Capital Asset - Plant and Machinery introduced by incoming partner in partner ship firm

[anuja bhandari]

A proprietor firm unregistered in GST has plant machinery in Assets. The proprietor in individual capacity will be introduced as partner in partnership firm and will introduce the plant and machinery as capital introduction. WDV of plant and machinery is 1 crore. Plant and Machinery is purchased pre GST period by proprietor. Will GST be applicable on capital asset introduced by incoming partner?

[Dhruv Dedhia]

Section 7 of CGST Act 2017 read with Schedule I of CGST Act 2017 states that any supply of goods or services or both between related persons (employee and employer) when made in the course or furtherance of business even without consideration would amount to supply.

Many cases in earlier laws could be referred which says penalties once imposed on partnership firm cannot be imposed on partners are not a separate legal entity and cannot be equated as an employee of the firm.

Partners and partnership firms are not a separate legal entity hence any transfer from partner to partnership firm would be treated as self-consumption and would not be liable to GST.

AI Summary

Self-consumption by partners: introducing capital assets into a partnership does not attract GST where firm and partners are one entity.
A partner's introduction of pre-GST plant and machinery into a partnership as capital is characterised as self-consumption rather than a supply to a separate taxable person; because partners and the partnership are not distinct legal persons for GST purposes, such intra-person transfers do not attract GST liability under the related person supply provisions.