Tax liability in case of change in constitution

[Asked by Guest]

Hello

We have a partnership firm and registered as composition dealer under GST regime. now i want to convert the same to proprietorship by retiring one partner and other one continue in same business under same banner. is there any tax liability arise on closing stock? in proprietorship also i want to continue under composition dealer.

[Padmanathan KV]

WHEN THE BUSINESS OF THE PARTNERSHIP IS TAKEN OVER BY ONE PATNER AS A PROPRIETORSHIP, IT WILL BE EXEMPT "TAKING OVER A BUSINESS AS A WHOLE" IS EXEMPTED UNDER GST

[DR.MARIAPPAN GOVINDARAJAN]

In my view you cannot continue under erstwhile composite dealer system. You have to obtain a fresh. You have to surrender the certificate of registration and pay the dues payable.

[YAGAY and SUN]

Generally, in case of change of constitution of a registered person on account of sale, merger, demerger etc,
the unutilised ITC shall be allowed to be transferred to the transferee. In our view you should remain as compositions dealer.

we have to surrender firm's GST No. And will obtained new GST no. Under proprietorship. If both are regular dealer then there is no problem arise as we can issue tax invoice of whole stock from partnership firm to proprietorship. So tax liabilty of firm can be paid and ITC in proprietorship can be availed. But we are composition dealer. If we pay GST on closing stock in partnership firm for transfer of stock to proprietorship then we are going to pay two time GST. One at the time of transfer to proprietorship and again we have to pay gst in proprietorship on final sale.

[KASTURI SETHI]

Dear Querist,

There is no doubt that afresh registration is required as rightly advised by Dr.Govindarajan, Sir.. When you apply for a new registration, you are to decide whether to opt for composition dealer or not. New registration, afresh option is required. It is natural that a composition dealer cannot avail ITC

Actually, no-provision of ITC as composition dealer is a hurdle for you. Otherwise there would have been no problem as rightly advised by M/s.YAGAY and SUN in first paragraph.

AI Summary

Change of constitution in GST: transfer of business demands fresh registration and may create tax on closing stock.
Converting a partnership composition dealer to a proprietorship requires surrender of the partnership's GST registration and obtaining a fresh registration for the proprietorship, with a new choice whether to opt for the composition scheme. Though transfer of a business as a whole may be exempt and unutilised ITC can transfer in some restructurings, a composition dealer cannot claim ITC; charging GST on closing stock risks double taxation if the proprietorship also remains under the composition scheme.