{"id":3746,"date":"2021-07-24T19:06:01","date_gmt":"2021-07-24T19:06:01","guid":{"rendered":"http:\/\/caindelhiindia.com\/blog\/?p=3746"},"modified":"2021-08-25T07:03:08","modified_gmt":"2021-08-25T07:03:08","slug":"gst-implications-on-discontinuation-of-business","status":"publish","type":"post","link":"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/","title":{"rendered":"GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS"},"content":{"rendered":"<figure id=\"attachment_3747\" aria-describedby=\"caption-attachment-3747\" style=\"width: 970px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/07\/GST-IMPLICATIONS-ON-DISCONTINUATION-OF-BUSINESS..jpg\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-3747\" src=\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/07\/GST-IMPLICATIONS-ON-DISCONTINUATION-OF-BUSINESS..jpg\" alt=\"GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS\" width=\"970\" height=\"501\" srcset=\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/07\/GST-IMPLICATIONS-ON-DISCONTINUATION-OF-BUSINESS..jpg 795w, https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/07\/GST-IMPLICATIONS-ON-DISCONTINUATION-OF-BUSINESS.-300x155.jpg 300w, https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/07\/GST-IMPLICATIONS-ON-DISCONTINUATION-OF-BUSINESS.-768x397.jpg 768w\" sizes=\"(max-width: 970px) 100vw, 970px\" \/><\/a><figcaption id=\"caption-attachment-3747\" class=\"wp-caption-text\"><span style=\"color: #ffffff;\">GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS<\/span><\/figcaption><\/figure>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69eabb9435717\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69eabb9435717\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#GST_IMPLICATIONS_ON_DISCONTINUATION_OF_BUSINESS\" title=\"GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS\">GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#BRIEF_INTRODUCTION\" title=\"BRIEF INTRODUCTION\">BRIEF INTRODUCTION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#Discontinuation_of_Business_are_often_undertaken_using_the_following_ways_%E2%80%93\" title=\"Discontinuation of Business\u00a0are often\u00a0undertaken using the\u00a0following ways: &#8211;\">Discontinuation of Business\u00a0are often\u00a0undertaken using the\u00a0following ways: &#8211;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#GST_ON_SALE_OF_STOCK_IN_HAND_AND_OTHER_ASSETS\" title=\"GST ON SALE OF STOCK IN HAND AND OTHER ASSETS\">GST ON SALE OF STOCK IN HAND AND OTHER ASSETS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#TREATMENT_OF_BALANCE_REMAINING_THE_ENTITIES_ELECTRONIC_CREDIT_LEDGER\" title=\"TREATMENT OF BALANCE REMAINING THE ENTITIES ELECTRONIC CREDIT LEDGER\">TREATMENT OF BALANCE REMAINING THE ENTITIES ELECTRONIC CREDIT LEDGER<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#TRANSFER_OF_BUSINESS_TO_LEGAL_HEIR_WITHOUT_CONSIDERATION\" title=\"TRANSFER OF BUSINESS TO LEGAL HEIR, WITHOUT CONSIDERATION\">TRANSFER OF BUSINESS TO LEGAL HEIR, WITHOUT CONSIDERATION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#GST_ON_SLUMP_SALES_LUMP_SUM_CONSIDERATIONS\" title=\"GST ON SLUMP SALES \/\u00a0LUMP SUM\u00a0CONSIDERATIONS\">GST ON SLUMP SALES \/\u00a0LUMP SUM\u00a0CONSIDERATIONS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#SLUMP_SALE\" title=\"SLUMP SALE\">SLUMP SALE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#TREATMENT_OF_SLUMP_SALE_UNDER_GST\" title=\"TREATMENT OF SLUMP SALE UNDER GST\">TREATMENT OF SLUMP SALE UNDER GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#GST_RATE_ON_SLUMP_SALE\" title=\"GST RATE ON SLUMP SALE \">GST RATE ON SLUMP SALE <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#IMPLICATION_OF_BALANCE_LYING_IN_ELECTRONIC_CREDIT_LEDGER\" title=\"IMPLICATION OF BALANCE LYING IN ELECTRONIC CREDIT LEDGER\">IMPLICATION OF BALANCE LYING IN ELECTRONIC CREDIT LEDGER<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#COMPUTATION_OF_ITC_TO_BE_TRANSFERRED_PARTIAL_TRANSFER_OF_BUSINESS_IS_MADE\" title=\"COMPUTATION OF ITC TO BE TRANSFERRED, PARTIAL TRANSFER OF BUSINESS IS MADE\">COMPUTATION