Appellate Authority reclassifies transaction as supply of goods, denies ITC transfer

The Appellate Authority set aside the ruling of the Authority for Advance Ruling, classifying the transaction as a supply of goods rather than services. As the transfer was between distinct persons with the same PAN, it did not qualify as a transfer to another person, thus considered a supply of goods. Consequently, the exemption under SI.No.2 of Notification No. 12/2017-Central Tax (Rate) and the transfer of unutilized ITC using Form ITC-02 were deemed inapplicable. M/s. Shilpa Medicare Limited was not permitted to file Form ITC-02 for the transfer of ITC to their Bengaluru unit.

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Issues Involved:
1. Classification of the transaction as supply of goods or services.
2. Applicability of SI.No.2 of Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017.
3. Eligibility to file GST ITC-02 return and transfer unutilized ITC.

Detailed Analysis:

1. Classification of the Transaction as Supply of Goods or Services:
The appellant, the Deputy Commissioner of Central Tax, Vizianagaram, contested the ruling by the Authority for Advance Ruling (AAR) that the transfer of business by M/s. Shilpa Medicare Limited from Vizianagaram, Andhra Pradesh to Bengaluru, Karnataka is a supply of services. The appellant argued that the transaction should be classified as a supply of goods, referencing Para-4(c) of Schedule II of the CGST Act, 2017, which states that goods forming part of the assets of any business shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person unless the business is transferred as a going concern to another person. The appellant emphasized that since the transfer was to a distinct but same person (same PAN), it does not qualify as a transfer to another person, thus it should be classified as a supply of goods.

2. Applicability of SI.No.2 of Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017:
The appellant argued that since the transaction cannot be categorized as a supply of services, it does not fall under SI.No.2 of Notification No. 12/2017-Central Tax (Rate), which exempts services by way of transfer of a going concern as a whole or an independent part thereof from GST.

3. Eligibility to File GST ITC-02 Return and Transfer Unutilized ITC:
The appellant contended that the provisions of Section 18(3) of the CGST Act, 2017, which allow for the transfer of unutilized input tax credit (ITC) in the event of a change in the constitution of a registered person, do not apply in this case. They argued that there was no change in the constitution of the business, as both units in Andhra Pradesh and Karnataka are under the same PAN and thus are distinct persons but not separate entities. The appellant also highlighted that the GST law does not permit the transfer of ITC from one state to another.

Discussion and Findings:
The Appellate Authority examined the arguments and concluded that the transaction is a supply of goods, not services. They referenced Section 25(4) and Section 25(5) of the CGST Act, 2017, which treat establishments with separate registrations as distinct persons. Since the transfer was between distinct persons (same PAN), it does not qualify as a transfer to another person, thus it is a supply of goods. Consequently, the applicability of SI.No.2 of Notification No. 12/2017-Central Tax (Rate) and the transfer of unutilized ITC using Form ITC-02 do not arise.

Order:
The ruling of the AAR was set aside. The transaction was classified as a supply of goods and taxable accordingly under the CGST/APGST Act, 2017. M/s. Shilpa Medicare Limited, Vizianagaram, was not entitled to file Form ITC-02 for the transfer of ITC to their Bengaluru unit in Karnataka.

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