EXAMPLE-125

Tinny acquired a trading business from Minny on 28^th August 2017.  Both companies are registered person under GST. Upon the sale of its business, Minny will cease to trade and Tinny will acquire the business and continue to carry on the business.

As business is transferred to Tinny on a going concern basis and the transferred assets are continued to be used by Tinny in business and inputs, capital goods and liabilities shall be duly accounted in their books of accounts.

How this transaction will be dealt in GST and explain briefly procedure of sale of business and whether the  input tax credit eligible in this transaction to transferee.

Answer

The Sale/ merger/ demerger / transfer of a business which comes within the scope of transfer as going concern is treated as neither a supply of goods nor a supply of services. Thus, there would be no output tax charged or received by the transferor on such transfer of a business.

This transaction is based upon the principle of going concern (continuity).

Section 18(3) provides that where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed.

This means that if there is any input tax incurred which has not been claimed by the Minny on 28^th august, 2017, it is claimable by the transferee.

Manner of transfer of credit to the transferee

1.               As per rule 41(Transfer of credit on sale, merger, amalgamation, lease or transfer of a business) of Chapter V of CGST Rules,2017, Transferor shall furnish details  of sale, merger, demerger, amalgamation etc  & details  of unutilized  ITC lying in E-credit ledger in FORM GST ITC-02 on common portal  and also submit  certificate of CA certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for transfer of liabilities,
 

2.                  The transferee shall, on the Common Portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.

3.  The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.