OF ITC TO BE TRANSFERRED, PARTIAL TRANSFER OF BUSINESS IS MADE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#ITEM_WISE_SALE\" title=\"ITEM WISE SALE\">ITEM WISE SALE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#OTHER_IMPLICATION_OF_GST_ON_TRANSFER_OF_BUSINESS\" title=\"OTHER IMPLICATION OF GST ON TRANSFER OF BUSINESS\">OTHER IMPLICATION OF GST ON TRANSFER OF BUSINESS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#SALE_OF_SECURITIES\" title=\"SALE OF SECURITIES\">SALE OF SECURITIES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#INPUT_TAX_CREDIT\" title=\"INPUT\u00a0TAX CREDIT\">INPUT\u00a0TAX CREDIT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.caindelhiindia.com\/blog\/gst-implications-on-discontinuation-of-business\/#RULE_41\" title=\"RULE 41\">RULE 41<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"GST_IMPLICATIONS_ON_DISCONTINUATION_OF_BUSINESS\"><\/span><span style=\"color: #ff0000;\"><strong>GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"BRIEF_INTRODUCTION\"><\/span><span style=\"color: #000080;\"><strong>BRIEF INTRODUCTION<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Many businesses change their structure for various reasons and purposes\u00a0like\u00a0for betterment of business from declining phase or\u00a0to extend\u00a0the worth\u00a0of their business or\u00a0to possess\u00a0potency in market competition. In recent times after the COVID 19 crisis, more businesses are restructured\u00a0thanks to\u00a0continuous losses or\u00a0thanks to\u00a0difficulties in continuation of business.<\/p>\n<p>A business also can be discontinued thanks to various reasons like death of proprietor\/partner causing dissolution of legal entity, intentional closure of the firm\/company, transfer of business to another person etc.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Discontinuation_of_Business_are_often_undertaken_using_the_following_ways_%E2%80%93\"><\/span><span style=\"color: #000080;\"><strong>Discontinuation of Business\u00a0are often\u00a0undertaken using the\u00a0following ways: &#8211;<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Closing of business operation, without transferring the stock or other assets.<\/li>\n<li>Transfer of business to legal heir\u00a0with none\u00a0consideration<\/li>\n<li>Sale\/transfer of business for:<\/li>\n<\/ul>\n<ol>\n<li style=\"list-style-type: none;\">\n<ol>\n<li>Payment\u00a0Consideration i.e. slump sales of business<\/li>\n<li>Itemized sale, i.e., when separate consideration is charged for various assets.<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<h3><span class=\"ez-toc-section\" id=\"GST_ON_SALE_OF_STOCK_IN_HAND_AND_OTHER_ASSETS\"><\/span><span style=\"color: #000080;\"><strong>GST ON SALE OF STOCK IN HAND AND OTHER ASSETS<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In such scenarios, as stock and assets are sold\u00a0within the\u00a0regular course of business, therefore, GST at applicable rates must be charged at the time of supply. Further, as no supply\u00a0of products\u00a0is\u00a0going down\u00a0at the time of closure of business, therefore, no GST is applicable on\u00a0the identical.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"TREATMENT_OF_BALANCE_REMAINING_THE_ENTITIES_ELECTRONIC_CREDIT_LEDGER\"><\/span><span style=\"color: #000080;\"><strong>TREATMENT OF BALANCE REMAINING THE ENTITIES ELECTRONIC CREDIT LEDGER<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In case of clearance of all stocks and assets before discontinuation, balance in Electronic credit ledger\u00a0will be\u00a0remained\u00a0because of\u00a0various reasons\u00a0like\u00a0sale of stock on losses, reduction in GST rates on goods\u00a0proscribed, e.g., GST @ 18% was applicable at the time of purchase of stock and\u00a0afterward\u00a0reduced to 12% etc.<\/p>\n<p>In such cases, no refund of balance lying in Electronic Credit Ledger shall be granted and therefore the person may still surrender his GST registration number.