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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 ..... 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 Andhra Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as the APGST Act) and sub-rule (1) of rule 41 of the Andhra Pradesh Goods and Services Tax Rules, 2017 (hereinafter referred to as the APGST Rules ) in the context of business reorganization. 2. According to sub-section (3) of section 18 of the APGST 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Issue/question Clarification a. (i) In case of demerger, proviso to rule 41(1) of the APGST 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 APGST 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 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 Form GST ITC-02 only in those States where both transferor and transferee are registered. b. The proviso to rule 41(1) of the APGST 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 reorganiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 head (IGST/CGST/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 CGST, 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 APGST 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, CGST, SGST/UTGST) within this total amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST 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 APGST Rules has to be applied to the unutilized ITC balance of the transferor. However, it is not clear as to which date shall be relevant to calculate the amount of unutilized ITC balance of transferor According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive 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 sub-rule (1) of rule 41 of the APGST 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 APGST Rules, while the ratio of the value of assets should be taken as on the appointed date of demerger , the said ratio is to be applied on the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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