2021 (8) TMI 672 - AAR - GST

Valuation - De-merger - transfer of MIS business to a resulting company - inclusion of assets which are outside the purview of GST, in the value of assets for the purpose of apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017 - determination of value of assets for apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017 - whether the assets which are not attributable to any particular GSTIN be considered in the GSTIN of the head office of the Company for the purpose of computation of asset ratio? HELD THAT - Whenever there is reconstitution of a registered person, by way of demerger, with a specific provision for transfer of liabilities, the said registered person is allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to the demerged businesses in the manner as may be prescribed - the manner in which the unutilized ITC should be as per the Rules made in this regard. It is clear from the proviso to the sub-rule (1) of Rule 41 of the CGST Rules, 2017 that the input tax credit shall be apportioned between the new units in case of a demerger in the ratio of the value of assets of the new units as specified in the demerger scheme. Value of assets - H ELD THAT - The explanation to the sub-rule (1) of Rule 41 of the CGST Rules states that the value of assets means the value of the entire assets of the business, whether or not input tax credit has been availed or not. The assets which are outside the GST also form the assets and is included in the scope of entire assets and hence the value of assets which are outside the purview of GST is required to be included in the value of assets for apportionment towards transfer of input tax credit in case of demerger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017. Whether the assets which are created to comply with the requirements of accounting standards are also forming the part of the entire assets and hence are includible in the scope of entire assets ? - HELD THAT - The input tax credit shall be apportioned as per a ratio and that ratio is the ratio of the value of assets of the new units as specified in the demerger scheme. From the clarification given in the para 3(a) Board Circular No. 133/03/2020 dated 23.03.2020 it is noticed that if a company is having a 60% of its entire assets in a state and it transfers 20% of its assets to the demerged entity, the ratio for ITC apportionment would be 20/60. Hence the value of assets of the new units as per demerger scheme should be taken - It is not possible that some assets will not be transferred to the two units coming into existence as the same needs to be transferred to either of the units as per the demerger scheme. The proviso does not state any exclusion for the assets transferred or not transferred as part of the demerger and hence would include all assets. Whether the assets are a part of the balance sheet of any company and they have to be a part of either one or other GSTIN? - HELD THAT - For the purpose of computation of asset ratio, the assets which are transferred to the new units has to be considered to the total assets which the company was maintaining in the particular state and accordingly ITC apportionment is to be calculated. This is also clarified in the clarification issued in question (a) in para 3 of Circular No. 133/03/2020 - GST dated 23.03.2020.

Issues Involved:
1. Inclusion of value of assets outside the purview of GST in the value of assets for apportionment of input tax credit (ITC) in case of demerger.
2. Consideration of assets created to comply with Accounting Standards and assets not transferred as part of demerger for determining value of assets for ITC apportionment.
3. Attribution of assets not attributable to any particular GSTIN for computation of asset ratio.

Detailed Analysis:

Issue 1: Inclusion of Value of Assets Outside the Purview of GST

The applicant sought clarification on whether the value of assets outside the purview of GST should be included in the value of assets for the purpose of apportioning ITC in a demerger. The relevant legal provisions include Section 18(3) of the CGST Act, 2017, and Rule 41(1) of the CGST Rules, 2017. The explanation to Rule 41(1) defines "value of assets" as the value of the entire assets of the business, irrespective of whether ITC has been availed.

The ruling clarified that the term "entire assets" includes all assets of the business, whether or not they fall under the purview of GST. Therefore, the value of assets outside the purview of GST must be included for apportioning ITC.

Issue 2: Consideration of Assets Created to Comply with Accounting Standards and Assets Not Transferred as Part of Demerger

The applicant questioned whether assets created to comply with Accounting Standards and assets not transferred as part of the demerger should be included in the value of assets for ITC apportionment.

The ruling stated that since the definition of "value of assets" includes the entire assets of the business, it also encompasses assets created to comply with Accounting Standards and assets not transferred as part of the demerger. The proviso to Rule 41(1) requires that the ITC be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. Hence, all assets, including those created for compliance with Accounting Standards and those not transferred, must be considered.

Issue 3: Attribution of Assets Not Attributable to Any Particular GSTIN

The applicant inquired about the treatment of assets not attributable to any particular GSTIN for the purpose of computing the asset ratio.

The ruling emphasized that all assets must be part of either one or another GSTIN. For the purpose of computing the asset ratio, the assets transferred to the new units must be considered relative to the total assets maintained by the company in the particular state. This is consistent with the clarification provided in Circular No. 133/03/2020-GST dated 23.03.2020, which states that the value of assets should be taken at the state level (distinct person) and not at the all-India level.

Ruling:

1. The value of assets outside the purview of GST is required to be included in the value of assets for apportionment towards the transfer of ITC in case of demerger as per Section 18(3) of the CGST Act, 2017 read with Rule 41(1) of the CGST Rules, 2017.
2. The value of assets includes assets created to comply with Accounting Standards and assets not transferred as part of the demerger.
3. There is no question of assets not being attributed to any particular GSTIN. For the computation of the asset ratio, the assets transferred to the new units must be considered relative to the total assets maintained by the company in the particular state, and ITC apportionment should be calculated accordingly.

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