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"TRANSFER_OF_BUSINESS_TO_LEGAL_HEIR_WITHOUT_CONSIDERATION\"><\/span><span style=\"color: #000080;\"><strong>TRANSFER OF BUSINESS TO LEGAL HEIR, WITHOUT CONSIDERATION<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>This scenario generally arises\u00a0just in case\u00a0of discontinuation of business\u00a0because of\u00a0death of proprietor and consequently\u00a0the complete\u00a0business is being transferred to the legal heir\/successor of the proprietor. In such a scenario, the legal heir would be available with the options to either to continue the business of the deceased proprietor by transferring his assets and liabilities.\u00a0Just in case\u00a0of continuation of business, the legal heir shall obtain\u00a0a new\u00a0GSTIN and he may transfer ITC lying\u00a0within the\u00a0Electronic Credit Ledger of the deceased proprietor to his GSTIN. Legal heir shall\u00a0even be\u00a0to blame for\u00a0payment of GST liability of the deceased proprietor.<\/p>\n<p>Where such a business is discontinued, legal heir shall be liable for payment of GST on stock or capital goods prevailing on the date of cancellation of GST registration of deceased proprietor.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"GST_ON_SLUMP_SALES_LUMP_SUM_CONSIDERATIONS\"><\/span><span style=\"color: #000080;\"><strong>GST ON SLUMP SALES \/\u00a0LUMP SUM\u00a0CONSIDERATIONS<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Transaction of transfer of business with all assets and liabilities for a lump sum consideration, i.e., where values don&#8217;t seem to be assigned to every asset and liabilities separately, is understood as Slump sale.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"SLUMP_SALE\"><\/span><span style=\"color: #000080;\"><strong>SLUMP SALE<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Slump sale will have\u00a0the identical\u00a0treatment as normal supply. Under the GST regime tax is payable by the registered taxable person on\u00a0the provision\u00a0of goods\u00a0and\/or services.<\/li>\n<li>The transfer of business is amounted to transfer of\u00a0a component\u00a0of the assets and not\u00a0the entire\u00a0business. Moreover, para 4(c) of the schedule II specifies that\u00a0just in case\u00a0business is transferred as a going concern then\u00a0it&#8217;d\u00a0not constitute as supply.<\/li>\n<li>However, in pursuance of Notification No. 12\/2017 Central tax (rate) dt 28.06.2017 services, which are provided by way of transfer of a going concern as a full or an independent part thereof, are exempted from GST. Thus, no GST would applicable on slump sale transaction as transfer of business on a going concern basis.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"TREATMENT_OF_SLUMP_SALE_UNDER_GST\"><\/span><span style=\"color: #000080;\"><strong>TREATMENT OF SLUMP SALE UNDER GST<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Question whether transfer of business for\u00a0payment\u00a0consideration\u00a0is taken into account\u00a0as \u201cSale of Goods\u201d and \u201cSales of service\u201d\u00a0may be a\u00a0matter of dispute since beginning and various Advance Ruling has been sought on this issue.<\/p>\n<p><span style=\"color: #ff9900;\"><strong>Points considered in relevant case law &#8211;<\/strong><\/span><\/p>\n<ul>\n<li>As per Section 7 of CGST Act, 2017, \u201cSupply\u201d includes activities\u00a0like\u00a0sales, transfer, bater, exchange, etc. made for a consideration\u00a0within the\u00a0course or furtherance of business.<\/li>\n<li>Activity involving transfer of business as a going concern and made for a\u00a0payment\u00a0consideration\u00a0doesn&#8217;t\u00a0constitute as a supply in the course or furtherance of business. However, as per the Section 7, an inclusive definition of term \u201cSupply\u201d\u00a0has been provided,\u00a0whether or not\u00a0resulting in transfer of business as a going concern has not been\u00a0distributed\u00a0in course or furtherance of business\u00a0the identical\u00a0shall still be considered as \u201cSupply\u201d under GST.<\/li>\n<\/ul>\n<p>Under Schedule II of CGST Act, 2017, it was provided that there are certain specified Activities or Transactions that shall be treated as Supply\u00a0of products\u00a0or Supply of Services.