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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 the HGST Act read with rule 41(1) of HGST RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... ership of business. Certain doubts have been raised regarding the interpretation of sub-section (3) of section 18 of the Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as the HGST Act) and sub-rule (1) of rule 41 of the Haryana Goods and Services Tax Rules, 2017 (hereinafter referred to as the HGST Rules ) in the context of business reorganization. 2. According to sub-section (3) of section 18 of the HGST 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 input tax credit which remains unutilized in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. (ii) Is the transferor required to file Form GST ITC 02 in all States where it is registered ? Proviso to sub-rule (1) of rule 41 of the HGST 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 HGST 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 thereon. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here both transferor and transferee are registered. b. The proviso to rule 41(1) of the HGST 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 HGST 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 HGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, 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)) Delhi 70% 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 Haryan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionment 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. 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 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 HGST Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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