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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 ..... malgamation 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 said registered person shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 APGST Rules states that "value of assets" means the value of the entire assets of the business, whether or not input tax credit has been availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reorganization results in partial transfer of business assets along with liabilities, whether the proviso to rule 41(1) of the APGST Rules, 2017 shall be applicable to calculate the amount of transferable ITC ? Yes, the formula for apportionment of ITC, as prescribed under proviso 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 ..... ceed 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, subject to the ITC balance available with the transferor under the concerned tax head. This is shown in the illustration below : (1) (2) (3) (4) (5) (6) State Asset ratio of transferee Tax heads ITC balance of transferor (pre-apportionment) as on the date of filing Form GST ITC-02) Total amount of ITC transferred to the transferee under Form GST ITC-02 ITC balance of transferor (post- apportionment) after filing of Form GST ITC-02) (Col (4) - Col (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 of the APGST 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 filing of Form GST ITC-02 by the transferor. (ii) Which date shall be relevant to calculate the ratio of value of assets, as prescribed in the proviso to rule 41(1) of the APGST Rules, 2017 ? According to section 232(6) of the Companies 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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