<\/p>\n<p><span style=\"color: #ff9900;\"><strong>According to Entry No. 4(c) of Schedule II of CGST Act, 2017 the following has been provided \u2013<\/strong><\/span><\/p>\n<p>\u201c4 Transfer of business asset:<\/p>\n<ul>\n<li>In case a person\u00a0ceases to be a taxable person, the goods standing as assets of any business carried on by him shall be deemed to be supplied by him, and the same is sought to be made in the\u00a0course or furtherance of his business immediately preceding the date of cessation as taxable person unless:<\/li>\n<li>the business is transferred as a going concern to a different person; or<\/li>\n<\/ul>\n<p>Thus, as per the above explanation, transfer\u00a0of goods\u00a0forming\u00a0a part of\u00a0business shall be considered as \u201cTransfer of Business Asset\u201d, in case such person ceases to be a taxable person. However, the said provision shall not apply to cases, where the business is transferred to someone else, as a going concern.<\/p>\n<p>In case of slump sale, the complete business is transferred on a going concern basis. Therefore, such transfer isn&#8217;t to be considered as \u201cTransfer of Goods\u201d<\/p>\n<p>Notification No. 12\/2017-Central Tax (Rates) dated 28th June, 2017 contains\u00a0an inventory\u00a0of services exempted which are exempted under GST.<\/p>\n<table style=\"height: 196px;\" width=\"917\">\n<tbody>\n<tr>\n<td><span style=\"color: #ff9900;\"><strong>S. NO.<\/strong><\/span><\/td>\n<td><span style=\"color: #ff9900;\"><strong>CHAPTER<\/strong><\/span><\/td>\n<td><span style=\"color: #ff9900;\"><strong>DESCRIPTION OF SERVICES<\/strong><\/span><\/td>\n<td><span style=\"color: #ff9900;\"><strong>RATE (%)<\/strong><\/span><\/td>\n<td><span style=\"color: #ff9900;\"><strong>CONDITION<\/strong><\/span><\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>CHAPTER 99<\/td>\n<td>SERVICES BY WAY OF TRANSFER OF A GOING CONCERN, AS A WHOLE OR AN INDEPENDENT PART THEREOF.<\/td>\n<td>NIL<\/td>\n<td>NIL<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Therefore, as per Entry No. 2 of N\/No. 12.2017-Central Tax (Rates), Transfer of business on going concern basis\u00a0is taken into account\u00a0as \u201cSupply of Service\u201d which is exempt.<\/p>\n<p>Therefore, if a business is transferred on a going concern basis, then such a transaction is taken into account as \u201cSupply of Service\u201d.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"GST_RATE_ON_SLUMP_SALE\"><\/span><span style=\"color: #000080;\"><strong>GST RATE ON SLUMP SALE <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>According to the notification number. 12\/2017-Central Tax (Rate), transfer of business on going concern basis is exempted from GST liability and that too without any condition. In case of slump sale, if business is transferred on a going concern basis, then the identical shall be considered as \u201cExempted Supply\u201d.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"IMPLICATION_OF_BALANCE_LYING_IN_ELECTRONIC_CREDIT_LEDGER\"><\/span><span style=\"color: #000080;\"><strong>IMPLICATION OF BALANCE LYING IN ELECTRONIC CREDIT LEDGER<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>After considering the above discussions, it is cleared that as per Section 18(3) of CGST Act read with Rule 41 of CGST Rules, balance in Electronic Credit Ledger of the transferor\u00a0shall be\u00a0transferred to the transferee by filing Form GST ITC-02 on GST portal subject to <span style=\"color: #000080;\">fulfillment of other conditions discussed above.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"COMPUTATION_OF_ITC_TO_BE_TRANSFERRED_PARTIAL_TRANSFER_OF_BUSINESS_IS_MADE\"><\/span><span style=\"color: #000080;\"><strong>COMPUTATION OF ITC TO BE TRANSFERRED, PARTIAL TRANSFER OF BUSINESS IS MADE<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Where the transfer involves, transfer of\u00a0the full\u00a0business, the transferor is entitled to transfer\u00a0the whole\u00a0balance of unutilized ITC lying\u00a0within the\u00a0Electronic credit ledger to the transferee. However, where the transfer involves transfer of partial transfer of business, the transferor shall be eligible to transfer only proportional ITC.