Registration Question No.95

QUESTION

Mr. A has to transfer his business in its entirety to Mr. B. Mr. B has a current GSTIN but its business is different from Mr. A's business. 1. Being a separate vertiifcal, can Mr. B apply for a new GSTIN to take over Mr. A's business? 2. Please share the steps for such succession beginning with a new GSTIN registration by Mr. B and if any additional info has to be given about Mr. A's business while applying for the new GSTIN by Mr. B for a smooth transfer. 3. Does Mr. A's business stock have to be reduced to nil before such transfer? 4. How to shift ITC from Mr. A to Mr. B's new GSTIN 5. Any specific point to note which people generally over look and may create issues later? 6. When to apply for Mr. A's GSTIN cancellation? 7. How to apply for Mr. A's GSTIN cancellation?

ANSWER

Facts of the case:

Mr. A transfers his business as a going concern to Mr. B.

Law Applicable:

1. Proviso to section 16(2) CGST is laid as under;

"Provided that a person having multiple places of business in a State or Union territory may be granted a separate registration for each such place of business, subject to such conditions as may be prescribed."

2. Entry no. 2 of notification 12/2017 CGST (R) exempts the following from levy of tax;

" Services by way of transfer of a going concern, as a whole or an independent part thereof. "

3. According to sub-rule (1) of rule 41 of the CGST Rules;

" 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. "

4. Subsection (1) of section 29 dictates the procedure for cancellation of registration as under;

" (1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,''

(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of "

5. Rule 20 specifies that;

" A registered person, other than a person to whom a registration has been granted under rule 12 or a person to whom a Unique Identity Number has been granted under rule 17, seeking cancellation of his registration under sub-section (1) of section 29 shall electronically submit an application in FORM GST REG-16, including therein the details of inputs held in stock or inputs contained in semi-finished or finished goods held in stock and of capital goods held in stock on the date from which the cancellation of registration is sought, liability thereon, the details of the payment, if any, made against such liability and may furnish, along with the application, relevant documents in support thereof, at the common portal within a period of thirty days of the occurrence of the event warranting the cancellation, either directly or through a Facilitation Centre notified by the Commissioner "

Conclusion:

So to answer your questions;

Question 1 : Being a separate vertiifcal, can Mr. B apply for a new GSTIN to take over Mr. A`s business?
Answer 1 : The concept and definition of business vertical as defined under section 2(18) of CGST Act has been deleted through CGST Amendment Act 2018. However as per proviso to section 16(2) CGST, Mr. B can apply for a separate registration within a state if he has a separate place of business for the new business taken over.

Question 2 : Please share the steps for such succession beginning with a new GSTIN registration by Mr. B and if any additional info has to be given about Mr. A`s business while applying for the new GSTIN by Mr. B for a smooth transfer.
Answer 2 : The steps for succession are as follows;
Step 1 - Mr. B will apply for new registration, if required. Otherwise Mr. B may choose to absorb the new business under current registration, if within the same state.
Step 2 - Mr. A will file REG-16 within 30 days of transfer along with the details mentioned under Rule 20. ITC-02 shall be filled for transfer of unutilised ITC to Mr. B.

Question 3 : Does Mr. A`s business stock have to be reduced to nil before such transfer?
Answer 3 : No such requirement has been specified in the Act. All assets and liabilities should be transferred at their book values to give an effect to "Transfer as a going concern" and avail exemption under entry no. 2 of notification 12/2017.

Question 4 : How to shift ITC from Mr. A to Mr. B`s new GSTIN
Answer 4 : In accordance with section 18(3) read with rule 41(1), Mr. A shall file ITC-02 to transfer the unutilised balance in his credit ledger to the credit ledger of Mr. B.

Question 5 : Any specific point to note which people generally over look and may create issues later?
NOTE : Please note that answers to a specific query can be given. If there is a particular problem faced by it, kindly raise that querry and we will certainly solve it.

Question 6 : When to apply for Mr. A`s GSTIN cancellation?
Answer 6 : As per rule 20 Mr. A shall file REG-16 within a period of thirty days of the occurrence of the event warranting the cancellation, that is within 30 days of transfer of business.

Question 7 : How to apply for Mr. A`s GSTIN cancellation?
Answer 7 : Form REG-16 shall be filled on the GST portal. (Reply dt. 28/02/2022)