Transfer of assets to partnership firm

[KARAN VERMA]

Sir

A new partner is added in partnership firm who introduce assets as capital instead of cash

These assets are earlier purchased by him in his proprietorship firm and he claim input on the same.

My question is whether GST applicable on transfer of business assets.

[Mahir S]

The sale of business assets on which input credit is claimed, is also a Supply, irrespective of whether any consideration is received or not.

Therefore, GST is applicable to the sale of business assets.

Further, the word ‘Transfer’ used in your query is nothing but Sale.

[KARAN VERMA]

Ok sir. But whether i am eligible for exemption entry- independent sale of assets as going concern to other business.

[Mahir S]

Yes Karanji,

Sale of business as a going concern is exempted by virtue of serial no. 2 of Notification No. 12/2017-C.T. Rate dated 28.06.2017.

[Mahir S]

Also refer to A.A.R.(Uttarakhand) dated 26.03.2019 = 2019 (4) TMI 1499 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND in the case of M/s.Innovative Textiles ltd.

[KARAN VERMA]

Thank you sir.

Whether proprietor is eligible to merge his business on going concern basis with partnership firm as a partner.

[YAGAY andSUN]

The Andhra Pradesh Authority of Advance Ruling (AAR) ruled that the business of the applicant, Shilpa Medicare Limited = 2020 (7) TMI 345 - AUTHORITY FOR ADVANCE RULINGS, ANDHRA PRADESH of Andhra Pradesh unit, as a whole along with the capital assets are being transferred as going concerned to Shilpa Medicare Limited of Karnataka Unit for a monetary consideration amounts to the supply of service on which the Goods and Services Tax (GST) is applicable. The applicant, M/s Shilpa Medicare Limited undertakes Research and Development work in Active Pharmaceutical Ingredient (API) & formulation molecules and manufacture of formulation products in small quantities for R&D purpose. The business of the applicant, Shilpa Medicare Limited of Andhra Pradesh unit, as a whole along with the capital assets are being transferred as going concerned to Shilpa Medicare Limited of Karnataka Unit for a monetary consideration. The applicant had submitted no documentary evidence providing that the transaction is a going concern except for his categorical declaration in the application as such. The applicant has sought advance ruling on the issue of whether the transaction would amount to supply of goods or supply of services or supply of goods & services. The Authority consisting of members D. Ramesh and M. Shreekanth ruled that the transaction of transferring business along with the capital assets amounts to the supply of service. The other issue raised was Whether the transaction would be covered under Sl.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017. The Authority ruled that the transaction will be covered under Sl.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017. Lastly, can an applicant file GST ITC-02 return and transfer unutilized ITC from Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit. The Authority ruled that an applicant can file GST ITC-02 return and transfer unutilized ITC from Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit.

[Mahir S]

The transfer of assets while converting an existing proprietorship entity into a new partnership firm is exempted under GST, because such goods/assets are transferred for the continuance of the same business. This exemption has been specified in Schedule II of the CGST Act. This benefit is available when the existing firm ceases to be a taxable person after such conversion.

Further, the transfer of a going concern is exempted as per the CGST (Rate) notification 1/2017. Hence, it is clear that the transfer of a going concern shall not be taxable under GST, irrespective of its identity being proprietor or partnership firm

[Mahir S]

Also, the word Going Concern is a vast term and includes firm/company, which can be either proprietor, partnership or Pvt.

[Mahir S]

Reference is also invited to M/s B.M. Industries = 2019 (2) TMI 1080 - AUTHORITY FOR ADVANCE RULING, HARYANA (GST AAR Haryana) case law - - - GST on merger of proprietorship firm as a going concern with a private limited company.

[KARAN VERMA]

Thanks for your valuable opinion and comments

AI Summary

GST on transfer of business assets: going concern transfers may be exempt, otherwise such transfers attract GST as a supply. The transfer of business assets on which input tax credit was claimed is generally a supply subject to GST, but where assets are transferred as part of a business transferred as a going concern, the transaction is exempt; conversion of a proprietorship into a partnership that results in the original taxable person ceasing to exist may qualify for this exemption, and advance rulings show that fact and documentary evidence and prescribed procedures for transferring unutilized input tax credit are material.