QUESTION

If a properitor has been expired in proprietorship firm and Legal heir has taken a new registration inder GST. Can Legal heir claim Refund under Inverted Duty structure in old Firm and how?

ANSWER

FACTS OF THE CASE:

On the death of the proprietor, the legal heirs have taken new registration. To decide whether they can claim refund of Inverted Duty Structure.

LAW APPLICABLE:

1. Subsection (3) of section 18 CGST specifies that
"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 unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed."

2. Rule 41(1) CGST lays down the procedure for transfer of ITC as follows
"(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee"

INTERPRETATION:

In case of death of proprietor, when there is a change in ownership of business, ITC-02 can be filled for transfer of ITC to the newly organised business. Once this is done, ITC of the old proprietor is reflected in the electronic ledger of the new proprietor and it becomes ITC of the new business.
Now the refund of Inverted Duty Structure can be filled under section 54(3)(ii) read with rule 89(5) CGST.

CONCLUSION:

Firstly the ITC is transferred to the new business through ITC-02 and then refund of inverted duty structure can be filed. (Reply dt. 26/08/2021)