines the scope of supply which reads as under:
7. (1) For the purposes of this Act, the expression “supply” includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
In the instant case the activity of the transfer’ is made for a consideration, but neither in the course of the business nor for the furtherance of the business. A going concern is a onetime affair made where the business is sold including assets in entirety or an independent part thereof. Even though this transaction does not amount to a ‘supply as per definition, but qualified to be one under the scope of supply as it is backed by the term includes’ in Section 7(1) of the CGST Act,2017. Thus, in the broadened interpretation of the term ‘includes’, this activity is brought under the scope of supply.
Part 4 (c) of Schedule II of the CGST Act, 2017 refers to the transfer of business assets which reads as under:
4. Transfer of business assets
(c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person
The definition of services under Section 2(102) of CGST Act, 2017 reads as (102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by anyother mode, from one form, currency or denomination, to another form, currency of denomination for which a separate consideration is charged,
Thus, the definition of services qualifies ‘anything other than goods‘ as service. In this context it is obvious that the ‘going concern’, which was excluded form list of supply of goods’ as discussed above, would automatically fall under supply of services’.
Ruling
Transactions would amount to be considered as supply of services.
Appplicant will file ITC -02 return and utilised ITC from Vizianagram, Andhra Pradesh unit to Bengaluru, Karnataka Unit.
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