MERGING OF PARTNERSHIP FIRM TO A PRIVATE LIMITED, Goods and Services Tax - GST

[SAFETAB LIFESCIENCE]

Dear Experts,

Please clarify the following our doubts in GST aspects.

1. Ours is a partnership firm which is going to be taken up by a Private Limited Company.

2. The assets and liabilities will be taken by the buyer. Whether we have to charge GST for the sale consideration price.

3. The Partnership ( A) firm will be continued to run the business (manufacturing) in the name of A (unit of B). In such case what is the procedure in GST regarding the GST registration number. Presently A and B are running in different states. Whether B has to take GST number in the state of B.

4. What is the procedure of the available balance in Electronic Credit Ledger to be transfeered to the buyer.

Posts / Replies

[Himansu Sekhar]

1. In your case in my view please refer to 4(c) of scedule lI

2. Another reg. Is needed to be taken

3. Under section 18(3) ITC CAN be transferred if the liabilities are transferred.

[Rajagopalan Ranganathan]

Sir,

As per Sl. 4 (c) of schedule II of CGST Act, 2017,"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."

In your case since the assets and liabilities will be taken by the buyer the business is transferred as going concern. Therefore no gst is payable on the sale consideration price.

Regarding question No. 3, when A continues the business as a manufacturer then the private limited company has to take a fresh registration since it will have a different PAN Number. Since B is located in a different State than that of A, B has to take a fresh registration.

Since A becomes a unit of B, according to Section 18 (3) of CGST Act, 2017 " 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 procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of a business is detailed in rule 41 Of CGST rules, 2017 namely,

(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 de-merger, 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.

[Explanation. - For the purpose of this sub-rule, it is hereby clarified that the “value of assets” means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.]

(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 transferor and, upon such acceptance, the unutilized credit specified in FORM GST ITC-02* shall be credited to his electronic credit ledger.

(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.

[KASTURI SETHI]

I support the views of both experts. In order to have wider scope for taking any decision also examine the following decisions of AAR in this context. Both are in favour of assessees.

1. 2019 (22) G.S.T.L. 293 (A.A.R. - GST) = 2019 (2) TMI 1080 - AUTHORITY FOR ADVANCE RULING, HARYANA IN RE : B.M. INDUSTRIES

2018 (13) G.S.T.L. 221 (A.A.R. - GST) = 2018 (5) TMI 1651 - AUTHORITY FOR ADVANCE RULING - KARNATAKA IN RE : RAJASHRI FOODS PVT. LTD.