QUESTION

XYZ (Proprietory Concern) has sold its entire business to PQR Pvt. Ltd. under slump sale of ongoing concern arrangement i.e., transfer of a whole of business concern as a going concern. XYZ had received approx. Rs.50 Crores against this sale. As per Sr. No. 2 of Notification No. 12/2017- Central Tax (Rate) dt. 28.06.2017 as amended, there is an un - conditional exemption from payment of GST for Services by way of transfer of a going concern, as a whole or an independent part thereof. Accordingly, XYZ is not liable to pay GST on the amount of Rs.50 Crores received. Query
1) Whether XYZ is required to prepare Tax Invoice and pay GST on the goods viz. capital goods, Raw/ Packing Materials and Finished Goods physically transferred to PQR Pvt. Ltd. after the date of sale deed entered in to with PQR?
2) Since it is exempted under a notification, whether XYZ is required to proportionately reverse the input tax credit?

ANSWER

FACTS OF THE CASE:
XYZ (proprietorship concern) is converted into XYZ Pvt. Ltd. company and the business is sold from the old registered person to newly registered person as a going concern.

LAW APPLICABLE:
1. Sub section (3) of section 22 CGST is laid as under;

"Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession."

2. Sub-rule (1) of rule 41 of the CGST Rules dictates that;

"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, demerger, 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 the event of succession of business from a proprietorship concern to a private limited company, section 22(3) must be followed. XYZ proprietor will surrender its registration and XYZ pvt ltd will apply for a new registration. XYZ proprietor will have to file ITC-02 to transfer it's balance of credit ledger to XYZ pvt ltd.

CONCLUSION:

1. Transfer of business as a going concern is exempt therefore a tax invoice is not required. A bill of supply may be issued.
2. Proprietor will surrender it's registration and file ITC-02 to transfer it's ITC to the XYZ pvt. ltd. Reversal of ITC is therefore not required since the old ITC is transferred to the new company.
3. New company shall get a new registration.
4. All the conditions of Rule 41 shall be complied with. (Reply dt. 28/12/2021)