Different pertinent issues and its clarification under section 18(3) of CGST

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Different pertinent issues and its clarification under section 18(3) of CGST

There are many confusion with respect to distribute of ITC if any event is taken under section  18(3) of CGST. The CBIC vide Circular No. 133 03/2020- GST dated March 23, 2020 issued following clarification in respect of apportionment and transfer of Input Tax Credit (“ITC”)

Issue 1: According to proviso to rule 41 (1) of the CGST Rules provides if there is demerger, then input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. But the value of assets of the new units is to be considered at State level or at all-India level is not given anywhere.

Clarification:

  1. According to explanation to sub-rule (1) of rule 41 of the CGST 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.
  2. As GST is PAN base, and separate registration in different States is needs to be taken therefore each such registration is to be considered a distinct person for the purpose of the Act.
  3. Therefore the value of assets of the new units is to be taken at the State level (at the level of distinct person) and not at the all-India level.

Issue 2: Is the transferor required to file FORM GST ITC – 02 in all States where it is registered?

Clarification: No. The transferor is required to file FORM GST ITC-02 only in those States where both transferor and transferee are registered.

Issue 3: Whether calculation of ITC specified in proviso to rule 41 (1) of the CGST Rules is applicable to calculate the amount of transferable ITC in other forms of business reorganization also where part of business is hived off or business in transferred as a going concern or where business reorganization results in partial transfer of business assets along with liabilities.

Clarification: Yes, the formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities.

Issue 4: Whether calculation as prescribed under proviso to rule 41 (1) of the CGST Rules, shall be applied in respect of each of the heads of input tax credit viz. CGST/ SGST/ IGST/ Cess?

Clarification: 

  1. No, the ratio of value of assets, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be applied to the total amount of unutilized input tax credit (ITC) of the transferor i.e. sum of CGST, SGST/UTGST and IGST credit. The said formula need not be applied separately in respect of each heads of ITC (CGST/SGST/IGST).
  2. Further, the said formula shall also be applicable for apportionment of Cess between the transferor and transferee.

Issue 5: 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?

Clarification: 

  1. 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 CGST Rules.
  2. 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.

Issue 6: In order to calculate the amount of transferable ITC, the apportionment formula under proviso to rule 41(1) of the CGST 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.

Clarification: If we read sub-section (3) of section 18 of the CGST Act along with sub-rule (1) of rule 41 of the CGST Rules, thiswould 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.

Issue 7: Which date shall be relevant to calculate the ratio of value of assets, as prescribed in the proviso to rule 41 (1) of the CGST Rules, 2017?

Clarification: The 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 CGST Rules, the ratio of the value of assets should be taken as on the “appointed date of demerger”.

Conclusion: For the purpose of apportionment of ITC under sub-rule (1) of rule 41 of the CGST 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 ITC balance of the transferor on the date of filing FORM GST ITC – 02 to calculate the amount to transferable ITC.

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