<\/p>\n<p>As per the Rule 41 of CGST Act, 2017, the ITC shall be apportioned\u00a0within the\u00a0ratio\u00a0useful\u00a0of transferred assets with\u00a0the whole\u00a0value of Assets.\u00a0the identical\u00a0is\u00a0understood by\u00a0the subsequent\u00a0formula:<\/p>\n<p>ITC allowed to be transferred = Balance of ITC * Value of Assets, being transferred \/ Total Value of Assets<\/p>\n<ul>\n<li>For example A GST business is partially transferred with the worth of assets transferred is Rs. 4 crores out of total assets of Rs. 10 crores. ITC available within the credit ledger is Rs. 1 crore. In such a case, ITC transferred shall be Rs. 1*4\/10= Rs. 0.4 crore<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"ITEM_WISE_SALE\"><\/span><span style=\"color: #000080;\"><strong>ITEM WISE SALE<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>In case, the assets and liabilities of a business are transferred, by assigning\u00a0certain price\u00a0to every\u00a0item, the same is known as itemized sale.<\/li>\n<li>Under this, the disposal of key or selected business assets is involved. Under the merger and amalgamation, value\u00a0of every\u00a0asset is calculated separately i.e.\u00a0the full\u00a0business is transferred but item wise.<\/li>\n<li>Transaction of itemized sale\u00a0is meant\u00a0as supply under the ambit of GST and individual asset would cover under the definition\u00a0of goods\u00a0as per schedule II of the CGST Act. Thus, the said transaction shall be leviable to GST.<\/li>\n<li>In case of Itemized sales,\u00a0the complete\u00a0business\u00a0isn&#8217;t\u00a0transferred to\u00a0someone, rather few assets are transferred and where\u00a0the worth\u00a0is assigned\u00a0to every\u00a0asset<\/li>\n<li>According to Entry No. 4(a) of Schedule II of CGST Act, 2017 -\u201c4. Transfer of business assets<\/li>\n<li>In case, the goods forming as the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as\u00a0not\u00a0to make\u00a0part of those assets, such transfer or disposal\u00a0may be a\u00a0supply\u00a0of goods\u00a0by the person;\u201d<\/li>\n<\/ul>\n<p style=\"padding-left: 40px;\">Therefore, as per Entry No. 4(a) of Schedule II of CGST Act, transfer of business assets\u00a0is taken into account\u00a0as \u201cSupply of Goods\u201d and GST on\u00a0the identical\u00a0shall be charged at the applicable rate.<br \/>\nAlso, as\u00a0there&#8217;s\u00a0no transfer of business\u00a0happening, therefore,\u00a0there&#8217;s\u00a0no provision given for transfer of unutilized balance in Electronic Credit Ledger.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"OTHER_IMPLICATION_OF_GST_ON_TRANSFER_OF_BUSINESS\"><\/span><span style=\"color: #000080;\"><strong>OTHER IMPLICATION OF GST ON TRANSFER OF BUSINESS<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol>\n<li>Prologue: Any sought Corporate transaction involving amalgamation, mergers, acquisition and takeovers\u00a0are subject to\u00a0GST. Thus, the industries are required\u00a0to investigate\u00a0the provisions of the GST Law and its impact on their business.<\/li>\n<li>Registration: According to the 22(3) of the CGST Act, in case, a business, being carried on by a taxable registered person is transferred, the transferee or the successor shall be compulsorily required to undertake fresh registered under GST, with effect from such transfer or succession.<\/li>\n<\/ol>\n<p style=\"padding-left: 40px;\">The transferee will be required to obtain such registration from the date on which the Registrar of Companies issues a certificate of incorporation.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"SALE_OF_SECURITIES\"><\/span><span style=\"color: #000080;\"><strong>SALE OF SECURITIES<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>In most case,\u00a0the same old\u00a0mode\u00a0is that the\u00a0acquiring of company by making\u00a0a proposal\u00a0by the transferee company to the shareholders of the transferor company\u00a0to get\u00a0their securities,\u00a0within the\u00a0transferor company, at a price stated for\u00a0the aim.