QUESTION

One proprietary concern who is importer is having excess input tax credit in its credit ledger though there is no physical stock. This is so because IGST levied by the Custom Department was on higher value at the time of purchase as well as importer has also paid RCM of ocean freight. The firm was silent for last 5 months. Now in current month, the firm has purchased some of the goods from local markety which are lying in stock. The firm is desire to sell the entire business with stock, creditors, debtors to one registered person. 1) Whether the sale transaction would be amount to ‘transfer of business’? 2) Would transferee be eligible to get entire credit lying in credit ledger of transferor i.e. ITC of stock as well as excess balance due to import of goods? 3) What formalities would required to be done by the transfree?

ANSWER

Facts of the case: Entire Business is being transferred along with stock, creditors, debtors to one registered person.

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

CGST RULE 41
RULE 41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business
(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:
Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
Explanation: - For the purpose of this sub-rule, it is hereby clarified that the 'value of assets' means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.'.

(2) The transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

(3) 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.

(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.
Notification No. 12/2017- Central Tax (Rate)

Chapter 99 Services by way of transfer of a going concern, as a whole or an independent part thereof. Nil Nil

Interpretation: 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 their 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: In case of transfer of business, the transferor is required to file ITC -02 which should be accepted by transferee to carry forward the unutilized ITC in his credit ledger.
In your case if business is transferred as going concern then it is exempt under GST otherwise if only capital goods and stock are transferred then it is taxable supply under GST as discussed above. (Reply dt.13-03-2020)