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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 RGST Act read with rule 41(1) of RGST RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... change in the constitution/ownership of business. Certain doubts have been raised regarding the interpretation of sub-section (3) of section 18 of the Rajasthan Goods and Services Tax Act, 2017 (hereinafter referred to as the RGST Act) and sub-rule (1) of rule 41 of the Rajasthan Goods and Services Tax Rules, 2017 (hereinafter referred to as the RGST Rules) in the context of business reorganization. 2. According to sub-section (3) of section 18 of the RGST Act, 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 inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clarification a. (i) In case of demerger, proviso to rule 41 (1) of the RGST 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 scheme. However, it is not clear as to whether the value of assets of the new units is to be considered at State level or at all-India level. Proviso to sub-rule (1) of rule 41 of the RGST Rules provides for apportionment of the input tax credit in the ratio of the value of assets of the new units as specified in the demerger scheme. Further, the explanation to sub-rule (1) of rule 41 of the RGST Rules states that value of assets means the value of the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 FORM GST ITC-02 only in those States where both transferor and transferee are registered. b. The proviso to rule 41 (1) of the RGST Rules explicitly mentions demerger . Other forms of business reorganization where part of business is hived off or business in transferred as a going concern etc. have not been covered in the said rule. Wherever business reorganization results in partial transfer of business assets along with liabilities, whether the proviso to rule 41(1) of the RGST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) How to determine the amount of ITC that is to be transferred to the transferee under each tax head (IGST/ RGST/ SGST) while filing of FORM GST ITC-02 by the transferor? The total amount of ITC to be transferred to the transferee (i.e. sum of RGST, SGST/UTGST and IGST credit) should not exceed the amount of ITC to be transferred, as determined under sub-rule (1) of rule 41 of the RGST Rules [refer 3 (c) (i) above]. However, the transferor shall be at liberty to determine the amount to be transferred under each tax head (IGST, RGST, SGST/UTGST) within this total amount, subject to the ITC balance available with the transferor under the concerned tax head. This is shown in the illustration below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 22,00,000 SGST 25,00,000 5,00,000 20,00,000 IGST 20,00,000 20,00,000 0 Total 70,00,000 28,00,000 42,00,000 d. (i) In order to calculate the amount of transferable ITC, the apportionment formula under proviso to rule 41(1) of the RGST Rules has to be applied to the unutilized ITC balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 2013, The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date . The said legal provision appears to indicate that the appointed date of demerger is the date from which the scheme for demerger comes into force and it is specified in the respective scheme of demerger. Therefore, for the purpose of apportionment of ITC under rule sub-rule (1) of rule 41 of the RGST Rules, the ratio of the value of assets should be taken as on the appointed date of demerger . In other words, for the purpose of apportionment of ITC under sub-rule (1) of rule 41 of the RG ..... X X X X Extracts X X X X X X X X Extracts X X X X
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