QUESTION

Three partners of partnership firm (registered dealer) want to dissolve business of firm and want to cancle GST registration number. As per agreement of dissolution between partners, one partner will take over the business of firm with its assets and liabilities & business of firm will be closed with effect from date of dissolution. Following are my questions related to above situation. 1. Is partner who will take over the business liable to register himself in GST compulsorily or not ? 2. If yes than within what period he is liable to register himself in GST ? 3. Stock worth Rs. 1,12,50,000.00 will be transfer to partner upon dissolution through agreement of dissolution. Is partnership firm liable to pay tax on the same or not liable as its mere change of constitution i.e partnership firm converted into proprietorship firm?

ANSWER

Facts of the case: Three partners of partnership firm (registered dealer) want to dissolve business of firm and want to cancle GST registration number. As per agreement of dissolution between partners, one partner will take over the business of firm with its assets and liabilities. Whether partner who will take over the business liable to register himself in GST compulsorily or not ? GST liability on transfer of stock?

Law Applicable: 

SECTION 18 OF CGST ACT

(3) 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 his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

Notification No. 12/2017- Central Tax (Rate)

Interpretation:  Section 24 of CGST Act requires compulsory registration in certain cases. There is no compulsory registration required in case of transfer of Business as per section 24 of CGST Act.

However if ITC is lying in Electronic credit ledger, then to transfer/carry forward the same you need to take registration.

In case of transfer of business as going concern unutilized ITC can be carried forward as per Section 18(3) in transferee's credit ledger by filing FORM GST ITC-02 as per Rule 41 on the basis of going concern.
The Proprietor can transfer closing stock and capital goods of business under his name without paying any GST only if the business is transferred on the concept of going concern.

As the "Service by way of transfer of going concern, as a whole or independent part thereof " is exempt under GST vide Notification No. 12/2017- Central Tax (Rate).

However, if only capital assets and stock is transferred not the business as a whole in going concern, then it will be considered as taxable supply and GST would be leviable as sale of capital goods and stock.

Conclusion: No compulsory registration is required. However, If there is ITC lying in balance then take registration.
No tax liability, if business is transferred as going concern with all assets and liabilities. (Reply dt.02.11.2020)