<\/li>\n<li>The definition of products still as services under the GST regime don&#8217;t cover the securities, therefore GST wouldn&#8217;t be levied on the sale of securities.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"INPUT_TAX_CREDIT\"><\/span><span style=\"color: #000080;\"><strong>INPUT\u00a0TAX CREDIT<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Section 18 provides for the provisions regarding availment of ITC\u00a0by taxable person. As per Section 18(3) of CGST Act, it was provided that in case of change of constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business, the said registered person will be required to transfer the unutilized input\u00a0tax credit\u00a0to transferee.<\/li>\n<li>Also, the said registered person shall be liable to furnish the main points of sale, merger, de-merger, amalgamation, lease or transfer of business in Form GST ITC-02 electronically on the Common Portal together with asking to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"RULE_41\"><\/span><span style=\"color: #000080;\"><strong>RULE 41<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Where the case involves demerger, the ITC\u00a0shall be apportioned\u00a0in the\u00a0ratio of\u00a0the value of assets being allotted to the newly established units, in accordance with the demerger scheme.<\/li>\n<li>The transferor is also required to provide a Certificate from a practicing-Chartered Accountant or\u00a0comptroller, certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been\u00a0finished\u00a0a particular\u00a0provision for the transfer of liabilities and the same be made available in duplicate\u00a0form.<\/li>\n<li>All\u00a0the businesses\u00a0transferring their business under GST will\u00a0have to\u00a0furnish the particulars\u00a0within the\u00a0form GST ITC-02 through the common portal\u00a0together with\u00a0an invitation\u00a0for transferring the unutilized ITC\u00a0to the electronic credit ledger of the transferee.<\/li>\n<\/ul>\n<p>Exception:\u00a0where there is a demerger of\u00a0an organization, the ITC shall be apportioned\u00a0in the ratio of the value of assets allotted to the newly established units.<\/p>\n<p>For example, XYZ private limited undergone demerger. XYZ be demerged into three separate units X, Y, Z. The assets of XYZ have been apportioned in the ratio of 4:3:3. Thus, the ITC available with XYZ would be apportioned\u00a0in the\u00a0ratio of 4:3:3.<\/p>\n<p>Once the transferee has validated\u00a0the small print\u00a0entered by the transferor\u00a0within the\u00a0Form GST ITC-02,\u00a0the quantity\u00a0of unutilized input\u00a0tax credit\u00a0would be transferred to his electronic credit ledger.<\/p>\n<p><strong><span style=\"color: #000080;\">The input tax credit would be reversed within the following two situations.<\/span><\/strong><\/p>\n<ol>\n<li>When a taxpayer registered under the composition scheme utilizes input tax credit on goods and services, or both, which became wholly or partly exempt from tax, then the number similar to the quantity of ITC on inputs held in stock, semi-finished and finished goods held in stock, and capital goods are going to be debited to the electronic credit ledger or electronic cash ledger. The said amount of ITC shall be calculated on the basis of corresponding invoices relating to which the credit is available to the registered taxable person.<\/li>\n<\/ol>\n<p style=\"padding-left: 40px;\">For example:<\/p>\n<p style=\"padding-left: 40px;\">ABC Enterprise sold handmade jute works to Sam for Rs 2,00,000. ITC utilized on the said inputs were Rs 30,000. Assuming that ABC Enterprise opts for composition scheme under GST and we know that handmade jute products are exempt from GST. Thus, the amount of ITC i.e., Rs 30,000 is required to be debited from the electronic credit or cash ledger belonging to Amar Enterprise.