GST RULES FOR TRANSFER OF BUSINESS, Goods and Services Tax - GST

[SAFETAB LIFESCIENCE]

Dear Experts,

Ours is a partnership firm (S) registered in State (P) and our other family concern which is a Private Limited Company (A) registered in State (T). Both different entities and the partners of S are not the directors of A but the partners and directors are close relatives.

Now our Pvt Ltd A is going to take over the assets and liabilities of S by itemized sale process. If so what are the impacts in GST. How the closing balance of GST in Electronic ledger can be transferred. Is there any other best modes for transfer of tax GST and IT saving.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

According to sub-section 1A of Section 7 of CGST Act, 2017 "where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”

According to para 4 of Schedule II of GST Act, 2017,

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, such transfer or disposal is a supply of goods by the person.

Therefore taking over of assets and liabilities of S by A is supply of goods and the same is liable to GST. However according to clause 4 (c) (i) of Schedule II of CGST Act, 2017 if the business is transferred as going concern then no GST is payable.

Regarding availing of ITC, according to Rule 41 (1) of CGST rules, 2017 "a registered person shall, in the event of sale, merger, demerger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, demerger, 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.

[Ganeshan Kalyani]

If the assets are sold individually then GST is applicable. But if the business is sold then the assets of the selling entity are not liable to GST as such transaction is specifically exempted from GST.

[Kashish Gupta]

Sir,

I presume that all required formalities under Companies Law/Income Tax Law are being complied with like partners of the firm would be directors of the company for specified period so that there is no tax on Capital Gains as well.

Further, to your query, it should be noted that impugned process tantamount to "change in constitution of the business" and therefore, firm is required to cancel its registration under section 29(1)(b) of CGST Act, 2017.

Also, you will face certain transitional issues like treatment to be given to pending sales orders, purchase orders, goods-in-transit on date of conversion and procedure regarding receipt of payment in former bank account because now everything would be changed. For this, we recommend to draft a deed of conversion mentioned the agreed upon procedure to be followed under GST law, Income Tax law and Companies Law which should be signed by partners of Firm and Directors of Company and that deed should be submitted for information purposes in all concerned departments.

Also, kindly keep a note of circulars to be issued in coming days. GST Council in its 39th meeting held on 14.03.2020 has decided to clarify the procedure of conversion under GST law.

In case you still have any doubts regarding conversion, please let me know.

[CSSANJAY MALHOTRA]

I agree with the views shared by Sh. Ganeshan ji. In case of assets sale, GST has to be levied but where would assets move then. If the same is to be placed at present location (State P), then no movement of goods will take place and hence CGST/SGST is to be charged. ITC is available only if "A" has GSTIN in State P for that premises.

Transfer of ITC from Credit Ledger of S to A would take place only in case of Transfer of Business as a going concern. In that scenario S has to execute Transfer of Business Agreement and thereafter A has to take GSTIN for that premises. Sh. Rajagoplan shared correctly the ITC transfer process as S has to submit ITC-02 from his portal with required certificate and stating A GSTIN of State (P). Subsequently A will accept the said ITC entry at his GST Portal and amount will be posted to his Credit Ledger. After tarbsfer of ITC, S has to apply for surrender of registration and state reason being Transfer of Business.

Important condition is that liabilities should also be taken over to become eligible for transfer of ITC.

[niranjan gupta]

It should be noted that Private Limited Company shall obtain registration in the State P and only after said registration has been taken, Form ITC-02 shall be filed by S (Partnership Firm) and said credit would then be transferred to GSTIN in State P allocated to A (Company).