Whether 180 days payment clause applicable if partner brought his assets as capital

[KARAN VERMA]

Sir, there are two private limited companies who want to make partnership firm in which one company brought cash as its capital and other company brought his assets as capital.

Now, that company transfer his assets to partnership firm in form of capital introduce by partner.And company charge GST on transfer of assets to partnership firm.

Now, question is whether such partnership is eligible to take input tax credit on purchase of such assets because no payment is made to company who sold such assets due to capital introduce by such partner.

[YAGAY andSUN]

In our view since it is treated at par with capital brought in, therefore no consideration is required and shall be accounted for in partnership firm accordingly. you can avail the ITC but after making necessary accounting entries in your books of accounts.

[KARAN VERMA]

Thank you, it means no need for ITC reversal eventhough payment is not made.

[Rajagopalan Ranganathan]

Sir,

My views in this respect are as follows: -

According to clause 4 (c) of Schedule II of CGST Act, 2017 "where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him 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 -

(i) the business is transferred as a going concern to another person; or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

In your case, if the partner is already running a business as proprietary concern or a partnership concern and while the quitting such business and joining new partnership concern and if he transfers the business assets to the new concern then it will be the supply of goods. In this case, if the new partnership concern avail ITC of tax paid on such assets then all the conditions, including payment of the price within 180 days is applicable.

[Mahadev R]

Dear Mr.Karan Varma,

Possible contentions:

First contention

Section 16 provides that provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed.

When there is no obligation to pay at all, then there can be no failure. Therefore, condition of 180 days not applicable.

Second alternative

Can the company transferring asset and the new partnership considered as related party as per Section 15 of CGST Act ? If yes, can be consider taking benefit of Rule 37 which provides relaxation from payment for Schedule I transactions with related party supplies?

AI Summary

Can a partnership claim ITC on assets contributed as capital without payment? Examining CGST Act's conditions and implications. Two private limited companies are forming a partnership where one contributes cash and the other contributes assets as capital. The issue is whether the partnership can claim input tax credit (ITC) on the assets transferred without payment, as the assets are considered capital contributions. One opinion suggests no consideration is needed, allowing ITC after accounting entries. Another view references the CGST Act, indicating ITC conditions, including payment within 180 days, apply if assets are transferred from an existing business. A further perspective argues that if no payment obligation exists, the 180-day condition is irrelevant, and related party rules might offer additional considerations.