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TMI BlogClarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... rals (All) Madam/Sir, Sub: Clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules - reg. Representations have been received from various taxpayers seeking clarification in respect of apportionment and transfer of ITC in the event of merger, demerger, amalgamation or change in the constitution/ownership of business. Certain doubts have been raised regarding the interpretation of sub-section (3) of section 18 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) and sub-rule (1) of rule 41 of the Central Goods and Services Tax Rules, 2017 (hereinafter refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax credit has been availed thereon. 3. The issues raised in various representations have been analyzed in the light of various legal provisions under GST. In order to ensure uniformity in the implementation of the provisions of the law, the Board, in exercise of its powers conferred by sub-section (1) of section 168 of the CGST Act clarifies the issues involved in the Table below. S. No. Issue / Question Clarification a. (i) In case of demerger, proviso to rule 41 (1) of the CGST Rules provides that the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to ₹ 10 crore only are transferred to ABC in State of U.P. (Total assets amounting to ₹ 40 crore at all-India level are transferred from XYZ to ABC). The unutilized ITC of XYZ in State of M.P. shall be transferred to ABC on the basis of ratio of value of assets in State of M.P., i.e. 30/60 = 0.5 and not on the basis of all-India ratio of value of assets, i.e. 40/100=0.4. Similarly, unutilized ITC of XYZ in State of U.P. will be transferred to ABC in ratio of value of assets in State of U.P.,i.e. 10/40 = 0.25. (ii) Is the transferor required to file FORM GST ITC 02 in all States where it is registered? No. The transferor is required to file FOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be applied separately in respect of each heads of ITC (CGST/SGST/IGST). Further, the said formula shall also be applicable for apportionment of Cess between the transferor and transferee. Illustration A: The ITC balances of transferor X in the State of Maharashtra under CGST, SGST and IGST heads are 5 lakh, 5 lakh and 10 lakh respectively. Pursuant to a scheme of demerger, X transfe₹ 60% of its assets to transferee B. Accordingly, the amount of ITC to be transferred from A to B shall be 60% of 20 lakh (total sum of CGST, SGST and IGST credit) i.e . 12 lakh. (ii) How to determine the amount of ITC that is to be transferred to the transferee under each tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST 10,00,000 10,00,000 0 SGST 10,00,000 10,00,000 0 IGST 30,00,000 15,00,000 15,00,000 Total 50,00,000 35,00,000 15,00,000 Haryana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to transfer the input tax credit which remains unutilized in his electronic credit ledge r to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed. Further, sub-rule (1) of rule 41 of the CGST Rules prescribes that the registered person shall file the details in FORM GST ITC-02 for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee. A conjoint reading of sub-section (3) of section 18 of the CGST Act along with sub-rule (1) of rule 41 of the CGST Rules would imply that the apportionment formula shall be applied on the ITC balance of the transferor as available in electronic credit ledger on the date of f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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