<\/p>\n<ol start=\"2\">\n<li>Where a taxpayer\u2019s GST registration is canceled by the authority, the amount of ITC in respect of goods held\u00a0in stock, capital goods, semi-finished and finished goods will be required to be debited from the electronic credit ledger or electronic cash ledger on the day preceding day of cancellation of registration.<\/li>\n<\/ol>\n<p style=\"padding-left: 40px;\">*ITC on Capital goods lying\u00a0in stock\u00a0should\u00a0be calculated on the pro-rata basis of residual life\u00a0and therefore the\u00a0residual life is assumed to be 5 years. Capital goods\u00a0also are\u00a0to be reduced by 5% per quarter or the part thereof from the date of invoice or other document specifying the receipt of such capital goods by the recipient.<\/p>\n<p style=\"padding-left: 40px;\">The amount in respect of credit available shall be calculated separately in respect of IGST and CGST. Just in case there isn\u2019t any tax invoices for the input held in stock, capital goods, semi-finished and finished goods than the number shall be calculated on the premise of prevailing market value of goods. the details of the above input tax credit must be furnished within the form GST ITC-03 and also within the form GSTR 10 if the quantity of ITC is reversed due to the cancellation of registration.<\/p>\n<p><span style=\"color: #000080;\"><strong>CONCLUSION<\/strong><\/span><\/p>\n<ul>\n<li>Goods and Services Tax have impact on each\u00a0and each\u00a0industry and business in India. Transfer of business involving mergers, amalgamation and acquisitions\u00a0do not attract any sought of GST liability,\u00a0hence, they are unlikely to be impacted from the same.<\/li>\n<li>In order to calculate Capital gains, holding period shall be calculated from the date of original purchase of shares.\u00a0the businesses\u00a0who\u00a0choose\u00a0merger and acquisition, the liability to register arises on the date of transfer for transferee of a business as going concern.<\/li>\n<li>Further, GST Law stipulates transfer or sale of business assets can\u00a0occur\u00a0either as a slump sale or itemized sale.\u00a0just in case\u00a0of change of constitution of a registered person on account of sale, merger, demerger etc., the unutilized ITC would be allowed to be transferred to transferee. Thus, GST Law has provided immense clarity in respect of the taxability of business transfer and its related aspect.<\/li>\n<li>Therefore,\u00a0where the case involves closure or dissolution of business\u00a0and the same has been caused due to\u00a0death of proprietor or\u00a0winding up\u00a0of Company, mere surrendering a GST registration\u00a0shall not suffice. Cancellation of GST registration\u00a0doesn&#8217;t\u00a0put an end to liabilities of\u00a0somebody\u00a0and appropriate action\u00a0are often\u00a0taken against such person in future date. Therefore, before surrendering GST registration,\u00a0an individual\u00a0is required\u00a0to appear\u00a0in the end\u00a0possible GST liability and applicable compliances.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>GST IMPLICATIONS ON DISCONTINUATION OF BUSINESS BRIEF INTRODUCTION Many businesses change their structure for various reasons and purposes\u00a0like\u00a0for betterment of business from declining phase or\u00a0to extend\u00a0the worth\u00a0of their business or\u00a0to possess\u00a0potency in market competition. In recent times after the COVID 19 crisis, more businesses are restructured\u00a0thanks to\u00a0continuous losses or\u00a0thanks to\u00a0difficulties in continuation of business. A &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[144],"tags":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3746"}],"collection":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/comments?post=3746"}],"version-history":[{"count":2,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3746\/revisions"}],"predecessor-version":[{"id":3749,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3746\/revisions\/3749"}],"wp:attachment":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/media?parent=3746"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/categories?post=3746"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/tags?post=3746"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}