In this article, we have attempted to ask whether Rule 41A, inserted in CGST Rules vide notification no 03/2019 dt 29/01/2019 wef 01/02/2019, is an instance where the Rule has been prescribed and made operational even though no section seeks to prescribe it.
Section 18(3) prescribes that ITC can be transferred from one firm to another in case of certain events. It states ‘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’.
The conditions prescribed u/s 18(3) are:
1. There must be a change in constitution of the registered person,
2. The change must be on account of sale, merger, demerger, amalgamation, lease or transfer of business,
3. There must be a specific provision for transfer of liabilities.
If the three conditions are met cumulatively, the transferor of business can transfer ITC to the transferee in accordance with the Rules laid down for the purpose. Rule 41 is prescribed to lay down the procedure for such transfer of ITC.
Rule 41(1) states: 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.
Notification 03/2019 brought in the First CGST Amendment Rule 2019, wherein after Rule 41, a new Rule 41A was inserted on 29/01/2019 with effect from 01/02/2019.
Rule 41A(1) states: – A registered person who has obtained separate registration for multiple places of business in accordance with the provisions of rule 11 and who intends to transfer, either wholly or partly, the unutilised input tax credit lying in his electronic credit ledger to any or all of the newly registered place of business, shall furnish within a period of thirty days from obtaining such separate registrations, the details in FORM GST ITC-02A electronically on the common portal, either directly or through a Facilitation Centre notified in this behalf by the Commissioner.
Rule 41A allows transfer of ITC, in case where a registered person in a State has obtained one or more separate registration in the same State [i.e multiple registration as envisaged by proviso to Section 25(2)], from the existing registration to one or all newly registered businesses. There is no provision in the Act which seeks to prescribe Rule for transfer of ITC from one business to another of the same ‘person’.
The procedure laid down by Rule 41A is similar to the procedure laid down by Rule 41. In case of Rule 41A, Form ITC02A is to be used whereas in case of Rule 41, Form ITC02 is to be used. The process to transfer ITC under both Forms and the process of acceptance by the recipient is almost identical. However, Rule 41 has clear backing from Section 18(3), but does Rule 41A also has sanction of the same section/sub-section or any other section, is an unanswered question. There is no other section in CGST Act which enables to transfer ITC from one registered business to another of ‘same person’. Section 18(3) applies in case of change in constitution whereas in case of multiple registrations within same State, there is no change in constitution.
It is high time that the Board looks into the matter and brings in suitable changes in either section 18(3) or insert a new sub section in Section 18 so that the beneficial provision provided by Rule 41A is regularised.
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